Largest electric car maker establishing fund for country's monorail sector

A visitor takes a photo of the monorail train built by BYD Co in Guilin, the Guangxi Zhuang Autonomous Region. [Photo by Wang Zichuang/For China Daily]

China's largest electric car maker BYD Co's decision to develop a monorail system could complement its main business and add to its existing advantages, but the market's reaction remains to be seen, analysts and scholars said.

BYD announced on Sept 28 that its two subsidiaries were setting up an investment fund worth 4.65 billion yuan ($699 million) with China Resources Shenzhen International Trust, which is also known as CRSIT.

This is the latest move in the company's development of its monorail train business.

According to the statement, BYD Investment and BYD Automobile Industrial will pour 100,000 yuan and 930 million yuan, respectively, into the BYD Yundi investment fund, while the other 3.72 billion yuan will come from CRSIT.

The fund will be used for investment in equity and debt of enterprises that construct and operate monorail projects in a number of cities across the country, including Guangdong province's Shenzhen and Zhongshan, Shandong province's Jining, the Guangxi Zhuang autonomous region's Guilin, and Hunan province's Hengyang.

Setting up such an investment fund with a professional institution will broaden financing channels for BYD's monorail projects in those cities and facilitate their implementation in an effective way, BYD said.

It will also promote the company's business and bring positive impact to its long-term development, it said.

Wang Liusheng, an auto analyst at China Merchants Securities, said establishment of the investment fund would provide more cash flow for BYD to develop its monorail system as it requires high investment, but whether the business can produce good economic benefits remains to be seen.

"At the present time, monorail is not a market-driven business, but is mainly supported by the government. It is also a totally new sector without precedents to follow. It takes time to see whether this business will be accepted and welcomed by the market," Wang said.

BYD is stepping up efforts to promote rail transportation, making it one of the company's strategic businesses in future development.

BYD Chairman and President Wang Chuanfu said earlier that monorail business is "gaining good momentum".

Last month, its first commercial monorail train Sky-Rail officially came into operation in Yinchuan, capital of the Ningxia Hui autonomous region. It only took four months to produce the train since the start of construction in April.

Monorail projects have also begun construction in Guang'an in Sichuan province, Shantou in Guangdong province and other cities this year, BYD said. The business will be rolled out in 15 to 20 Chinese cities next year.

Yu Lingqu, a researcher from the Finance and Modern Industry Research Center at Shenzhen-based think tank China Development Institute, said rail transportation, which has huge development space and profit potential, is a sector no leading enterprise in the industry would neglect.

With technological advantages in such areas as material and manufacturing, BYD's investment in this sector is a "rational strategic move", he said.

"As rail transportation and new energy cars have relatively strong relevance in technology, the move will widen the application of its existing advantages. BYD's exploration of the new sector will not exert impact on its main business, but the two businesses could complement with each other and create bigger benefits for the company," Yu said.

BYD generated 45.04 billion yuan in operating revenue in the first half of 2017, growing a slight 0.2 percent year-on-year.