Urban rail networks to spread

A man waits for subway trains in Beijing on Nov 14, 2014. [Photo/IC]

Analyst said investment into urban rail transit infrastructure in China, including subways, light rail and modern trams, has great potential and could increase 90 percent in the next five years, making a market worth hundreds of billions of yuan per year.

Xu Bin, Transportation & Infrastructure Analyst at China Equities Research of UBS Securities Co Ltd, said in Shanghai on Tuesday that the entire size of investment in this sector may rocket from less than 400 billion yuan ($60 billion) in 2015 to 700 billion yuan in the next five years, amounting to a growth of more than 90 percent This will make urban rail investment about the same size as the railway sector.

"In other words, some rail construction companies could shift their business focus from railways to the urban transit network," said Xu.

The Ministry of Transport and the National Development and Reform Commission announced in May a three-year plan to boost transportation infrastructure projects, including a combined investment of 4.7 trillion yuan with 1.6 trillion-yuan for urban rail transit projects.

As many as 51 projects involving investments of 910 billion yuan are in progress in 2016. There will be 33 projects with investment of 480 billion yuan in 2017, and 19 projects with investment of 258 billion yuan in 2018.

Outside the 4.7 trillion-yuan plan, urban rail transit projects for two more cities have been green-lighted, namely those in Guiyang and Chengdu.

"The regulation and approval processes for cities' applications to run urban rail transit projects have been relaxed twice, in 2013 and in 2015. New standards have been discussed that would allow cities of 1.5 million residents to build urban rail transit - as opposed to the current requirement of 3 million residents. If the new standard is applied, 30 more cities can apply to start urban rail transit projects which would bring about an estimated investment of about 1.7 trillion yuan," said Xu.

According to data of the China Association of Metros and estimated data from UBS Securities, China's accumulated operating length in the urban rail transit network, including subways, light rail, single tracks, modern trams, urban rail rapid transit, and maglev, may jump from 3,618 kilometers in 2015 to an expected 9,472 kilometers in 2020 - a 162 percent increase.

Researchers said that expanding urban rail transit networks is likely to benefit companies which are involved in the rail supply chain, including construction companies, equipment makers, and operations services providers.

A research note from Pacific Securities said that there are an increasing number of financing model options for urban rail transit networks, including public-private partnerships, build-operate-transfer, and pledged supplementary lending.