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(Corrects currency conversion in first paragraph)
By Xiaowen Bi and Pete Sweeney
SHANGHAI, May 2 (Reuters) - China will raise its spending targets on railway infrastructure to 800 billion yuan ($128 billion) in 2014, two sources with direct knowledge told Reuters, the third such increase this year as Beijing gingerly returns to stimulus spending in the face of economic disappointments.
China Railway Corporation, the state-controlled commercial entity spun off from the Ministry of Railways in 2013, said during a conference call on Friday that it has raised its annual spending target to 800 billion yuan for the year, according to the sources.
That is the third time the target has been incrementally increased from the original amount of 630 billion yuan. This latest increase marks a 70 billion yuan rise from the most recent target of 730 billion yuan.
One of the sources said the call relayed instructions from Vice Premier Ma Kai regarding the pace and quality of construction, and also said the corporation is now required to bring 7,000 km (4,350 miles) of new line into operation this year.
Reuters was unable to contact China Railway Corporation for comment as mainland Chinese businesses are closed for the Labour Day holiday.
While equities markets in mainland China were closed for a holiday, Hong Kong-listed Chinese railway stocks rose on rumours of the policy change, which were first reported in the domestic magazine Caixin on Thursday.
Shares in China Railway Group Ltd jumped about 9 percent, making the company the best performer on the Hang Seng China Enterprise Index. China Railway Construction Corp Ltd gained 7 percent.
China's economic managers have announced a series of small stimulus measures in recent weeks as manufacturing activity data has proved lacklustre, exports have slid and signs of increasing stress have appeared in selected parts of the financial system.
Railway spending, some economists argue, is a low-risk way to pump investment into a slowing economy without distorting it, as the cash shows up in the system quickly. At the same time, such spending builds public transportation services that are a key part of Beijing's strategy to improve logistical efficiency and better link the developed coastal regions with the more impoverished interior provinces.
However, officials have been careful to warn markets that Beijing is not contemplating a return to the massive stimulus lending package it enacted in the aftermath of the global financial crisis in 2008. That move has been widely blamed for swamping the country with industrial overcapacity, excess real estate development, and unsustainable local government debt levels.
There have also been widespread concerns about how much of the money dedicated to railway spending is actually spent on railways; the Ministry of Rail was effectively broken up and absorbed after its top official was sentenced to death for corruption in 2013. ($1 = 6.2593 Chinese Yuan) (Reporting by Pete Sweeney; Editing by Chris Gallagher)