China cautious about new subway projects in latest investment push

Beijing has resumed approving new subway projects as part of its investment push to stimulate economic growth amid the trade war with the United States. But this time, it wants to be more strict and discerning to avoid the excesses of the past.

This more cautious approach to authorising new subway construction underscores a major difference between the current government effort to boost growth and previous efforts: the “anything goes” approach of the past has been abandoned, so that the stimulus will be more selective and limited in scope. The same approach can be seen in recent efforts to increase market liquidity to promote additional bank lending – the government’s campaign to clean up excess debt has not been set aside but rather serves as a limitation on the amount of monetary stimulus the government is willing to provide.

The end result is smaller stimulus, delivered in a more controlled fashion. It remains to be seen whether the government will be able to accomplish its goal of stabilising growth using this approach.

The renewed subway construction approval system came a year after the central government suspended new projects because of mounting local government debts and spiralling construction costs. But Beijing is determined to avoid the past mistake of funding projects that provide little, if any, economic benefit to the city involved. In a July guideline, it set a higher bar for city applicants to build urban public transport systems. Two of the major changes triple the annual tax revenue and GDP required for approval to 30 billion yuan (US$4.4 billion) and 300 billion yuan (US$43.7 billion), respectively.

By that standard, four out of 43 mainland cities that have already received the nod for subway projects would not qualify now. Under the new approval regime, Suzhou, a city in the east known for silk and Chinese gardens, is the only city to get the green light for a new phase of subway construction so far.