The national railway operator has just released its 2017 annual report, revealing a sizeable increase in profits alongside an immense debt load.
China Railway Corporation (中国铁路总公司) posted total revenues of approximately 1.02 trillion yuan last year, for a year-on-year gain of 11.9%.
Total profits were 60.795 billion yuan, for a YoY leap of 53.35%, while the company’s after-tax profits were 1.819 billion, for a gain of 69.05%.
The debt load of China Railway, which has been a perennial focal point for the state-owned behemoth, was 4.99 trillion yuan in 2017, for a debt-asset ratio of 65.21%. Long-term debt totalled 4.19 trillion yuan, accounting for 83.98% of total debt.
“Because the railway construction scale is still quite large, China Railway’s debt burden is increasing,” said credit agency Lianhe Ratings in a research report released last year. “However, overall debt levels remain within a rational scope.”
The company’s first quarter report further indicates that its total debt is now approximately 5.04 trillion, hitting a five year high.
China Railway is a state-owned enterprise under the auspices of the Ministry of Finance, entrusted with running the country’s passenger and freight transportation system via an array of subsidiaries.
In 2017 China Railway’s total domestic and overseas loans were 697.464 billion yuan, for a decline of approximately 30.07% compared to 2016.However, its principal and interest payments in 2017 were still 540.507 billion yuan, while it held 146.817 billion yuan in cash at the end of 2017, as compared to around 200 billion yuan the preceding year.
According to observers the divergence between China Railway’s debt levels and its business performance is due to the unique nature of railway investment.
“With regard to economic models, railways aren’t goods where you see instant results,” said domestic commentator Xie Weifeng (谢伟峰) in an article on the sector published last year. “They often need at least ten years or even longer in order to generate a return on capital, or even profitability.”
Railway investment in China has continued to expand in recent years, with China Railway’s official website indicating that a total of 801 billion yuan in nationwide railway fixed investment was made in 2017, for an additional line length of 3038 kilometres.
As of the end of 2017 China operated a total of 127,000 kilometres in railway lines, of which 25,000 kilometres was high-speed rail.
China is expected to undertake 732 billion yuan in fixed asset railway investment this year this year, with 4000 kilometres of new lines entering operation, including 3500 kilometres of high-speed rail lines.