ADB agrees US$ 300 million loan to China's railway sector

By Richard High24 November 2008

In an effort to boost economic growth in China's western regions the Asian Development Bank (ADB) has agreed a US$ 300 million loan for an 820 km-long, US$ 8.6 billion railway line between Lanzhou and Chongqing.

The line will be the first rail link from the northern city of Lanzhou in Gansu province to the southern city of Chongqing, a key manufacturing hub and a major exporter to the Greater Mekong Subregion.

It will pass through Shaanxi and Sichuan provinces, becoming the shortest land route between economic centres in northwest China and Chongqing.

As the projects financing needs are substantial, funds will come from several sources besides the ADB. These include two of China's largest banks, China Construction Bank and the Industrial and Commercial Bank of China, who will provide US$ 4 billion in joint loans.

China's Ministry of Railways (MOR) and the provincial governments of Gansu, Sichuan and Chongqing will invest US$ 4.3 billion as equity, with MOR contributing 55% of the share, and the local governments providing the rest of the equity investment.

The railway track will be capable of handling double-stack containers, raising its carrying capacity over regular lines, reducing land use, and improving energy efficiency. Over 30 railway stations will be built and state-of-the art safety equipment will be installed.

To help create a ‘green corridor' along the rail route, ADB will - for the first time - finance environmental protection equipment worth nearly US$ 12 million. A switch in traffic from roads to the new rail link will result in significant cuts in fuel consumption and emissions of harmful carbon dioxide.

The proposed railway is part of the Chinese government's strategy to expand infrastructure and stimulate growth in underdeveloped interior regions of the country.

The Lanzhou-Chongqing railway will become an integral part of the railway network to boost connectivity and trade between China and the neighbouring Greater Mekong Sub-region, and Central Asia and Europe.

A joint venture company has been set up by MOR and the governments of Gansu, Sichuan and Chongqing to build, operate and manage the railway. It will outsource a wide range of services to the private sector, and seek strategic and private investors, given the high costs involved.

ADB is China's leading development partner in the railway sector, providing over US$ 3 billion to build lines and improve safety standards, as well as helping with ongoing sector reforms. In addition, ADB is providing a technical assistance grant of US$ 800000 to prepare the energy efficiency strategy for the PRC railways and identify ways of improving the energy efficiency of the country's entire rail network.

At present, railways in the PRC have the highest freight transport density in the world and the second-highest passenger transport density after Japan. While the government has carried out an aggressive network expansion, capacity still lags demand, partly because of system bottlenecks and other constraints.

Under its current railway development plan through to 2020, the government has pledged to remove the constraints, roll out more lines, increase average speed and continue to give priority to areas that are undeveloped and lack transport services.

Nearly 17 million people live in the project area, many of them poor. Marginalized residents, including women and ethnic minorities, will be given hiring preference to build and operate the railway line.

Commenting on the loan, Manmohan Parkash, principal transport specialist for ADB's East Asia Department, said, "The project is expected to stimulate the development of industrial and natural resources and tourism, generate employment, raise living standards and help reduce poverty."

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