The Ministry of Railways (MOR) issued 180-day short-term financial bonds on February 22 valued at 10 billion yuan ($1.51 billion), according to southcn.com on Wednesday.

The bond carries a coupon interest rate by a single interest rate determined by the tender. It is the third time for the ministry to distribute short-term bonds this year, following January 27 and February 15. All the three periodical financing bonds will be used in railway construction, locomotive purchasing and capital turnover.

The frequent financing of MOR reveals the funding crisis behind the rapid development of railways in the country.

Investment impulsion

Various sources of funds have swarmed into the financing of railways since 2003, when the MOR put forward its Leap Development Plan. The program suggested building 11.828 kilometers of tracks, all of which is estimated to cost 1.26 trillion yuan ($191.57 billion). However, the actual investment has been of much more.

According to the statistical accounting by Zhaoshang Securities R&D Center, the actual investment of Beijing-Tianjin inter-city railway reaches up to 20.6 billion yuan ($3.13 billion), 8.3 billion yuan ($1.26 million) over the once-estimated value.

Wuhan-Guangzhou High-Speed Railway, completed in 2009 is expected to use 120 billion yuan ($18.28 billion).

Heavy pressure of interest payment

The financing pressure and liability risk go up with intensive investment in high-speed railways.

MOR had 0.85 trillion long-term liabilities, 0.45 trillion cash liabilities by the end of 2009.

According to a report published by China Minsheng Banking Corp., MOR had over 40 billion yuan (6.08 billion) in interest to pay in 2009.

The expected return

Yu Bangli, MOR's chief economist announced at a press conference during the Spring Festival travel week that the development of high-speed railways will not lead to debt crisis.

But an unidentified employee of the field told reporters that the attendance rate is far from satisfactory.

The Zhengxi High-speed Railway, which connects Zhengzhou and Xi'an, has only transported 1.98 million passengers in its first six months of operation, which kicked off on February 6, 2010, according to the worker.

A lower sleeper aboard the Chengdu–Shanghai line costs 1,165 yuan ($177) whereas it is still much higher than a discounted air ticket during off-peak season.