Toll roads report $10.6b loss in 2013

Deficit expected to increase in coming years

China's toll roads reported an annual loss of 66.1 billion yuan ($10.6 billion) in 2013, official data showed Tuesday, at a time when the government plans to spur the slowing economy with further infrastructure spending.

The total toll road revenue in China reached 365.2 billion yuan last year, 66.1 billion yuan less than the aggregate expenditure including maintenance funds, the Ministry of Transport said in a statement posted on its website Tuesday.

Paying back loans and interest was the main expenditure item, accounting for 73 percent of the total, the statement said.

It marked the third consecutive year that China's toll roads have recorded losses, with the loss increasing by 75 percent year-on-year in 2012 and by 17 percent in 2013.

The loss is expected to increase in the coming years, as the country has seen a boom in highway construction over the last few years, which has involved loans and heavy interest payments, Zhao Jian, a professor at Beijing Jiaotong University, told the Global Times on Tuesday.

In the existing toll-based highway system, China allows local governments and companies to finance toll road construction with bank loans, which are then repaid by tolls collected over a specified period.

But the annual tolls are limited compared with the total investment, so it is normal to see a deficit in the first few years after the projects go into operation, and in which there is always heavy pressure to repay the loans, Xiao Peng, a professor with the School of Public Finance at the Central University of Finance and Economics, told the Global Times on Tuesday.

From 2010 to 2013, the country saw a rapid increase in toll road construction with a total of 1,600 kilometers of roads constructed, according to the ministry statement.

In the long term, the loss is likely to decline as the loans are paid off, Xiao said.

The major concern is the huge debts accumulated from highway projects, Zhao noted, adding that the total local government debt from financing highway construction is expected to reach 9 trillion yuan by the end of 2015.

This means that local governments face a dilemma. With toll fees, residents complain about the high prices. But if the tolls are removed, there will be no to way to pay back loans and invest in new roads.

It's unlikely that local governments will raise toll fees to finance new projects, but as they lack sufficient funds to meet the huge demand for infrastructure projects, they are hoping to introduce more private capital into toll road construction, Zhao said. However, this will not be easy.

Infrastructure projects like highways take a long time to provide returns on the investment, so they would not appeal to small and medium-sized private enterprises, analysts have said.

There are already highway networks in eastern China but toll road construction projects that are needed for central and western China will need capital and may not offer strong returns as there are less inhabitants in those areas, Zhao noted.

By the end of 2013, highways that had been built using private capital accounted for 36.4 percent of the total mileage of China's toll roads, 27.2 percentage points lower than the share of government-backed highways, according to the statement.