Xinhua News Agency reported Sunday that the country's decision makers will conduct a comprehensive survey on subway construction, management and operations, and then draw up clear and feasible standards for the assessment of metro projects early this year. Essentially this means the reform of China's subway license system.

Insiders say the decision to freeze the underground projects mainly stemmed from worries that many local authorities were rushing headlong into tube building projects that were likely to push their budgets way into the red.

The Xinhua report said the profitability of subway operations has been a long-time headache for many countries around the world and China now lacks a mature mechanism to finance the subway projects.

In the past, investments in underground construction were undertaken by central or local governments, followed by subsidies made necessary by large deficits in subway operations budgets.

In Beijing, a total of 400 million yuan (US$48 million) in fiscal subsidies went to the 50-kilometer tube line last year.

The country's soaring financial deficit - accounting for more than 3 percent of the gross domestic product in 2002 - has warned China's decision makers to restrain huge expenditures on mass construction.

The Beijing municipal government, however, has pledged to expand its subway network to 300 kilometers by 2008, which was stated in its report to the 12th municipal people's congress.

Insiders estimate that there is at least a 60 billion yuan (US$7.3 billion) funding shortfall waiting to be covered.

Beijing is trying various methods to ease the great fiscal pressure, such as introducing multiple investors and operating the metro in a market-oriented way.

The worry of a bubble economy in the real estate sector is another possible reason the central government has suspended the sanctioning of subway projects, insiders say.

The soaring price of housing along tube lines has been an undesirable signal to the central government since Premier Zhu Rongji expressed his concern about dangerous bubbles in the country's real estate industry.

China International Engineering Consulting Corporation is undertaking a survey and will submit a report to the State Council by the end of this month as the basis for a new, feasible subway-projects licensing policy.

The policy adjustment will mainly target financing issues and profitability among metro projects.

(China Daily January 27, 2003)