Planning for a subway for Hangzhou City, Zhejiang Province was approved on June 6 by the National Development and Reform Commission after a ten-year wait. The authorization was the first since the State Council suspended subway construction in September 2003 due to escalating costs.

"The approval of subway planning means that Hangzhou's subway construction is approved," said Shen Lincong, chief engineer of Hangzhou Subway Group Co. Ltd, the firm that will build and operate it.

Yang Wubiao, vice mayor of Hangzhou, said on June 8 that construction of the city's first subway was expected to begin next year and that it would cost about 100 billion yuan (US$12 billion), though he didn't specify the source of the funds.

According to the plan, the subway network will be composed of 8 lines, with a total length of 278 kilometers. The No.1 and No.2 lines, with a total length of 82.2 kilometers, will be completed before 2010, and the rest by 2050.

According to the Ministry of Construction, the average construction cost for each kilometer of subway is about 550 million yuan (US$66.45 million), so the first-phase construction cost is estimated to be 45 billion yuan (US$5.44 billion).

"Hangzhou is comparatively well off, but the local government still feels uneasy about such big sums," said Yang.

One source said money to build the No.1 line would come from two sources: the city government would provide 10.2 billion yuan (US$1.23 billion) and banks 5 billion yuan (US$604 million).

If Hangzhou City Commercial Bank and the newly-established China Zheshang Bank provide syndicated loans for the remainder, as has been speculated, local government would bear the burden of refunding them because of the long construction period.

Although the infrastructure construction market is now open to private capital, the huge capital needed and delayed returns still bar their participation.

Hangzhou Subway Group said during a telephone interview with 21st Century Business Herald that it is now investigating financing methods, and would not comment on the above possibilities.

A feasibility report for the No.1 line by a subsidiary of Parsons Brinckerhoff (PB) Asia and MTR Corporation has convinced some that it will be operated similarly to Hong Kong's subway, regarded as the most successful operational model in the world.

There, the government hands land along subways to subway operators for commercial development. Revenues gained from land appreciation and sales can make up construction and operation losses.

Investment in other transportation projects is usually guaranteed to have a 10 percent return, but the forecast annual profit from Hangzhou's subway is only about 4.2 percent, a Zhejiang transportation analyst warned, so additional measures have to be taken to lure investment and make up losses.

(China.org.cn by Tang Fuchun June 16, 2005)