The National Development and Reform Commission has approved 27 rail construction projects in 24 cities, which require a total investment of 800 billion yuan, and more than half of the funds will rely on bank loans, according to a report by the Association of Transportation Enterprise Management.

Twelve cities are expected to open 387 kilometers of new rail transit lines this year, among which Harbin, Changsha, Ningbo and Zhengzhou will be the first to operate subway lines, China Economic Weekly reported.

Urban rail transportation includes subway, light rail and tram. Most of the cities focus on subway construction. At present, some small and medium cities have set off a subway construction boom, but their investment and financing mode lack variety.

Financial experts warn of local governments’ debt crisis if they persist in launching costly projects without regard for local development level and financial capacity.

Banks cannot issue loans directly to local governments, but to a company founded by the governments. So the government will be responsible for the debts, said professor Guo Tianyong from Central University of Finance and Economics.

In addition to bank loans, companies undertaking the construction work have to rely on other financing methods to meet the huge demand of costs.

“Railway construction projects should be launched according to the local disposable income. The state must control the amount of liability,” Guo said.

In fact, the single mode of government investment plus bank loans has already put heavy pressure on many local governments.

Because of the huge funds needed for rail construction, fierce lending and financing have become their common practice. But behind it is the huge loss of operators.

Notes from Shanghai Shentong Metro Group show that it suffered a loss of 4.37 billion yuan in 2012.

But it does not affect rating agencies’ assessment of the company. “State-owned background is an important factor, and these companies can get a higher rating,” a staff member from a rating agency said.

Loss is a common phenomenon in the world’s urban rail transit construction. Subways need big investments but charge very low fees. As a public utility, subways cannot participate in the free pricing war of the market. MTR in Hong Kong is the world’s only profitable railway corporation, which puts construction and operation in equally important positions. It achieves profitability through the development of land property, said Ye Zichuan, director of the Publicity Department at Guangzhou Metro Corp.

“Even if we can afford the construction fees by tightening our belts, we still face the great problem of operating fees in the long term,” Ye said.

According to the report by the Association of Transportation Enterprise Management, there is no breakthrough in the 27 construction projects announced last year by the National Development and Reform Commission, except projects in Jiangsu and Hangzhou provinces.

Transit construction projects in Jiangsu rely on local government investment as well as actively attracting all kinds of social capital to participate in the projects (PPP mode), and Hangzhou railway follows a mode of “build-operate-transfer” (BOT) by granting franchises.

“In the current situation, we need to inject other subsidiary resources into the subway industry. For example, Guangzhou Metro tries to achieve a balance through advertising and real estate,” Ye said.

The report said that PPP mode is a more suitable mode because it saves government funds as well as transferring some risk to private enterprises.