In December the same year, China Communications and Transportation Association completed a report which showed that among more than 40 mega-cities with a population of over 1 million, over 30 have already launched construction or pre-construction work on urban mass-transit systems. From 2006 to 2010, over 20 subway projects will have been built or be under construction, with total investment above 200 billion yuan ($29 billion).

Financial difficulties

"Now, the construction cost of subway lines per km is about 600 million yuan ($87 million)," said Wang Hao, General Manager of Beijing Infrastructure Investment Co. Ltd.

In 2003, Beijing restructured subway industry by setting up several independent companies. Beijing Infrastructure Investment is one of them and is directly affiliated to the State-owned Assets Supervision and Administration Commission of the municipal government. Its prime task is to collect funds for subway construction.

"At first, no banks or investment bodies dared to put money into subway projects as they feared it would be hard to make profits," said Wang.

This initial problem was overcome. "We told the banks that every day a subway line can collect a fixed amount of money by selling tickets, which is enough to pay the interests of the loans, so we put forward a new idea which is paying the interest before the principal," said Wang. Investment in subways requires huge sums of money, but they can be used for more than 100 years and gain profits by expanding scale and gaining more passengers. "When the subway reaches a certain level, we will finally have the ability to pay back the principal, and the facts show that subways in many other countries of the world can make profits." Now, banks are prepared to provide loans to fund Beijing's subway projects.

The city also took the lead in adopting the public private partnership (PPP) mode of funding, which divides the investment into two parts: public interests and profits. The government is responsible for the public-interest investment, while social investors are responsible for the latter part. Meanwhile, the government conducts supervision to ensure the sustainability and safety of the subway lines, and ultimately makes sure the subway benefits the government, enterprises and passengers.