CHINA'S efforts to tap bank loans to ease a tight liquidity situation for its troubled railway construction could cut the danger of a hard landing, but add risks on lenders' balance sheets, analysts have said.

Over the past months, construction of more than 10,000 kilometers of rail track has been halted as funds have dried up, leaving workers without pay, according to Chinese media reports, citing Wang Mengshu, vice chief engineer of the China Railway Tunnel Group.

The sudden halt came in a tight liquidity environment and after the deadly July train crash in Wenzhou, Zhejiang Province, which rattled investor confidence and limited the Ministry of Railways' ability to borrow money or sell debts. The ministry has relied heavily on bond sales to finance rail construction. Its outstanding debt was 2.09 trillion yuan (US$329 billion) at the end of June.

Now, according to the 21st Century Business Herald, the debt-laden ministry may have secured bank loans worth 150 billion yuan after two of the country's vice premiers held meetings with heads of big state-owned lenders.

"Such encouraging action led to the bond auctions going extremely well this week, they were 17 times oversubscribed," Yao Wei, China economist at French bank Societe Generale, wrote in a note yesterday.

"From the cyclical point of view, this is also a form of (selective) easing, which could reduce the risk of a hard landing in the near term," Yao said. "However, the leverage of infrastructure investments and risks on banks' balance sheets would rise further."

Source:shanghaidaily