High speed rail cuts, Arab strife cut profit prospects for China railways

2012 04 16


CHINA's largest railway companies, China Railway Group and China Railway Construction Corporation (CRCC), expect lower profits this year due to sharp decreases in railway spending and civil strife in the Arab world, reports the South China Morning Post.

National spending on new railways plunged 67.5 per cent to CNY20.8 billion (US$3.3 billion) in the first two months of 2012. SinoPac Securities cut its revenue prediction for China Railway Group this year by nine per cent, and China Railway Group's Shanghai-listed subsidiary, China Railway Erju, has predicted a 70 per cent fall in its net profit in the first quarter.

CRCC has set a revenue target of CNY430 billion this year, six per cent lower than its full-year revenue in 2011. Both companies are diversifying with China Railway planning to expand into airport construction, mining, property development and road building, while CRCC will add housing construction, mining and dredging projects to its portfolio.

"Due to the slowdown in construction of high-speed railway in China, we forecast the company's construction revenue will decrease in the first quarter, causing our profit to drop," said a China Railway Erju statement.

Said CRCC: "The continuous unrest, wars and riots in North Africa and Middle East since 2011 have affected the company's overseas operations. The weak global economic recovery, overall bleak prospect of the international economy, and growth of trade protectionism all lead to relatively high uncertainty in overseas construction operations," said CRCC.

When civil war broke out in Libya earlier last year, CRCC evacuated thousands of workers from its projects in the North African country.

The companies' reduced expectations reflect the steep drop in the mainland's spending on new railways, which plunged 67.5 per cent to CNY20.8 billion in the first two months of this year, according to the website of the Ministry of Railways.

"The domestic economy remains beset by a host of problems such as imbalanced and unsustainable development. Competition in the international market is set to intensify with growing instability and uncertainty. A market environment that is even more complex and challenging is ahead of us," said China Railway.

CRCC's revenue fell 2.72 per cent to CYN457.37 billion last year, but net profit jumped 82.6 per cent to CNY7.88 billion. Overseas revenue fell 23.5 per cent to CNY17.2 billion in the period.

Source Source Shipping Gazette - Daily Shipping News
 

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