BoC said it would buy a 14.5% stake in a new railway operator that will build a line to transport coal from inland Shanxi Province to Shandong Province on the eastern seaboard.
The announcement came one month after the bank said it would invest nearly $900m in a state company that is building the high-speed rail line between Shanghai and Beijing.
China is expected to account for well over half of all global rail investment this year, with an estimated $120bn budgeted for 2010 alone.
John Scales, transport coordinator at the World Bank office in Beijing, said, “Apart from the US interstate expansion in the 1950s and 1960s or the US railway build-out in the early 19th century there has never been anything like this."
A number of prominent Chinese experts have questioned whether the huge expansion is economically viable and the government has tried to entice private and foreign investors to help share the investment burden.
Those investors have balked at the Chinese Ministry of Railways’ control of the sector as both the regulator and ultimate owner of most rail enterprises as well as its political obligation to cap prices at low levels.
The reluctance of these investors has forced Beijing to push cash-rich, state-controlled financial groups such as BoC to invest and provide easy credit to rail projects across the country.
Financial Times reports Dong Tao, chief regional economist for non-Japan Asia at Credit Suisse, who said, “In the late 1990s many experts said the toll road expansion was not viable but it turned out that the new freeways made it possible for China to become the world’s factory.”