Kunming's under-construction metro has caused headaches for anyone trying to get around in the Spring City. The biggest headaches, however, now seem reserved for the accountants and bureaucrats in charge of finding funds for the massive undertaking. According to an article originally published in the online magazine Moneyweek, the metro project — still years from completion — is already billions of yuan in debt.

The Kunming Bureau of Finance conducted an audit of the metro scheme earlier this month. It found that due to cost overruns, delays and added transit lines, metro expenditures could now balloon to as much as 300 billion yuan (US$49 billion). When construction on the project began in 2010 the announced price tag was 35 billion yuan (US$5.7 billion).

To put the new estimated costs into perspective, the city's total income for fiscal year 2012 was 37.8 billion yuan (US$6.2 billion). Using these numbers alone, Kunming would have to spend every fen of its income over the next eight years simply to pay for its metro lines.

Fortunately for the city, the major loans it has secured through the China Development Bank include 25-year loan terms with five-year grace periods. Those loans, secured in 2009, total roughly 41.5 billion yuan (US$6.8 billion) with another ten billion in aid coming from Beijing.

Earlier this year 63.5 billion yuan (US$10.5 billion) was allocated for further metro and rail construction by the National Development and Reform Commission, of which 40 percent is already held as capital. The remaining 60 percent is expected to be provided by further bank loans. These numbers constitute secured funding of 115 billion yuan (US$18.8 billion).

The Kunming metro financing analysis comes just one week after Beijing ordered the commencement of a nationwide review of municipal debt. The national audit is coupled with a ban on the construction of new government buildings — both spurred by international credit agencies announcing China's cities could be underwater to the combined tune of US$3 trillion.

If the true price of Kunming's metro is anywhere near 300 billion yuan, mention of where the remaining 185 billion yuan (US$30.3 billion) will be generated has not been made. It may be time for the Spring City and Yunnan to consider something novel, such as restructuring shaky public bond markets.

Image: Yunnan Net