Urban Rail Transit Vehicles Investment Projects are Facing Capacity Monitor

Circular 323 is aiming to monitor the urban rail transit vehicles investment projects as well as the related traction, braking and signal system investment projects through (i) strengthening the production capacity monitor and early warning; (ii) improving the administration of investment projects; (iii) expediting industrial restructuring; and (iv) optimizing the industry’s regulated development.

Among others, the following are the issues worth further attention.

First of all, Circular 323 announces that the provincial-level NDRC will formulate the administrative measures for the investment projects of urban rail transit vehicles, and its traction, braking and signal systems, while Circular 323 itself does not provide detailed time schedule for said legislation, which shall be further clarified by NDRC.

Secondly, Circular 323 reveals central government’s intention to strictly control the newly-added production capacity of urban rail transit vehicles by adopting two 80% thresholds: That is, for the regions with the capacity utilization lower than 80%, it is not allowed to add new capacity. For the manufacturer applying for capacity expansion, its capacity utilization in the previous two years shall both exceed 80%.

Thirdly, for the purpose of upgrading technical requirement, Circular 323 defines the scope of the investment projects by illustration. For example, the traction systems investment project shall include manufacture, integration, R&D, testing, inspection and other sectors of the key assembly such as traction converter, auxiliary converter, electric machinery etc. The signal systems investment projects shall include R&D, integration, testing and verification and other sectors of ATS (Automatic Train Supervision), ATP (Automatic Train Protection), ATO (Automatic Train Operation), CI (Computer Interlocking) of vehicles and their subsystems. Due to the reason that the above scope is in the form of illustration, it is worth to consult the provincial-level NDRC regarding the scope of a specific investment project in advance.

Circular 323 also announces the establishment of capacity information reporting system. By the end of March every year, the provincial-level NDRC and the central administrated state owned enterprises shall submit an annual report to NDRC, which shall cover the data regarding capacity scale, construction progress, sales revenue, utilization rate of capacity, etc. of the established, under construction or under planning investment projects in local regions or of the enterprise.

Meanwhile, Circular 323 encourages the establishment of the PRC standard for the urban rail transit equipment and promotes the product certification by encouraging the use of certified products.

Although it will take more time to evaluate the influence of Circular 323, in consideration the provincial-level NDRC will lead the administrative monitor of the urban rail transit vehicle investment project in all aspects, we hereby recommend the investors who have such investment projects on plan to conduct prior and thorough communication with the in-charge NDRC where the projects will be located.