Debt Risk Evaluation of Toll Freeways in Mainland China Using the Grey Approach

Xinhua Mao,Jiahua Gan,Xilong Zhao

doi:10.3390/su11051430

Abstract

With a proactive loan policy to raise construction funds, a large number of toll freeways have been built in Mainland China in the past three decades. However, it brought about a long-term heavy debt burden for most provincial governments. To ensure financial sustainability of toll freeways, an accurate and appropriate debt risk evaluation has become necessary. This research aims to explore debt risk factors and calculate the overall debt risk levels of toll freeways using the grey approach. Debt risk factors were identified as belonging to five categories—debt scale, debt structure, debt management, external environment, and solvency—and three new debt risk factors were added for specific concern of toll freeways—toll revenue, free cash flow, and earnings before interest, tax, depreciation, and amortization (EBITDA) margin. Debt risk levels of toll freeways in 29 provinces in Mainland China were evaluated by the proposed method and classified into three groups–low debt risk, medium debt risk, and high debt risk according to grey possibility degree ranges. Calculation results show that six provinces have low debt risk, 10 provinces have medium debt risk, and 13 provinces have high debt risk. Additionally, some specific policies to reduce toll freeway debt risk were provided based on the evaluation findings.

Highlights

Toll freeways in Mainland China have attracted widespread attention, especially the financial issue [1]
If grey possibility degree values are in the first group, the provinces fall in the category of low debt risk, which means that these provinces adhere to norms in most of the 15 criteria
The analysis indicates that only 6 provinces fell in the category of low debt risk, 10 provinces belonged to the category of medium debt risk and 13 provinces were in the category of high debt risk

Summary

Introduction

Toll freeways in Mainland China have attracted widespread attention, especially the financial issue [1]. Due to the support of the Chinese government, toll freeway networks in Mainland China had a rapid expansion, boosting economic development greatly in the past three decades. To solve the problem of insufficient financial funds, the Chinese government has adopted a proactive loan policy, which allows provincial governments to obtain loans from banks to raise funds for the construction of toll freeways, and the permitted debt ratio of total construction investment for a single freeway project can be a maximum of 65%. As much as 63% of the total freeway investment relies on shortand long-term loans from banks, and the total debt of toll freeways in Mainland China that needs to be repaid is more than US$ 700 billion so far

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