The Study About Financing Methods For Highway Companies In China

Highways are important infrastructures in China. After the financial crisis in2008, our government accelerated the constructions of highway in our country. The mileage of the highway in China was53,900km in the beginning of2008and it increased to96,200km at the end of2012.Because the constructions of the highway need lots of money, financing becomes important to the highway companies. So this article studies the financing methods for the highway companies in China.First the article summarizes and explains the researches which conducted by Chinese scholars in recent years and introduces the economic theory of product as well as Pecking Order Theory.Then,the article introduces the basic concepts and the information of the highway industry in China. The samples of this article are the19highway companies listed in China’s stock market.The author introduces the basic information about these companies including their financial and operating situations.Second, the article summarizes how each financing method is used by the highway companies from Year2008to Year2012. The article classifies financing methods into five types:state funds, endogenous financing, debt financing, equity financing and others.The author analyzes and explains the advantages and disadvantages of each financing method.Using case studies, the author finds that the state funds can reduce the financing costs and enhance the profitability of the highway companies.It can improve the company’s position in the industry as well. Issuing stocks can reduce the financial pressure but it will take a long time to be approved. Issuing convertible bonds can save a lot of financing costs, but it needs the company to known the right price of the stock and set reasonable dealing terms.Using the statistical analysis, the author finds that the companies would consider the refinancing-demands when they decide the proportion of cash dividends in China. Issuing Short-term Financing Bills costs little but its payback-period is short, So it needs the companies to issue continually. Issuing the Medium-term Notes will reduce the financing costs of the companies and the payback-period is long. So it fits the highway constructions. It is a general financing method to introduce a state-owned company to invest in the highway industry.Borrowing money from bank is the most important financing method of the highway companies. No scholar has studied the factors of the financing method of bank borrowing in highway companies in China. The author finds that the government supporting,company size,company’s profitability, non-debt tax shield and asset-liability ratio are the most significant factors of this financing method by stepwise regression. Government supporting and non-debt tax shield are negatively correlation with the bank borrowing. While company size, company’s profitability and asset-liability ratio are positively correlation with bank borrowing.In addition,the author investigates the feasibility of introducing private capital, employee shares and the National Social Security Fund to participate the highway constructions. By analyzing the laws, regulations and cases, the author explains some new financing methods such as private bond, insurance trust funds and asset securitization.Finally, the article explained the new financing environment of China. The author gives some suggestions that may help highway companies to choose financing methods in the new circumstance.The article has three main contributions. First, the article summarizes how each financing method is used by the highway companies from Year2008to Year2012. By comparing the data and analyzing the cases, author finds the advantages and disadvantages of each financing method. Second, the author illustrates that government supporting, company size, company’s profitability, non-debt tax shield and asset-liability ratio are the most significant factors of bank borrowing by stepwise regression. Third, the article explained the new financing environment that the central government is now controlling the local governments’ debt strictly. Finally the author gives some suggestions on financing for the highway companies in China. The limitation of this article is that although the author explains the advantages and the disadvantages of each financing method,the author does not figure out which financing method suits what characteristics of highway companies.