China's Rail Expansion Gets Green Light

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Frank Holmes

NEW YORK ( U.S. Global Investors) --China's economic engines of growth have begun to accelerate again, but you wouldn't know it by looking at the chart below.

After approvals for new railroad projects spiked to a five-year high in the third quarter of 2010, the number of new plans slowed, then completely halted throughout 2011, decreasing 89 percent by value, says J.P. Morgan.

There were multiple reasons for the slowdown in railroad construction, says BCA. A bullet train crash caused heightened concern for safety last summer. Also, the government intentionally delayed projects as it pulled the brakes to decelerate growth and curb inflation.

Since China received signs of slowing inflation over the past few months, it can now shift its attention toward growth.

Recent policies are sending a "full steam ahead" message to railway investment. According to J.P. Morgan, in December and January, China announced tax benefits on interest income for railway bondholders, issued bonds for railway projects, and injected cash into the two largest train makers. This concerted effort should help the country meet its long-term goal to connect 100 percent of cities with a network of high-speed rail.