Financing may be an obstacle for the already delayed high-speed rail service connecting Beijing and Shanghai, but the Ministry of Railways claims construction is about to begin.

The high-profile rail project has an official price tag of 170 billion yuan ($21.8 billion), but could exceed 200 billion yuan ($25.6 billion) according to experts. Construction of the project will begin within the year and is expected to be mostly complete by 2010, said Minister of Railways Liu Zhijun on Wednesday.

But insiders said investment may fall short of the sky-high budget, which is almost the same as expenditure on the Three Gorges Project, and could again see the railway fall behind schedule. The ministry said last April it would begin laying the track by the end of last year, the Beijing Business Today reported.

Wang Ming, deputy director of the National Development and Reform Commission's transport institute, said existing financing channels for the project, such as government investment, bank loans and bond issues, would not be enough.

"Breakthroughs are needed in the financing mechanism," Wang was quoted as saying, without giving details.

The 1,320-kilometer railway, which will reduce the existing 14 hours' travel time from Beijing to Shanghai to five, had an initial price tag of 130 billion yuan ($16.6 billion), but this later increased to a maximum of 200 billion yuan.

The State Council is yet to approve the project, suggesting the ambitious plan is stalled for budgetary reasons, the report said.

But the higher expenditure could also mean the project may need approval from the National People's Congress (NPC), the country's parliament that signs off on national budgets, according to another report by the China Business Times.

The Three Gorges Project budget also exceeded 200 billion yuan and approval was sought from the NPC.

With an increased budget of 200 billion, the cost per kilometer of railway will increase to about 150 million yuan ($19.2 million), still far less than for similar lines in other countries.

South Korea finished an express railway in 2004 at a cost of 300 million yuan ($38.5 million) per kilometer. In Germany, France, Italy and Spain, the cost for similar railways was up to 500 million yuan ($64 millon) per kilometer.

The ministry, which seems to be aware of the funds shortage, made it clear last year the project could include financing from both private and foreign investors.

Wang Zhiguo, vice-minister of railways, also said last month that the State Council had "in principle" approved the proposal that insurance companies be invited to finance the project. Negotiations between the ministry and insurance companies are in progress.

It was reported in November that the national social security fund is likely to invest in the railway as well.

(For more biz stories, please visit Industry Updates)