The Finance Ministry is considering providing financial subsidies to the public welfare transportation arm of China's railway system, replacing the current complicated internal subsidy system, says an article in 21st Century Business Herald. Excerpts:

The public welfare transportation arm of the railway refers to the transportation of military supplies, students and disaster relief materials. The service had a deficit of 70 billion yuan ($11 billion) in 2011. The financial authority is correct to provide special subsidies for this particular deficit so the railway authority need not subsidize this money-hungry service with its profits from its other profitable businesses. The financial authority's subsidies will mean the railway will not have to divert money from it's profit generating services to the public welfare transportation service.

The new reform may help the railway system draw clear boundaries between its public welfare arm and it's commercial business. The former is a remnant of the State-owned background of the railway system, and a legacy of the planned economy. The latter is a new development of China's railway in the market economy.

Once the railway's different businesses are separated, the door to a market-oriented reform of the system will be gradually opened. It will be possible for private capital to actively participate in the commercial railway transportation business in the future. The railway system's market reforms are conducive to attracting social capital, and promoting constructive competition to force the railway to improve their service and lower transportation costs.

Yet, the financial subsidy for public welfare transportation is only a small step forward to push the reform in the right direction. It still rests on the railway authority itself to separate its diverse business interests.