Railway reform 'a step forward', but success not guaranteed

Updated: 2013-03-11 07:58

By Xin Dingding and An Baijie (China Daily)

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Railway reform 'a step forward', but success not guaranteed

The institutional restructuring and functional transformation plan released on Sunday has tolled the bell for the colossal Ministry of Railways, marking the end of the last ministry under the State Council that had both administrative and commercial functions.

Yet, whether the reform will succeed depends on the following measures, which are still unclear, experts said.

According to the plan, the ministry's administrative powers will be incorporated into the Ministry of Transport. They include planning railway development, drafting railway technical standards and supervising the railways' operation safety and construction quality.

Meanwhile, the China Railway Corporation will be set up to take over the railway ministry's commercial functions, including organizing railway transportation and construction.

Wang Yiming, deputy head of the Academy of Macroeconomic Research under the National Development and Reform Commission, hailed the move a "landmark".

"It means the country removes the last 'stronghold' in the way of reforming the industry from planned economy to market economy," Wang said. "It will open another door for financing and management of the railway sector."

With some 2 million employees and its own police, court and procuratorate offices, the Ministry of Railways used to be called "a closed empire". It had been in the center of controversy for being both the service provider and watchdog.

In the institutional restructuring in 2008, when the civil aviation administration was incorporated into the Ministry of Transport, the powerful railway ministry had resisted the redistribution of power. Then Railway Minister Liu Zhijun, who is under graft investigation, said the rolled-out high-speed railways needed the ministry intact.

But after nearly 10,000 km of high-speed railways have been laid out in the past five years, Sheng Guangzu, current minister of railways, adopted a different attitude.

Sheng told reporters on Sunday that he supported the restructuring and felt no regret over the fact that he would be the last minister of railways.

"What matters is the railway sector will have a better chance of development," Sheng said.

Experts said the move is "a step forward", but many questions remain unanswered.

One of the important questions is about the huge debts of the railways ministry, said Zhao Jian, a professor at School of Economics and Management under Beijing Jiaotong University, who specializes in the railway industry.

Without a good solution, the China Railway Corporation, now with the function to organize railway construction, might face funding problems, Zhao said.

"In the old times, the Ministry of Railways issued bonds with support from the Ministry of Finance. Banks were also willing to give it loans, as the loans were guaranteed by the government," he said.

But things will be different when railway construction is organized by a State-owned corporation.

"If the nearly 3 trillion-yuan ($482.7 billion) debt was given to a corporation, it would instantly go bust," he said.

Sheng said on Sunday that debts created by non-profit railways and profit-seeking railways will be dealt with differently.

He did not elaborate.

Experts agreed that the government needs to define which railways are non-profit.

Luo Renjian, a researcher with the comprehensive transport institute under the National Development and Reform Commission, said some rail lines, with a small traffic volume, but built to support regional economic development or meet the demand of national defense, should be defined as non-profit lines.

"When such rail lines cannot remain in business or cannot pay back loans and interests to banks, the government should step in to help solve the problems," Luo said.

Wang Mengshu, an NPC deputy and also member of the Chinese Academy of Engineering, called on the central government to do something to avoid the bankruptcy of railway-related companies.

"There are about 2 million railway staff members and 60 million migrant workers involved in railway projects. The railway reform should take their demands into consideration, too," he said.

Another common concern is whether train ticket prices will be raised, since the railway network will be operated by a profit-seeking corporation, instead of a government department.

The Ministry of Railways used to shoulder many non-profit public services, including transporting grain, fertilizer and agricultural products. Ticket prices for passenger trains have remained unchanged for years to make sure people from all walks of life can afford traveling by train.

Though the restructuring plan said a mechanism will be established to subsidize non-profit railways and continue to provide such services, no details are available.

Luo said he believes it will take a while for the government to figure out which routes should be subsidized, how the process should be conducted and where the money will come from. "But one thing for sure is that the prices of railway transport of both passenger and cargo will increase after the reform," Luo said.

"If the tickets remain the same against the rising cost, it will be difficult for the railway corporation to develop profitability and attract non-State capital," he said.

Experts also expressed doubt about the plan to establish the China Railway Corporation, which means the railway network's management will remain highly monopolized.

Contact the writers at xindingding@chinadaily.com.cn and anbaijie@chinadaily.com.cn

(China Daily 03/11/2013 page5)