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Cover Stories Series 2013> All Aboard> Archive
UPDATED: April 9, 2012 NO. 15 APRIL 12, 2012
Restart Railway Reform
China must reform its railway sector and eliminate the state monopoly in the sector, but reforms will not be easy
By Lan Xinzhen

It is said the Chinese Government is considering incorporating the MOR into the Ministry of Communications (MOC). Hu also said the Chinese Academy of Engineering is researching the initiative.

However, Hu said this would not fundamentally solve the problems existing in the railway sector. Without solving the fundamental problems and only incorporating the MOR into the MOC, the reform would just move the MOR into a new office site and change it into the railway administration bureau under the MOC.

Hu said the railway reform must follow two basic principles: market-oriented operational mechanisms must be established; and railway transportation should be under highly centralized command.

According to Hu, before Liu took his post, the MOR attempted to carry out reform to separate railway networks from transportation based on market-oriented operational mechanisms. The reform intended to encourage full competition in railway operations. There could be thousands of railway companies across the country, railway networks construction could be carried out by various investors and it would not be necessary for the MOR to maintain absolute control over each rail line. The reform was not carried out at that time, but could be attempted now.

Good examples

Zhao Jian, professor at the School of Economics and Management of Beijing Jiaotong University, said the railway sector could follow the reforms of the power grid and telecom industries and divide the railways into several regions for operation and management. After separating government administration from enterprise management, a railway transportation corporation and a railway construction and asset management corporation should be established. The railway construction and asset management corporation would be responsible for financing and construction of infrastructure, as well as related assets management and payment of debts. After railway facilities are completed, they will be entrusted or transferred to the railway transportation corporation for operation, with construction loans repaid with operational profits. Information from various sources show that these schemes are in consideration of the NDRC and the MOR.

Zhang said disposal of debts might affect the process of railway reform. Although the MOR has not publicized its fiscal report in 2011, according to the auditing report of the MOR for the third quarter of 2011 issued by Shanghai Clearing House by the end of September 30, 2011, debts of the MOR had totaled 2.23 trillion yuan ($354.53 billion), a rise of 18 percent from the end of 2010, and the debt asset ratio had risen to 59.6 percent from 57.44 percent at the end of 2010.

Who will cover the debts of the MOR is a problem to be solved by the reform. During the reform of the four biggest state-owned commercial banks, namely, the Industrial and Commercial Bank of China, the Bank of China, the Agricultural Bank of China and the China Construction Bank, all the non-performing loans were stripped off to assets management corporations. Concerns have been voiced about whether the railway reform will follow this method to dispose of debts, and this is also difficult to solve.

Previous Reform Initiatives

- In 1986, Ding Guangen, then Minister of Railways, proposed a reform for "full economic responsibility" for local railway bureaus, with more control over finance and human resources. According to the plan, the Ministry of Railways (MOR) would turn over 5 percent of all its business revenues to the Central Government and keep the remainder. The goal was to drastically reduce MOR's financial dependence on the Central Government, gain more decision-making power and stimulate innovation. The plan was not implemented due to Ding's resignation over a series of train accidents.

- In 2000, Minister of Railways Fu Zhihuan proposed establishing a national railway network company along with several passenger transportation and cargo companies, in an effort to separate the country's railway networks from the business of transporting passengers and freight, and breaking the MOR's mixed functions of both government administration and enterprise management. In 2003, the MOR submitted another reform scheme, calling for "integrating railway networks with transportation and regional competition." Both schemes failed to be approved by the State Council.

- In 2003, Liu Zhijun became the minister of railways. In March 2005, the biggest internal reform in the railway industry started, with all 41 railway sub-bureaus being dissolved. However, the reform was still initiated internally, without fundamental reform in the administration mechanism. It was also far from getting to the essence of reform—breaking the monopoly and mixed functions of government administration and enterprise management.

Email us at: lanxinzhen@bjreview.com

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