Certain aspects of Chinese rail travel have been transformed over recent years. No longer need it be such a slow, crowded or chaotic experience. For example, the journey from Nanjing to Shanghai on a modern double-decker train is efficient and comfortable.
However for nearly two decades since the country's opening up to the outside world, the structure of the national railway system. has hardly changed. It remains one of the most outdated, overstaffed and loss-making state sectors. Only 20 per cent of the 66,000km rail network (which is the largest in Asia) is electrified and huge stretches are still single" tracked.
One reason for neglect is a fear of opening up a sector deemed to have national security implications. There is a geographical mismatch in. China between raw materials in the hinterland and the main conurbations located in coastal areas. This has meant. that the railways -have played a crucial role in trans-porting coal, oil, minerals, grain, cotton and other raw materials needed by industry from their origins to the major industrial and consumer centres along the coast. In this regard, the railways exert. significant control over the economy.
There are also concerns about the social and economic effects of reducing price subsidies to a sector which plays a central role in transporting goods and passengers. The national railway network has long been regarded as an artery of China's economy. "The..State Council is not so keen to reform the Ministry of Railways (MOR) because it is too important and needs centralised management;" Mr Wu Fengwei, deputy director of the institute of Comprehensive Transport under the ' State Planning Commission, was quoted as. saying.
The result has been a blockade on foreign participation in modernising the rail system, despite market reforms that are transforming road and. air transport. Over the past decade the number of passengers travelling by road and, air has soared at the expense of rail. Last year railway passenger volume fell by almost three per cent to a total of 917m., while the number of passengers travelling byroad grew by 3.4 per cent to 11.6bn and those by air jumped by more than 10 per cent to reach almost 60m.
The MOR desperately needs foreign money to improve its fortunes. According to Railway Minister Fu Zhihuan, a total of Yn2.50bn (US$30bn) is earmarked to build 5,340km of line over the next five years. As a stimulus to a flagging economy, this year's investment budget has been increased to Yn45bn from an original Yn35bn.
In addition to MOR and central government funds, special domestic bonds, foreign loans and the public listing of some MOR subsidiaries are currently being considered. In June this year the government issued more than Yn2bn-worth of domestic bonds in three- and five-year tranches specifically to finance railway construction. Fu has repeatedly called for foreign loans worth more than US$2bn which are needed for the next five years. Only one railway line between Guangzhou and Shenzhen has so far been listed, both in Hong Kong and New York, raising a total of Yn4bn (US$482m) for updating technology.
According to Mr Xiang Jiankun, deputy general manager of Railway Construction and Development Corporation of Fujian province, overseas listing is the most favoured option among rail finance development projects, so long as the state holds an overwhelming majority stake. However the speed of listing depends on many external factors, including the final approval of the China Securities Regulatory Commission. The listing quotas are granted on the basis of, among other things, a company's geographic location rather than the industrial sector to which it belongs. MOR therefore does not control the degree to which it can access finance through public listing. At the same time, the ministry is reluctant to even think about partially privatising profitable routes like Beijing-to-Shanghai.
Not surprisingly China's first high-speed railway linking Beijing and Shanghai, to be constructed in 20)0, will be financed mainly by domestic funds, according to a ministry official. Mr Shen Zhijie, former general engineer of the MOR and now in charge ofthe high-speed project, expects the new line to "generate good profits" and is therefore able to service some foreign loans. Shen was quoted as saying that the ministry was willing to "conduct technical co-operation with overseas partners".
Xiang of Fujian recognises the dilemma the railway sector faces. "We not only need money and technology but also management and market skills so that we are able to adapt to the market economy," he comments. More borrowing is problematic to a sector already burdened with debts and losses; public listing, however cheap, does not bring in the modern management and marketing skills that are needed.
An aversion to BOT
Yet laborious consideration continues at MOR over the possibility of starting buildoperate-transfer (BOT) rail projects. "The risk is that it's impossible to control price hikes if foreign operators decide to raise fares, particularly on busy routes. Central control is crucial for a massive network like ours," Xiang says.
Foreign investors tend to have a natural aversion to BOT rail projects since they usually require extensive capital outlay while returns on capital are slow, he adds. His company.. a provincial arm of the MOR, is planning to build a new grade A single-track railway line between Ganzhou in Jiangxi province and Longyan in Fujian province. lts annual rail freight volume is designed to be 12.5m tonnes and total investment is expected to be Yn4.6bn (US$560rn). While still waiting for approval from the State Planning Commission, the project proposal has been publicised abroad for more than one year. "Nobody from overseas has expressed any interest so far," he laments.
By comparison, BOT highway projects across the country have attracted several overseas developers, particularly from Hong Kong. Road sections in Guangdong province, for example, are being built and operated by Road King, the Hong Kong specialist developer.
The last time the railway network turned in a profit was five years ago. MOR has set out its target to shed millions of jobs and to break even by 2000. If railway officials manage to hit target. unlikely as it seems at the moment, outside observers believe it may eventually weaken the argument for introducing modern management and marketing practices through BOT projects.
Global financiers have yet to come up with an option which addresses MOR's fears and helps foreign investors tap this vast market.
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