Experts warn against rail privatization

By Yu Xi Source:Global Times Published: 2016-5-8 23:33:01

Sector under growing pressure as debts mount

Trains at a station in Dazhou, Southwest China's Sichuan Province Photo: CFP

There have been calls for privatization of China's railway system in order to break the monopoly and improve services, but experts said on Sunday that privatization might not be the best solution for the railway sector given its public importance.

The government has been encouraging private capital to enter the sector in recent years, spurring discussion about whether privatization is a good option, as debts continue to mount at the largest railway firm in the country.

China Railway Corp (CRC), previously part of the now defunct Ministry of Railways, saw its debts increase 10.4 percent year-on-year to 4.14 trillion yuan ($640 billion) at the end of the first quarter in 2016, financial news portal reported Wednesday.

"CRC's debts will continue to grow as the country keeps building railways," Luo Renjian, chief researcher at the Institute of Comprehensive Transportation under the National Development and Reform Commission, told the Global Times on Sunday.

Going private not the way

Since 2010, the central government has released guidelines to encourage private capital to enter the railway sector. There has been discussion about whether privatization could improve management efficiency, but some experts have expressed concerns about this idea.

"CRC is different from other firms, as it takes on the burden of building public facilities," said Luo, noting that the key point is who will take the responsibility for privatizing the Chinese railway system, especially as CRC faces such huge losses.

CRC saw a first-quarter net loss of 8.73 billion yuan, up 35.07 percent year-on-year, according to the firm's financial report released on April 29.

China needs to reform its railway system and attract more capital, but privatization is not the right option, Wang Mengshu, a railway expert at the Chinese Academy of Engineering, told the Global Times on Sunday.

"The Chinese railway system should always be State-owned due to its vital role in the national economy and national security," said Wang.

"Along with railways, other sectors related to national security such as water and electricity supplies should all be State-owned."

Wang explained that private investors concentrate on profit rather than pubic benefit.

Moreover, railway privatization in European countries hasn't achieved good results. For example, the UK privatized its railways in the 1990s, which was followed by worse services and various rail accidents. This prompted efforts to renationalize the nation's railway infrastructure.

The National Development and Reform Commission, the country's top economic planner, said in July 2015 that private investors would be encouraged to bid for railway contracts and manage projects via diversified investment channels, according to Xinhua News Agency in July 2015.

The move was regarded as part of the government's measures to boost the slowing economy, said Xinhua.

However, private investors have been reluctant to enter the country's railway industry due to the large amount of investment required and long wait before seeing returns, said Wang.

Reorganization needed

CRC will be indebted for years to come as it borrows to fund railway construction, said Zhao Jian, a professor at Beijing Jiaotong University, noting that the profit it makes is not enough to repay the interest on its loans. "This business model isn't sustainable," Zhao noted.

Some railway lines such as the Beijing-Shanghai high-speed railway have made good profits due to substantial demand, but the success of individual lines can't offset the overall losses at CRC, Zhao told the Global Times on Sunday.

The country's national railway system is made up of a total of 18 State-owned railway bureaus and companies led by CRC. By the end of 2015, China had 121,000 kilometers of railways, and the nation's high-speed railway network covered 19,000 kilometers, making it the largest in the world, according to CRC.

The 18 railway bureaus and companies could be divided into three regional railway companies, which would have control over pricing for the freight business, Zhao suggested, noting that competition between the three companies could help improve services.

CRC would act as a parent company in charge of strategic management, Zhao noted.

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