According to statistics from the Chinese government, during the 11th Five-Year Plan, the overall investment in the railway network is to reach 1,250 billion yuan, more than 200 billion yuan annually. However, the MOR annually has only 20 billion yuan at its disposal to invest in railway construction. In addition to the 30 billion yuan loans every year from the China Development Bank, the total investment is no more than 50 billion yuan.

"The MOR can never resolve the financial shortage itself," an unidentified expert in the railway industry says.

In 2005, the MOR declared it would open four sectors including railway construction, transportation, equipment manufacturing and business operations to other interests. But it still insists on government control.

In this railway construction project, Shanxi province expects to attract investments from the coal industry, power plants and smelting enterprises in neighboring provinces. The operation of this joint stock company would be market-oriented and financially responsible for profits or losses.

However, the MOR insists that government control is necessary because the planned railway would merge with the nationwide railway network. It says the dispatch of trains, maintenance of the railway line and other duties should be placed under a unified command. In addition, construction of railways demands a large amount of resources such as land. Unified planning is needed to avoid a waste of resources and disorderly competition, MOR claims.

A successful model

But there has already been a successful example of a diversified railway construction project. The 600-kilometer Suozhou-Huanghuagang Railway successfully broke the monopoly of the MOR, with market-oriented management and independent operation.

It's a major railway line to transport coal from production bases in the west to coal-consuming provinces in the east. The Suozhou-Huanghuagang was a joint investment with Shenhua Group Corporation Ltd, the MOR and Hebei province in 1997, with the three respectively holding 52.7 percent, 41.2 percent and 6.1 percent of the shares. By the end of 2006, the railway had transported 390 million tons of cargo with a total income of 24.37 billion yuan and a profit before tax of 11.32 billion yuan. All the loans were paid off in 2006. In 2007, it transported 132 million tons of coal with a profit of 5 billion yuan.

The joint stock company operating the railway has established a well-structured corporate governance system which includes a board of directors and supervisors and a management stratum. A two-level management system has also been established. The head company is responsible for network scheduling, financial settlement and resource management, while branches are responsible for equipment maintenance and technologies. And the head company possesses independent operation rights to schedule the railway line.

"Shanxi, Henan and Shandong provinces want their railway project to follow the model of the Suozhou-Huanghuagang railway," Li says.

And if the "30 percent" proposal is passed, it will be a breakthrough, Li adds.

(China Daily September 8, 2008)