China's railway sector, traditionally a state monopoly, is making headway towards market reform as it strives to attract overseas capital investment.

"Foreign enterprises are in talks with domestic railway companies on investment," Huang Min, chief economist of the Ministry of Railways, told China Daily on the sidelines of a two-day China Railway Investment and Financing Reform Forum, which opened in Beijing yesterday.

More than 300 people, including relevant government officials and local and foreign experts from railway, finance and business circles, are attending the forum, which marks a step forward in railway financing reform in China.

The negotiations are expected to bear fruit soon, Huang said, but would not give further details, citing business confidentiality.

According to industry insiders, this means the sector will be opened more widely to foreign capital, although overseas investors will not be allowed to hold controlling interests in trunk lines.

In July, the ministry released guidelines on private and foreign capital in railway construction and operation.

At least 100 billion yuan (US$12.3 billion) is needed annually to expand the rail network from the current 73,000 kilometers to the planned 100,000 kilometers by 2020, according to the ministry.

Although the sector has been gradually opening its doors to non-government funding, investors have been slow in responding to the government's policies.

Only a very small amount of non-State capital has been injected into the sector in recent years - less than 1 percent of the total.

The central government's rail construction fund is the main source of capital for expanding the network, accounting for more than 90 percent of the total. The rest comes from local governments and loans from the China Development Bank.

One of the main reasons for the lukewarm response from private investors is profit guarantees, Wang Qingyun, director of the transport department of the National Development and Reform Commission, said at the forum.

"Favorable policies must be worked out to boost investor confidence," Wang said.

Meanwhile, a fair and transparent ticketing system must be set up to allow investors to decide prices, he added. The existing fare system does not allow for price fluctuations in line with market changes, which raises investor concerns about adequate returns.

(China Daily September 21, 2005)