Private, foreign funds encouraged into rail construction

A 2,000-billion-yuan (US$240 billion) gap in the country's rail construction fund has prompted a search for private and foreign financing for the government-monopolized transport sector.

Among the options being considered by the government is a flotation of some profitable lines on the stock markets.

"Multiple investment entities including private and foreign capital are encouraged into the rail construction and operation sector on the market-oriented basis," said the railways ministry official Zhang Jianping.

As "bait" to attract more capital, the ministry has planned to invite bids for projects of dedicated passenger lines and container stations with sound profitability, said Zhang, who is also the vice-director of the ministry's Planning Department.

At least 100 billion yuan (US$12 billion) is needed annually to expand the rail network from the current 73,000 kilometres to the planned 100,000 kilometres by 2020, according to the nation's plan for rail network construction.

However, Zhang said, from 2000 to 2004, yearly investment was only 54 billion yuan (US$6.5 billion) on average, most of which came from government coffers.

Moreover, Zhang said, his ministry is working to reorganize some well-operated railway companies and then list them on the stock market to increase capital sources.

The financing system reforms may help to break the previously-monopolized sector.

However, experts are cautiously optimistic about its prospects as policies are still out of place to boost investors' confidence in profitability.

Although the railway sector is gradually opening to non-government funding, how to ensure the profitability of investors is still short of policy support, said Yu Jun from the CITIC Securities, a Shenzhen-based securities company in Guangdong Province.

"The existing rail charge system allows no price fluctuation in line with market changes, which fails to assure investors about profitability for their capital flows," Yu said.

The current management system, characterized by the government monopoly, must be reformed and let the market play a role in the operation of the rail network, he said. Only a very small amount of non-State capital has been injected into the sector in recent years - less than 1 per cent of the total.

Lai Youwei, a researcher from the Development Research Centre of the State Council, said favourable financial and taxation policies should be mapped out to take in social capital in the sector.

The reform of the financing system is supported by a new State Council policy paper on "encouraging, supporting and guiding" the development of the non-State sector, which was released in February.

Market competition will be further introduced in the previously-monopolized sectors such as power supplies, telecommunications, railways, civil aviation and petroleum, the document said.

According to Zhang, the railways ministry is appealing to the central government to practice the favourable taxation policies on the railway companies.

Source: China Daily