China opens railway industry to private investment


China will open its debt-ridden railway industry to private investment on an unprecedented scale, according to a document issued by the Chinese Ministry of Railways.
Private investors will be encouraged to bid for contracts to support the rail industry, which currently is struggling with huge debts and corruption scandals, while subsidiaries will also be allowed to list shares and invest in railway companies.
Alstom, GE, Bombadier and Kawasaki Heavy are some of the foreign firms that have secured tenders to invest in the country’s rail expansion, but in several cases they are limited to supplying components, reports Reuters.
The document instruct that China’s current railway project transaction centres, which are under the ministry and 18 railways bureaus, are to be cancelled.
Construction projects under the administration of the railway bureaus will enter local markets in two batches before the end of June 2012.
Many foreign companies are said to have been forced to transfer technology to win contracts in China, only to see the country compete for international rail tenders against the technology provider.
In order to remove bottlenecks in cargo transport, ease congestion in passenger transport and develop commuter lines in its sprawling megacities, the country still needs billions more in rail investments.
Due to high operating costs and debt payments, the Chinese railway ministry had lost about USD 1.1 Billion in the first quarter of 2012.
In 2011, the railway sector dealt with problems generated by high deficit and at the end of 2012, the Ministry had debts of USD 158 Billion. The debt to asset ratio exceeded 60%.
In 2012, the authorities planned to invest USD 79 Billion in fixed assets including investments of USD 63.5 Billion in infrastructure projects. But the effective deployment of all that capital was strongly questioned with a series of high-profile disasters last year. These included a high-speed train derailment in Wenzhou, the corruption in the railway system and recent revelations of a high-speed railway whose tracks sunk after over 90,000 tonnes of rocks were swapped for earth during the construction process.
An increasing number of economists outside of China have realized the weaknesses of the Chinese economy and predict a coming crisis. To mitigate the problem they have suggested separating the government and government-run enterprises by encouraging full privatisation.