|
|
|
|
Privatizing the 'iron
rooster'
By Michael
Mackey
See also: China's workin' on
the railroad
There are big plans to
expand China's railways, but the price tag is equally
big: a stunning US$240 billion shortfall through
2020 has been cited in the official media. At
least 100 billion yuan ($12 billion) will
be needed annually to expand the rail network
from its current 75,000km to the planned 100,000km by
2020. From 2000 to 2004, actual annual investment
was only 54 billion yuan: a hefty sum, to be sure,
but still not enough. Partial privatization, which
would allow private capital to close part of this
yawning gap, is being touted as the solution. But
the jury is still out on whether this will work.
Railway officials are already soliciting outside
capital. "Multiple investment entities, including
private and foreign capital, are being encouraged
into the rail construction and operation
sector on market-oriented basis," said Ministry
of Railways official Zhang Jianping. What Zhang
meant, in plain English, is that the more rail
investment, the merrier, and investments can take
different forms. Indeed, so relentlessly is the
Ministry in pursuit of new sources of investment
that the same statements come from the mouths
of different individuals: the quote "market access
will be widened to enterprises to encourage them
to invest their capital into the railway projects"
has been attributed to both Railways Minister
Liu Zhijun and Wang Min, director general
of the Planning Department. Sarcasm aside, these
statements show a real intention to get new,
private sources of funding.
The comments
on rail are consistent with the broader government
thinking on tapping private sources of
infrastructure funding. Earlier this year, the
State Council issued a circular supporting
non-state investment in infrastructure,
monopolized industries and public utilities. Jia
Kang, chairman of the Institute of Fiscal Science
under the Ministry of Science, has said that
Beijing wants to see more competition in
infrastructure development, possibly by allowing
private firms to access centrally administered
infrastructure (this would be similar to the
British model for rail privatization, which is
hardly regarded as a success).
The
Quzhou-Changshan line
The first
private-sector rail projects since 1949 are
already taking shape. Expected to break ground
later this year is the Quzhou-Changshan railway
project in eastern China's Zhejiang province.
Effectively a collaboration between the private
and the public sectors, the link was planned by
the Ministry of Railways but will be built with capital from
the private sector. Privatization advocates should
not get overly excited about this project, since
only 32.5% of the shares are owned by the local
private partner, the Changshan Cement Company (so
much for businesses sticking to their "core
competencies"). The remaining shares are divided
between the Ministry of Railways (35%) and the
Changshan County government (32.5%).
Quzhou-Changshan, however, may turn
out to be more significant than it appears
at first glance, because authorities explicitly
regard the project as an experiment, which may
provide a precedent for future private rail in China.
"The [Quzhou-Changshan] railway project ... is small in
its size and investment, but is considered a pilot
project for reforming the highly monopolized
system of financing and investment system in the
sector," said Sun Qu, director of the Office for
Projects Preparation.
The
Hulin-Lesozavodsk line
Even more pioneering
is a 56km line linking Hulin, a city in
northernmost Heilongjiang province, with
Lesozavodsk in the Russian far east. This will be
the first cross-border railway to be funded partly
by Chinese private capital. The Xinrong Investment
Co Ltd, based in Dalian, a coastal city of
Liaoning province, will invest approximately 230
million yuan ($27.81 million) in the railway
project while its Russian counterpart,
Evrazholding, a privately run steel giant, will
provide some $30 million. Officially at least,
there are no government stakeholders on either
side of the border. Construction is expected to
start at the end of June; if all goes as planned,
the line will at least prove that private rail in
China is possible.
"The railway is
expected to ease the transportation [bottlenecks]
that hinder Sino-Russian trade. It is also a
significant signal predicting greater Sino-Russian
trade and economic cooperation," said Song Kui,
head of the Northeast Asia Research Institute
under the Heilongjiang Provincial Academy of
Social Sciences. More significantly, he added, "It
is the first time that Chinese private capital
will be funding the construction of a cross-border
rail route, a sector which has long been
monopolized by the state economy."
What is
also "increasingly being considered", according to
the official media, is a flotation of some
profitable lines on the stock markets. And as
"bait", the exact word unfortunately used by the
same media, the Railways Ministry has planned to
invite bids for dedicated passenger lines and
container transit stations with sound
profitability prospects, according to an official
surnamed Zhang, the vice director of the
ministry's Planning Department.
A private
sector source who claimed to be involved in the
process has thrown some intriguing light on this.
The source, who works for the logistics division
of a large shipping company, reports the
government is planning to build a series of
container hubs, for which it is already canvassing
private capital. "These will be privatized," said
the source, adding that one or two of the hubs
"may be started within this course of this year."
Unquestionably, improved container and intermodal
infrastructure inland are desperately needed, and
some movement on this front will be welcomed by
foreign investors and Chinese alike.
Lack of price power a key
obstacle
The model taking shape for rail
seems to be similar to the power grid model, where
different private operators sell into the national
grid, with different suppliers, all utilizing the
same infrastructure. Will it be enough? Some
observers, such as Access Asia consultant Paul
French, are already skeptical and dismiss it all
as: "Just rhetoric. Nobody's going to invest in
rail. How do you get a return?"
A key
stumbling block identified by French and others is
the lack of control that investors would get over
the pricing of freight charges, which is the key
to generating profits. "You can't override freight
decisions, so you're not allowed to sell the space
at market rates, but if they marketize it, no one
will move coal," said French of the rail
conundrum. Backing this up is Yu Jun, from CITIC
Securities in Guangdong, who told the press: "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."
As in many other areas of China's
economic reform program, it seems the easy measures
have already been taken, and acting
decisively on the remaining
problems threatens unpredictable, severe consequences. Without private
rail capital, China can't afford the rail system
it needs. But private capital demands a return,
which can't be guaranteed without freeing freight rates.
And if freight rates are freed, it will be impossible
to move the coal that is needed in such
vast quantities because energy prices are subsidized (making
Chinese enterprises, by the government's own
admission, among the least efficient energy users
in the world). But if energy prices were allowed to
rise, then thousands of enterprises would
instantly become non-viable, throwing millions of
workers onto the street. How can a government
whose legitimacy depends on continued economic
growth afford to risk this?
The
end result of this Chinese puzzle, at least for
the railways, is the kind of nervous tinkering by
the Railways Ministry that is being described. Some private
lines are coming, to be sure; but the real test is
whether price reform will be allowed, and the
underlying dilemma that has always prohibited this
remains in place.
[Ed: The Chinese word
for 'train' literally translates to 'iron
rooster'.]
Michael Mackey is a
Shanghai-based freelance writer.
(Copyright 2005 Asia Times Online Ltd. All
rights reserved. Please contact us for information
on sales, syndication and republishing.) |
|
|
|
|
|
|
|
 |
|
|
|
|
|
All material on this
website is copyright and may not be republished in any form without written
permission.
© Copyright 1999 - 2005 Asia Times
Online Ltd.
|
|
Head
Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong
Kong
Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
|
|
|
|
