Axed Railways Ministry is reborn, with little changed

The much-maligned ministry's replacement will lack checks and balances and commercial incentives, with its huge debt left untouched

PUBLISHED : Saturday, 16 March, 2013, 12:00am
UPDATED : Saturday, 16 March, 2013, 3:32am

Reading between the lines is a craft in understanding China. Let's try it out with the much-publicised reform of the corrupted and powerful Ministry of Railways.

Some explanation comes from He Ping, speaking at the National People's Congress.

He is the son-in-law of the late Deng Xiaoping, the son of a late lieutenant general, a lieutenant general himself, and the founder and honorary chairman of armament and cultural dealer China Poly Group. He knows the game.

Under the slogan of separating the enterprise from the government and a promise of efficiency plus safety, Beijing has split the ministry into two.

"Those who go into the Ministry of Transport are all about planning and administration. That's all weak stuff. One can't do much," said He.

"The real thing is in the operation and management of the China Railway Corporation."

Indeed. Everybody is wondering how the CRC is to work as a commercial entity. On Thursday, the State Council came up with an answer.

It is not a commercial entity.

First: its status. The CRC will be a registered wholly state-owned enterprise administered by the central government and supervised by the Ministry of Transport and the future State Railways Administration.

The Ministry of Finance will represent the State Council in performing the role of investor.

Translation: It is not a business entity.

It will not come under the umbrella of the State-owned Assets Supervision and Administration Commission (Sasac) or Central Huijin Investment like other centrally owned enterprises.

That means it will not be subject to any quantitative and qualitative appraisal by a body like Sasac. No matter how flimsy the appraisal is, profit growth is one of the criteria.

Yes, there is the Ministry of Finance, but driving state firms for profit is not its job.

"How are you going to do performance appraisal? What about the workers rushing home for the New Year? How much are you going to charge them? … It is irresponsible [to push the corporation out] without a clean policy," said He.

Second: the management. The central government will pick its managers. The head of the defunct Ministry of Railways, Sheng Guangzu, is appointed general manager. He is to take full responsibility for the firm.

Translation: There will be no corporate governance nor checks and balances within CRC.

Under the so-called general manager responsibility system, it will not have a board like other state-owned enterprises, including the China Investment Corp (CIC), the country's sovereign wealth fund.

Like CRC, the investment fund is not supervised by the Sasac. Yet it has an 11-member board that includes two retired ministers as independent directors.

CRC will have no board. Well, what's the point of having a board when it will be overseen by Vice-Premier Ma Kai?

"Without the involvement of a vice-premier, the corporation will not be going anywhere … There are railways and bureaus all over the country … It is a society," said He.

"How is it going to stand on its own? It's too difficult. Whoever becomes its first general manager will not live long."

Third: the capital. The CRC has registered capital of 1.04 trillion yuan (HK$1.28 trillion). That makes it the second largest corporation after CIC. No value appraisal or audit will be done, according to the government website.

Translation: Commercial operation is not the prime concern.

An audit of the railway business may turn up more worms - be it paper assets or corrupt officials.

The task is to get the corporation going as soon as possible, not to dig out more bad apples, so better sweep everything under the carpet.

Without knowing what the firm has, there isn't any ground for commercial borrowing, performance assessment and staff incentive schemes.

Fourth: the assets and liabilities. The related assets, debt and personnel of the present Ministry of Railways will be transferred to the CRC.

"Regarding its debt, the CRC continues to enjoy policy support from the government. Under the coordination of the central government, the Ministry of Finance and other related departments will find a solution to it," said the government website.

Translation: Status quo for all of the Ministry of Railways' borrowing. By 2011, the loan amounted to 2.66 trillion yuan. That is 20 per cent of the central government's fiscal income.

"Who is to pay [the debt, much of which is a policy loan]? The banks or the National Development and Reform Commission?" said He. "Which official is to take responsibility of the problem?"

Now you see how and why the establishment of CRC is nothing but the Ministry of Railways with a new name.