Opinion | Spur competition and ease back on controls to keep rail reform on track
Hu Shuli says a market-based approach will encourage private capital to be invested in the system, following the break up of the ministry
China's rail reform is forging ahead in the wake of the imprisonment of former railways minister Liu Zhijun and a series of related corruption trails, including that of former top rail engineer Zhang Shuguang.
These scandals and lessons from history have prompted some people to take a closer look at the reform. After the former Ministry of Railways was split up, the State Council released a document asking to speed up reform of railway investment and financing.
The document, issued on August 19, provided some insight into the possible way forward. First, it revealed that ownership and the right to operate railway networks and services would be opened up to private investment. It also suggested the establishment of a development fund, financed by the central government, a move that would generate stable and reasonable returns on private capital investment.
It has become a major bottleneck in economic development due to the slow pace of reform
The document also indicated clear support for the development of stations and land along rail lines, promised that a fare subsidy scheme would be established, and stressed the need for market reforms for tariffs in the railway freight industry to boost efficiency and cut costs. All these proposals break new ground and shed light on how private capital can be directed into the industry.
However, the Liu Zhijun and related graft cases have shown that it is high time to fix the flaws in the system. These include the lack of separation of government function and enterprise management, a quasi-military management style, and the industry's monopoly status.
Seen as a vanguard of national economic development, the railway system has contributed significantly to the construction of transport networks and other infrastructure over the past 30 years. But it has also become a major bottleneck in economic development due to the slow pace of reform.
Officials in the Ministry of Railways blindly ignored competitive forces which just made the irrational state of network construction worse and led to an imbalance in supply and demand for services.
Given the high level of debt in the sector and the need for ongoing investment, the only way forward is to attract private capital investment into the industry.