China's mighty railway system, the largest in Asia, is one of the final bastions of the mainland's planned economy. Tightly regulated, self-sufficient, employing 2.2 million and utilising little external domestic or overseas capital, the railways are dripping with red ink. And that is the way they are likely to stay. The 66,000 km network - carrying China's key raw materials and serving poor and frontier regions for reasons of policy rather than profit - is too strategic to follow telecommunications, energy and aviation into stock listings, joint ventures or corporate diversification. 'The State Council is not so keen to reform the Ministry of Railways [MOR] because it is too important and needs centralised management,' said Wu Fengwei, deputy director of the Institute of Comprehensive Transport under the State Planning Commission. 'Without a centralised plan, its efficiency would fall and the overall economy would be hurt.' The MOR largely has been untouched by the 19 years of market reforms that have transformed road transport and airlines. Consequently, it is losing both passenger share and revenue. In 1996, railways' share of the passenger market had fallen to 39 per cent from 54 per cent in 1987, while that of roads increased to 51 per cent from 39 per cent and that of airlines reached 8 per cent from 3 per cent. Water transport accounted for the rest. Last year, railways carried 917 million passengers, down from 942 million in 1996, while 11.6 billion travelled by road, up 3.4 per cent, and 59 million by air, up 10.4 per cent. Railways moved 1.62 billion tonnes of freight last year, the same as in 1996, earning 84 billion yuan (about HK$78.06 billion) up 8.9 billion from 1996, and reducing reported losses to four billion yuan from nine billion in 1996. Mr Wu said that, while the number of travellers fell last year, total passenger-kilometres increased 15 per cent. 'The number is unlikely to rise again in the future as [China is] developing a network with road travel for short journeys and trains for long and medium ones,' he said. 'In the past, the overcrowding was so bad that the conditions were worse than for pigs or dogs. An occupancy level of 60-70 per cent is reasonable. Now we must improve service and raise efficiency,' he said. The rapid growth of road and air services that has driven the MOR into the red has been a blessing for everyone else. From the mid-1980s onwards, the mainland's railways were unable to keep pace with the growth of its economy. The result was gross overcrowding, poor service, official corruption that supported and condoned a black market in tickets and cargo space, and billions of yuan in losses for companies as goods and people sat undelivered. This earned for the MOR the scathing nickname of tie lao da (Big Brother Rail), for the arrogant and unhelpful attitude of its officials who never forgot their monopoly position. Competition from buses and airlines has spurred the ministry to take some action. Computerised reservations at more than 150 stations are now available, while rail tickets in some cities can be bought through travel agencies. Last April, the MOR launched services with high-speed trains capable of reaching up to 140 km/h on routes to Beijing, Shanghai, Guangzhou and Harbin. Still, the average speed on these routes remains only 60 km/h, far below the international norm. The MOR also has followed other ministries in shrinking its staff by siphoning tens of thousands of workers into subsidiary construction and engineering companies, hotels, shops and factories. Many produce for the civilian market as well as the railways. 'The freight and passenger services on their own lose money,' Mr Wu said. 'But, for some divisions, incomes from these subsidiaries exceed income from the main rail services.' By 2000, the ministry plans to halve its workforce of 2.2 million, employing as many as 1.1 million in subsidiary firms. However, due to the conservatism of its leadership and the strategic role of railways in the mainland economy, it seems unlikely the MOR will follow other ministries by transforming itself into a business corporation. The railways remain the only means to transport the enormous volumes of coal, oil, minerals, grain, cotton and other materials needed by industry from their points of origin to where they are consumed. The MOR's monopoly status also means that it has only limited ability to raise prices, approval for which must be obtained from the State Council and only after consultation with other ministries involved. The mainland railway network also plays an irreplaceable role as a shipper of arms and defence-related material. Many of its routes in poor and border areas are built not for commercial purposes but to implement central government policy promoting poverty alleviation and strengthening national unity. One example is the 1,000 km railway under construction across the Gobi desert in far western Xinjiang province, which will link Turpan, on the main Lanzhou-Urumqi line, with Kashgar. It is one of the most sparsely populated areas of China, with no industry and limited farming. The line certainly will lose money, but its aim is to improve Beijing's control over Xinjiang, a region with a large and sometimes restive Muslim population which is rich in oil and other minerals and contains the country's nuclear testing area.