China seeks help to fund system's expansion and reform Foreign and private investors are lining up to buy into the mainland rail system as the government looks for help to fund the more than two trillion yuan of expansion it has planned for completion by 2020. 'We sincerely welcome enterprises and finance organisations from home and abroad with an insight and vision to invest in rail,' Vice-Minister of Railways Lu Dongfu told bankers and investors yesterday. The plan to partially privatise the world's busiest rail system is seen by the government as crucial for it to achieve its goal of adding 28,000 km of new lines and double-tracking or electrifying a further 29,000 km. The system's route length is now 74,400 km. At yesterday's investment forum, investors from Europe, Japan, the United States and the mainland gathered to discuss financing models and continuing regulatory hurdles to profitable investment in the country's creaking rail sector. More than half of China's non-ocean going freight and 35 per cent of passenger volume are moved by rail and overall traffic increased by 35 per cent between 1998 and 2003. But in that same time yearly investment increased by only 3 per cent, according to Paul Amos, a transport adviser at the World Bank. 'When there is a huge outstripping of supply by demand, then pricing is the most useful tool to use but that tool has not been given to China Rail,' Mr Amos said, referring to the strict regulation of ticket and freight prices by the central government. The World Bank estimates investment will have to be at least 70 per cent higher than the annual average rate of investment over the past 10 years for China to meet its rail expansion goals. Representatives from Morgan Stanley, Goldman Sachs, China International Capital Corp, Citic Securities and the Royal Bank of Scotland presented financing examples and suggestions to the forum but problems with tax policy and the lack of a legal framework remain. The government has traditionally viewed the rail network as a strategic asset and has excluded foreign and private investment throughout the past quarter century of opening and reform. Privatisation of rail networks has been controversial in almost every country it has been carried out. China is no doubt concerned about the negative effects of rail system reform. But in order to fund the expansion necessary to ensure the system continues to function, the government has little choice but to seek the help of private and foreign funding.