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News Analysis: Fair Treatment for Private Capital in Railway Investment

iconMay 22, 2012 08:43
Source:SMM
China's recent move to give private capital equal treatment in investing in the country's railway projects is expected to inject new vitality into the long-monopolized railway sector.

BEIJING, May 21 (Xinhua) -- China's recent move to give private capital equal treatment in investing in the country's railway projects is expected to inject new vitality into the long-monopolized railway sector amid concerns of an economic slowdown.

According to a guideline issued by the Ministry of Railways (MOR) on Friday, equal market entry access will be created for all investors and private capital will be exempt from additional requirements. The implementation of favorable policies will be transparent.

The guideline stated that private investors are allowed to participate in almost every category of railway projects, including the construction of backbone lines, passenger lines, inter-city lines and regional lines.

Eligible investors will also be allowed to participate in the design, construction, supervision, consultation, equipment purchasing and bidding processes.

The guideline, which is by far the most open and detailed regulation in terms of the railway industry's market entrance to date, is expected to diversify investment channels to help ease the sector's debt that has brought some construction projects to a halt.

After years of torrid growth, construction and investment in China's railways cooled remarkably, as the government tightened credit to cap inflation and a train crash last July that killed 40 people exposed the sector's weaknesses.

In contrast to a target investment of 500 billion yuan (79.37 billion U.S. dollars) this year, investment dropped 48.3 percent from a year earlier to 89.6 billion yuan in the first four months, official data show.

Meanwhile, the sector recorded 7 billion yuan in losses in the first quarter, with the current asset-liability ratio staying around 60 percent.

Yang Zhongmin, head of the ministry's department of development and planning, said the government, as the major investor, approved more than 4 trillion yuan in railway investment from 2003 to 2010.

According to the guideline, the MOR should separate its government functions from enterprise management and reform its administration mechanism to let enterprises be the principal market player.

The guideline also underlined the need to reform the investment and fundraising systems for railway projects. Railway-related companies are encouraged to go public, and insurance funds are welcome to invest more in railways.

It also encouraged financial innovations in creating more kinds of fundraising platforms to provide private investors with better access to capital.

Private investors are also welcome to make innovations in advanced and environmentally-friendly technologies and facilities, it said.

The government has repeatedly vowed to break the state monopoly and encourage private investors to participate in domains such as the railway and financial sectors -- a move aiming to push market-oriented reforms and tap inner growth potential.

With signs of a worse-than-expected slowdown in China indicated by weak economic data for April, CITIC Securities said more policies may be introduced to maintain reasonable growth in infrastructure investment.

Huang Junjie, an analyst with China Investment Securities, expected railway investment to return to a normal level in the coming months.

During an inspection tour last week, Premier Wen Jiabao said the government will focus its energy on expanding domestic demand to increase the stability of the economy, reiterating support for private capital in investing in the railway and several other sectors.

 

China railway projects; private capital

For queries, please contact Michael Jiang at michaeljiang@smm.cn

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