China



Conclusions



Sector Overview

China’s railway is unique with regard to its current rapid developmental phase. In other very large countries such as Argentina, Australia, Brazil, Canada, India, Russia, and the USA, national railway systems were already formed by the 1950s, which was just the beginning of China’s main era of railway building. China’s era of rapid development continues in freight and passenger transportation, under a heavily centralized structure that is prevented from being completely monolithic by the participation of JV railways, industrial networks, and local railways.

Centralized railway sector administration has been effective in developing China’s rail transport industry. First, MOR-administered RRAs execute railway network management and train operation with consistently high discipline and efficiency. Second, for years, MOR has successfully delivered the biggest railway system development program in the world. Clearly, a single point of concentrated responsibility, authority, and financial resources has been critical to rapid and comprehensive development of a long-term national program.

China illustrates the benefits of traffic density for network and service economics and overall financial sustainability. China Rail has yet to embrace many of the options presented elsewhere in this toolkit, including the fundamental separation of policy and regulatory functions from enterprise functions. However, MOR policies have achieved some sector governance reforms recommended in this toolkit: (i) separating non core functions and ancillary businesses; (ii) improving the commercial responsibilities and incentives for RRAs; (iii) increasing private sector participation, such as the two specialized coal transport companies (Guangshen and Daqin); and (iii) creating many joint-venture railways to attract external capital. Nevertheless, to date, little capital has been purely private; most came from provincial governments and state-owned enterprises. Also, competition between railways is not encouraged—either between existing regional railway administrations or between those administrations and new train operating companies. Little business separation has occurred within CR; regional/functional management structures dominate.

The MOR has been impressive as policy maker and regulator, embracing and encouraging value-adding railway technologies throughout the industry in construction, maintenance, operations, and management. An equally impressive network of MOR-sponsored railway institutes, specialist universities, testing facilities, and laboratories provide capacity to adopt international best practice and create custom designed technologies and processes to solve operating challenges specific to China.

Notable Management Initiatives

The supply side of the industry is still heavily state administered and regulated, but increasingly all facets of China’s transport demand are shaped by market forces— freight and passenger transport types; demand volumes; geographic distribution of demand; and modal allocations of traffic. Government and MOR have long recognized that railways must develop a market-oriented approach to customer service, become more competitive with ever-improving road and air transport, and adopt commercial management principles. In part, railway managers have responded to these pressures within the existing institutional framework. The CR managers have responded to competitive pressures by pursuing some management initiatives described in of this toolkit. The main initiatives are summarized in Figure 8.



Future Challenges

The Mid- and Long-Term Railway Development Plan has successfully confronted the challenge of infrastructure development. The Plan involves risks—primarily the risk to MOR’s debt sustainability associated with developing the high-speed rail network. Demand and supply conditions in China for high-speed rail are very favorable, but as it proceeds, China will need to closely monitor the level of railway debt arising from the program. Payback periods for high-speed rail will necessarily be longer term for such ‘lumpy’ and long-lived assets. China will have to ensure that support for the high-speed passenger network does not mean sacrificing other key elements of the Plan.

The most significant reform challenge is how and when to implement the NDRC’s proposed separation of government policy and regulatory functions from the commercial functions of railway operating entities. Developing a more diverse and pluralist railway industry based on market principles implies a need for institutional reforms. It may be difficult to convince external investors in new rail entities that their rights will be protected and CR obligations fairly administered if China Rail controls entry to the playing field, sets the rules, referees the game, and manages the opposing team. This issue is not straightforward, nor a matter just of splitting existing Ministerial functions. Instead, it requires rigorous policy and institutional analysis that would deliver good sectoral governance and good corporate governance of state-railway railway entities, while maintaining implementation effectiveness for the long-term railway development program.

    
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