China's Railway Reform Hides Massive Debt

Created: 2013-03-11 14:47 EST

Category: China
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Chinese ministries are getting a shakeup with restructuring announcements over the weekend. The main change came with the Railway Ministry. The massive monopoly over China’s railways will now be split up into two different arms—the administrative and commercial. 
 
[Wang Feng, Deputy Commission of State Commission Office for Public Sector Reform]: 
“We mean to bring in competition through the reform. A more diversified investment and operation structure will instill vitality to the railway industry."
 
But some analysts believe there’s another reason for breaking up the Ministry. China’s extensive high-speed rail development has left the Ministry with a massive debt--more than $420 billion US dollars that it can’t pay back. That’s more than the GDP of Hong Kong.
 
[Jason Ma, NTD Senior China Analyst]: 
“Even when they force everyone to pay higher railway tickets, still there is no way to pay back the debt, because of maintenance and high interest of the debt, so there is no solution. The only solution is what they’ve come up with in this meeting.”
 
During an interview on NTD’s China Focus, Jason Ma said by splitting up the Railway Ministry, the debt will be transferred to the public. 
 
[Jason Ma, NTD Senior China Analyst]:
“What they’re planning to do is the government will take over the debt, and issue bonds based on those debts to people. And people will buy the bond, and the government will pay you for the bond. The government will use your income to pay the debt here.”  
 
Wang Feng said on Sunday that the under the restructuring, the administrative arm of the railway will be supervised by the Ministry of Transport. The commercial portion will be spun into a proposed China railway corporation. 
 
Wang said on Monday that a decision over what to do with the debt has not been made, claiming it will be “left for the next step.”
 
The sprawling Railway Ministry was rife with corruption. It’s former minister Liu Zhijun was ousted in 2011 for graft, and is currently awaiting trial.