Chinese railway industry opens to private investment

21 May 2012 (Last Updated May 21st, 2012 18:30)

China will open its debt-ridden railway industry to private investment on an unprecedented scale, according to a document issued by the Chinese Ministry of Railways.

China will open its debt-ridden railway industry to private investment on an unprecedented scale, according to a document issued by the Chinese Ministry of Railways.

Private investors will be encouraged to bid for contracts to support the rail industry, which currently is struggling with huge debts and corruption scandals, while subsidiaries will also be allowed to list shares and pension funds may invest in railway companies.

Alstom, GE, Bombadier and Kawasaki Heavy are some of the foreign firms that have secured tenders to invest in the country’s rail expansion, but in several cases they are limited to supplying components, reports Reuters.

The document instruct that China’s current railway project transaction centres, which are under the ministry and 18 railways bureaus, are to be cancelled.

Construction projects under the administration of the railway bureaus will enter local markets in two batches before the end of June 2012.

According to the document, all railway-related projects are expected to enter local public resources trading markets in agreement with authorisation or the location of the projects.

Many foreign companies are said to have been forced to transfer technology to win contracts in China, only to see the country compete for international rail tenders against the technology provider.

In order to remove bottlenecks in cargo transport, ease congestion in passenger transport and develop commuter lines in its sprawling megacities, the country still needs billions more in rail investments.

Due to high operating costs and debt payments, the Chinese railway ministry had lost about $1.1bn in the first quarter of 2012.

The deal will also see strengthening supervision of railway project bidding and promoting electronic bidding, as well as computer-facilitated, long-distance bid assessment.

A light rail system will be built in the city of Wenzhou, under the pilot project for private investment in rail infrastructure, for which Wenzhou citizens are being called upon to finance 50% of the RMB7bn ($1.11bn), at a cost of RMB10,000 per share.