Concerns over big projects as China scraps railway ministry

China`s decision to scrap the debt-ridden Railway Ministry as part of the government revamp has raised concerns over the fate of non-profitable rail projects.

Updated: Mar 13, 2013, 19:22 PM IST

Beijing: China`s decision to scrap the debt- ridden Railway Ministry as part of the government revamp has raised concerns over the fate of non-profitable rail projects in remote places like Tibet while banks are worried about recovery of over USD 43 billion loans extended to railways.

Lawmakers of the National People`s Congress, (NPC) expressed concern that the construction of a non-profit railway in western regions may be jeopardised if the Railways Ministry is split, with its regulatory powers going to the Transport Ministry, and its operations to be handled by a commercial entity.

"The railway system in southern Xinjiang, such as in Hotan, is hardly going to be profitable, but it plays an important strategic role.

As a profit-driven company, I wonder how the new railway company will deal with the relationship between regional development and profit," Nur Bekeri, chairman of the Xinjiang Uygur autonomous region.

He questioned the logic of making investments in the non-profit yielding projects in the border areas.

"How can the company continue to invest in railway construction in border areas in western China while losing money?" he asked.

Xinjiang shares borders with eight countries, including Pakistan Occupied Kashmir (POK), Kazakhstan and Kyrgyzstan.

On March 10 Chinese government has downsized ministries from 27 to 25 scarping Railway and Health Ministries and merging them with different entities.

"There would be uncertainty if the Ministry of Railways ceased to exist because under the current system it`s easier for the ministry to approve construction plans in the region," said Qiangba Puncog, deputy Party chief of the Tibet autonomous region.

He said the cost of building railways in high plateau areas was extremely high and it was not something a company would like to do if it doesn`t make money.

"The railway company might focus its business in developed areas because it`s more profitable, and pay less attention to less populated areas," said Lobsang Jamcan, chairman of Tibet.

Raising strategic concerns, Wang Mengshu, a member of the Chinese Academy of Engineering said, "Many routes are non-profitable but have strategic value. Take the Qinghai-Tibet railway as an example. Which body would cover such losses if the ministry is split? Also, the transportation of disaster relief goods and equipment used in cross-regional military exercises is free. Who will pay for that in the future?"

The dissolution of the Railway Ministry also raised concerns among bank officials whose banks have extended huge loans.

China`s financial stability might be compromised if the railway ministry`s considerable liabilities, especially those issued by banks, are not well managed, said banking officials and executives said.

Yi Gang, deputy governor of the central bank, said authorities must handle existing railway loans and bonds properly as the government splits the railway ministry into two organisations.

Ding Zhongli, vice-president of the Chinese Academy of Sciences, said the government could provide subsidies to the railway company if its business loses money in western regions.

According to a financial report from the Ministry of Railway, liabilities stood at 2.
66 trillion yuan (over USD 43 billion) by the end of September against total assets of 4.3 trillion yuan.

The Chinese railway debt load is larger than Denmark`s economy, according to officials.

Zhang Jianguo, president of the China Construction Bank Corp said "The question facing the loans is who will assume the debt - the administrative or the commercial spin off.
In addition, dealing with the credit cards issued to the ministry`s 2 million employees and their pension funds could also become a thorny issue.
"The government must keep close watch over the debts to guarantee the stability of the financial market, he told the Daily.