Railways try to get investors on track

As the bidding process for railway projects will be brought into line with other public works, to boost transparency, experts have cast doubts on efforts to tackle a private funding shortage facing the sector.

The Ministry of Railways released its second document in three days on Sunday to announce a major revamp in how construction contracts are awarded. A statement released on Friday looked at the challenge of getting investors.

All transaction centers directly under the ministry will be closed with the tendering process instead handled by local trading points for public projects, depending on location or jurisdiction.

The policy is "a significant transformation" in the way bidding for China's railway projects is managed, the document said.

The announcement followed a statement published online by the ministry on Friday that aimed to encourage more private investment. More information on policies, planning and standards will be made public to keep investors better informed, it said.

However, reception to the offer has been cool, largely, say industry insiders, because the profit share being offered is too low.

"Generally speaking, people are interested in investing in railway programs," said Zhou Dewen. "The problem lies in the profits."

Zhou, who is chairman of the Wenzhou Small and Medium-sized Enterprises Development Association, represents a group of wealthy industrialists in East China's Zhejiang province.

The railway authority in Wenzhou, he said, has been negotiating with entrepreneurs but so far the government is offering just 8 percent of the profits.

"Eight percent is not attractive," he said. Railway programs require huge investment, the sector has suffered losses and entrepreneurs are cautious, he said.

According to data released by the ministry, its debt reached 2.43 trillion yuan ($384 billion) by the end of March, with a debt ratio of 60.6 percent.

The ministry also reported a loss of 6.98 billion yuan in the first quarter.

Meanwhile, fixed investment in railways was 89.6 billion yuan, 48.3 percent less than the same period last year.

The figure was obviously behind the scheduled 500 billion yuan fixed yearly investment set by Sheng Guangzu, the railway minister, in late 2011.

"With the country's stringent monetary policies and shrinking (government) investment, more private capital will be encouraged for infrastructure projects, such as highway and railway construction," said Bao Yujun, president of the All-China Private Enterprise Federation.

In fact, private capital is already involved in railway construction, he said, explaining that a 624-kilometer coal transport line, partially funded by the privately owned Xinjiang Guanghui Industry Investment Group, had begun construction in late March.

However, he warned that it will not be easy to attract private investors into industries that are no longer profitable.

Huang Zhilong, a researcher at the China Center for International Economic Exchanges, said private investors may not be very positive about railways because of the high capital threshold, long investment cycle and low profits.

"To stimulate enthusiasm in the railway sector, authorities have to offer more profitable routes and projects, and give more say in pricing rights to private investors," Huang said.

In the meantime, authorities will forge ahead with efforts to make the bidding process more transparent.

Construction projects under the ministry's 18 railway bureaus will be handled by regional centers in two batches before the end of June, the document on Sunday said.

It also calls for strengthening bidding supervision and promoting electronic bidding as well as computer-facilitated, long-distance bid assessment.

Illegal charging of bidding fees or manipulating bidding would be severely punished, it added. It said efforts should be made to "prevent officials meddling in bidding, collusion and trading power for money".

The bidding process has come in for harsh criticism by the public after a crash involving two high-speed trains in Zhejiang province killed at least 40 people and injured more than 200 others in July.

According to the findings of an investigation announced last December, malpractice and illegal contracts were found in the bidding process administered by the Ministry of Railways and its subordinate bureaus, which resulted in the failure of a train control system that had never undergone field tests before launch, Xinhua reported.

The national auditor said in March that it had uncovered evidence of fraud, waste, mismanagement and irregular accounting and procurement totaling billions of yuan at the ministry's flagship high-speed Beijing-Shanghai railway.

Yang Hao, professor at Beijing Jiaotong University, said that making the bidding process more accountable will improve the image. "Because railway projects need professional knowledge and technology, the ministry used to favor companies and institutions that were connected with the railway system," he said.