A decision to abolish compulsory railway insurance by the Chinese government has won applause from netizens as it signals reform in the sector.

According to a State Council statement on Friday, the regulation, which enables railway operators to charge all train passengers 2 percent of their ticket prices as accident insurance, will be scrapped starting on Jan. 1, 2013.

The statement also abolished a provision in a railway accident emergency rescue regulation, which sets a maximum of 150,000 yuan ($24,050) as compensation for casualties and 2,000 yuan for baggage loss for each passenger.

The railway insurance regulation, created in 1951 and amended in 1992, places a cap on insurance compensation at 20,000 yuan regardless of the passenger seat or class of ticket.

The rule has been widely criticized as unfair and contradictory to the country's insurance law, which states that contracts should be formed on a voluntary basis.

The country ended similar accident insurances for ship and air travellers in 1987 and 1989, respectively.

Deemed as a move to respect free choice, the move has won applause across the Internet.

"Paying insurance or not is a private choice. It's a trend to abolish the compulsory regulation," said a lawyer Xie Ai'bing at Sina Weibo, a popular Twitter-like microblogging service in China.

"I am glad to hear that the compulsory insurance regulation is to be canceled, but it doesn't mean the operators can neglect passengers' safety." posted by a netizen named "Liu Weimin."

The statement came after a widely-spreading Weibo post saying that the Ministry of Railways (MOR) refused to release yearly insurance income in response to an online request.

MOR has been criticized by people since a high-speed train crash in July 2011 in Zhejiang Province, claiming at least 40 lives.

A series of scandals, including the kickback charge of pricey promotional video production of the railway system and an expensive-but-inefficient online ticket booking system, have also raised anger.

People believe the move to eliminate compulsory passenger insurance have unleashed a sign of deepening reform.

"The abolishment is like an icebreaker. Some industrial monopolies should reform," said a Weibo user "Bingzhigongzhijia."

President Hu Jintao addressed the opening of the 18th National Congress of the Communist Party of China on Nov. 8, saying that reform of the administrative system is a necessary requirement for making the superstructure compatible with the economic base.

"The underlying issue we face in economic structural reform is to strike a balance between the role of the government and that of the market," Hu said.

Sun Zhang, a railway transport expert at Tongji University, said the compulsory insurance exemption is a good start of reform towards a market-oriented operation. "It's a huge step for MOR," Sun said.