China's push for rail reform could be dead in its tracks

[John Ashworth]

China's push for rail reform could be dead in its tracks

01 Feb 2012 04:59
By Michael Martina

BEIJING, Feb 1 (Reuters) - When Zhang Dong sat down recently to book train tickets for his trip home for the Chinese new year, he got a taste of the frustration that has helped make China's railway ministry a focus of anger against the country's many bureaucrats.

The ministry's touted web-based ticket booking system was supposed to replace the antiquated ordeal of waiting in long queues. It didn't. The system crashed minutes after its launch before the annual holiday migration of 200 million people by rail, and proved as frustrating as any line-up at a station.

"That online system was awful. I spent all night trying to get a ticket," said Zhang, a 26-year-old medical student from central China, towing his suitcase over a bridge toward the busy West Beijing train station days before the lunar new year.

The online fiasco -- which spurred a barrage of criticism -- was the latest in a litany of troubles for the ministry, which has been plagued by scandals and missteps. Some of those problems have been deadly, including a July crash of a new high-speed train that killed 40 people.

But for decades the Ministry of Railways has proven impervious to reform efforts, fending off attempts by leaders to merge it with other ministries or close a separate court system run by the 2.1 million-employee ministry.

A growing chorus of economists and policy-advisers have said the ruling Communist Party must take on "entrenched" interests -- ministries resisting reforms and state-owned businesses enjoying quasi-monopolies -- to unleash a new cycle of market growth and job creation. Some officials have hinted they could take on that job, while senior leaders have been coy.

As the example of the rail ministry shows, it's far from clear whether the Communist Party can rein in the bureaucracy and state-owned enterprises it has built up.

In the wake of the ticketing system crash, the ministry was criticised for offering the contract to build the online platform to a subsidiary company without transparent bidding.

Hu Xingdou, a social commentator and economics professor at the Beijing Institute of Technology, said the government lacked the ability to change the system that supports it.

"The government's status isn't derived from the people's votes, but from the allegiance and endorsement of these entrenched interest groups," Hu said.

"If the government is to strip the power from vested interests, it imperils its own status and erodes its own power base."

FROM REFRIGERATORS TO HOUSES

While the Ministry of Railways has lost little power over the decades, some things have changed -- the scale of corruption, for one.

Twenty-two years ago, $1,100 in bribes, a gold ring and a refrigerator led to the downfall of a deputy rails minister. Since then, household appliances have been replaced by much more lucrative prizes.

The business journal Caixin reported in December that the ministry's recently deposed deputy chief engineer, Zhang Shuguang, in 2002 bought a home in Los Angeles for about $860,000 while on a monthly salary of a few hundred dollars.

In July, state media said another senior rail official, Su Shunhu, was under investigation for receiving a house in Beijing as a gift in exchange for helping a mine transport its coal.

Such scandals, combined with the removal of the railways minister for "severe disciplinary violations" and the deadly July train crash, have fanned calls to reform or even abolish the ministry.

The government has promised to separate the ministry's regulatory and business functions over the next five years, and state media has reported that local courts will replace the ministry's internal judiciary by June.

But the giant ministry, which plans to spend $79 billion on fixed assets in 2012, has dodged the reform bullet before.

In 2007 and 2008, it foiled proposals to merge it with the Ministry of Transport and it has jealously guarded its territory, resisting hiving off its business operations into separate corporations.

Bo Zhiyue, a senior fellow at the National University of Singapore's East Asian Institute, said the demise of officials such as Liu and Zhang often signals shifts in power dynamics among senior political rivals rather than imminent reform.

"Many cases are real instances of corruption, but sometimes they are political struggles, and one person has become the target of a rivalry and his faction lost," Bo said.

BRINGING MINISTRIES TO HEEL

The current reform drive could also stumble, said Zhao Jian, a rail expert at Beijing Jiaotong University who has criticised China's expensive bullet train expansion. For one, the ministry's $2.2 billion debt load could deter any splitting of its business and regulatory arms.

"If you separate the government function from the business function, the transportation enterprise must take on the debt. But if the debt is so great that the enterprise will immediately become bankrupt, then who will take it on?" Zhao said.

Yet a failure to take on the rail ministry could signal trouble ahead for efforts to counter powerful interests elsewhere in the bureaucracy.

Those efforts include a recent push against state enterprises abusing their monopoly position and a plan to create a new energy "super ministry" powerful enough to push reforms past opposition from huge oil, gas and power conglomerates.

Hu, the Beijing professor, said the resistance to reform from the railways ministry and other interest groups at government monopolies was fuelling public ire.

"The effects of these monopolies is quite serious in creating a crisis in confidence in the government among the people," Hu said, noting that they harmed consumers by driving prices up.

"On top of that, these monopolies put private enterprise in a precarious state, making it hard for them to survive, and further warp China's economic structure," Hu said. (Additional reporting by Jenny Su and Sabrina Mao; Editing by Don Durfee and Robert Birsel)