Rail Reshuffle to Test China's Reform Tolerance

China's Railways Ministry will be dismantled, part of a housecleaning operation by incoming premier Li Keqiang, sources say. Breakingviews' John Foley discusses the unenthusiastic market response.

Published

3 months ago

Categories

Finance, World, Technology

Topics

Finance, Politics & Government, Asia, Trains

People

Wen Jiabao, Xi Jinping, John Foley

Places

China

Transcript

(SOUNDBITE) (English) GREATER CHINA BUREAU CHIEF, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "China's annual parliament - the NPC - is in session. And so far what we've had is mainly a reaffirmation of targets that we already knew were coming." So Wen Jiabao, the Premier, this morning said that the growth target for 2013 will be 7.5 (percent). Now what we're looking for is some signs of real change. (SOUNDBITE) (English) GREATER CHINA BUREAU CHIEF, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "And one of the really juicy things that we are looking forward to is the idea that the Ministry of Railways - one of the most controversial and opaque and allegedly corrupt parts of the government structure - may be crunched into a new, bigger regulator and have some of its powers removed." (SOUNDBITE) (English) GREATER CHINA BUREAU CHIEF, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "So what's known is that there has been a plan for many years to reduce the powers of the ministry, and to roll it up into the Ministry of Transport, maybe strip out the bit that actually runs the trains and turn that into an SOE (State-Owned Enterprise) or give it to an existing SOE." And because we have a sense that Li Keqiang - who is likely to step in as Premier at the end of this parliamentary session - really wants to streamline some of the government's more odd nooks and crannies, the Ministry of Railways is an obvious candidate. (SOUNDBITE) (English) GREATER CHINA BUREAU CHIEF, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "The Ministry of Railways is kind of unusual because unlike other ministries it has its own schools, it has its own courtrooms. It really doesn't answer to anyone." And that's why it's associated with some quite wide-spread corruption. It's been long felt that the Ministry of Railways needs to be kind of taken down a peg. This plan was first revealed in about 2008, but nothing came of it. (SOUNDBITE) (English) GREATER CHINA BUREAU CHIEF, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "So with a new government stepping in, a new broom taking charge, the hope is that this time the Ministry of Railways will be brought into line with the way the rest of the government works." (SOUNDBITE) (English) GREATER CHINA BUREAU CHIEF, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "So markets haven't responded in the way you might think." What they've done is push down the value of railway-related stocks. Now, its kind of hard to understand why that might be the case - you'd think that cleaning up the ministry, making things more transparent, would be good. In fact, it's probably the opposite. (SOUNDBITE) (English) GREATER CHINA BUREAU CHIEF, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "People quite like...well, investors quite like a sniff of corruption because it usually means reckless spending and good times. And actually what might happen is that if the ministry and the operational entity are separated, there might be a bit of a rethink of whether it makes sense to spend so much on high-speed rail, in particular." There's a 120 billion dollars of spending budgeted for this year on rolling out high-speed rail networks - which are fantastic to travel on. I'm a big fan of the high-speed rail network in China, but that doesn't mean that they make economic sense or generate a return. And the Ministry of Railways has been making losses for the last few quarters. So once this streamlining has happened, we may find that the spending gets slightly reined in. ENDS