March 15, 2013
Translated by Li Jing

China has a new state-owned enterprise, the China Railway Corporation (CRC or 中国铁路总公司).

The company is one of the offshoots of the former Ministry of Railways (MOR) and it's charged with handling the business operations of China's passenger and freight rail services.

The company has been set up with registered capital of 1.04 trillion yuan ($165 billion) which was provided by the Ministry of Finance and will be administered by the central government and supervised by the Ministry of Transport (MOT) and the future State Railways Administration (SRA), the other new institution to be formed as a result of the dismantling of the MOR.

Aside from handling passenger and freight services, the CRC will also be in charge of making plans related to investment in and construction of new railway lines. The company will also bear the main responsibility for railway safety. The company will also be expected to shoulder some non-profit, public service functions, including offering subsidised travel to students, the disabled, veterans and also offering discounts on the freight charges for transporting agriculture goods. The company is also expected to cover the losses of the Qinghai-Tibet line and Southern Border line. The central government will provide the company with subsidies to help cover the losses associated with these public services.

An official cermeony to mark the founding of the company was held at what used to be the MOR on Thursday afternoon. The former head of MOR, Sheng Guangzu (盛光祖), was named as  general manager and party secretary of the new company.

Given the amount of debt that the new company is expected to inherit from the former MOR, the central government has said that they will not require the company to pass on a percentage of its profits to the state for the time being.

A New Era

On the morning of Mar 14, the National People's Congress voted to support a plan to reform the functions of the ministries that operate under the country's State Council or cabinet. As part of the reform package, the Ministry of Railways (MOR) is to be dissolved and some of its regulatory duties will be assumed by the Ministry of Transport.

Subsequently, an official document was posted to the central government website that outlined the State Council's responses to various issues related to the establishment of a new company that will inherit the business operations of the Ministry of Railways.

The document noted that the establishment of the China Railway Corporation is a significant act in the deepening of the reform of railway management system, of separating government functions from business and promoting the sustainable development of railway construction and operation.

The Ministry of Finance is expected to release two other official documents that will outline the plan for the establishment of the new company and its articles of incorporation soon.

Dealing with Debt

There are still many unanswered questions about how the new company will deal with the large amount of liabilities that it is expected to inherit from the MOR.

Data provided by the railway authorities indicates that, by the end of the third quarter last year, the MOR held 4.3 trillion yuan in assets, while debts came to almost 2.7 trillion yuan - a leverage ratio of 62 percent.  

Sheng Guangzu said in an interview that "We should seperate out the railway construction debt into that of a public welfare nature and those related to business operations. The CRC and the state will carefully study this and we ask people to not worry."

The State Council also announced that before the debt issue has been dealth with, the state would not require the company to transfer dividends to the Ministry of Finance.

The document issued by the State Council also makes the point that China Railway Corporation inherits the debts previously taken on by the MOR when it signed contracts. Likewise, the company will also inherit the intangible assets, intellectual property, brands and trademarks which were previously owned by the MOR.

The Ministry of Finance will also work with other government departments to help put together a more detailed plan for dealing with the debts.

At least 200 million people are employeed by the 18 railway bureaus (including the Guangzhou Railway Group Company and the Qinghai-Tibet Railway Company) that now come under the control of this new company. According to the document issued by the State Council, all these people will now be employed by CRC. The original assets, debts and personnel of MOR have all been assigned to China Railway Corporation.

Finally, for the purpose of not increasing the cost of railway reform, the State Council has said it will allow the China Railway Company to continue to enjoy the preferential tax policies that originally applied to the MOR.

Links and Sources
Beijing Times: 中国铁路总公司挂牌成立