Container rail network the answer to exports from China’s inland factories
When the new administration in Beijing decided to smash up the corrupt and incompetent Ministry of Railways, it was a step in the right direction.
The New! Improved! China Railway Corp, renamed operator of the dissolved Ministry of Railways, begins life in its new form dragging an anchor as colossal as the organization itself – debt worth almost US$450 billion.
Beijing broke up the corruption-wracked Ministry of Railways and absorbed its regulatory function into the Ministry of Transport last weekend, spinning rail operations off into China Railway Corp.
The market capitalization of the new rail operator is US$170 billion. Contrast that with global bank HSBC’s market cap of $200 billion. Analysts say the debt-asset ratio is 73 percent, comparable to most mainland state-owned enterprises. While the new operation tries to pare down its debt, it will be allowed to function tax free.
Reform of China’s rail ministry was long overdue. The entire network has always been focused on transporting people and the bulk cargo of coal and iron ore that fuel the country’s economy. It is an immense task to get hundreds of millions of people transported around the vast country, especially during peak holiday periods, and years of passenger misery among China’s millions of migrant workers have made Railways one of the mainland’s most hated ministries. Millions of tonnes of coal and ore railed from the coastal ports to each province’s power generating and manufacturing areas have also had to share tracks with passenger trains.
The only thing small about the Railways Ministry was its fares, which had to be kept affordable to the masses. That is unlikely to change, so the profitability pressures will continue, especially if there is no slashing of its incredible two million workforce (incredible in number, not so much in efficiency and service).
In fact, the Ministry of Railways has long been a poster child for inefficiency and corruption. In February last year, its chief Liu Zhijun was arrested and chucked out of the Communist Party for allegedly accepting bribes of US$180 million related to the Shanghai-Beijing high speed rail link, and having 18 mistresses on call (hey bring him back, he forgot his medal). It was also found that former deputy chief engineer at the Ministry of Railways Zhang Shuguang had US$2.8 billion stashed in overseas bank accounts. Or as they say in Thailand these days, he was “unnaturally wealthy”.
Safety was then planted firmly in the spotlight last year when a bullet train went shooting off a bridge near Wenzhou, killing 40 people and injuring 200 with bad safety standards and design problems blamed for the crash.
So the reform of the ministry is a good thing, but only if it urgently improves a long neglected area that is of critical importance to the nation’s economic growth – containerized cargo.
Last year China handled five million TEUs while its ports handled more than 160 million boxes, comparatively way below the volumes handled by trains in the US and Europe. Containers arriving in the port and being transported inland by rail were a measly two percent last year.
The importance of a containerized rail transport network has been amplified by Beijing’s Go West initiative that is forcing makers of low cost, high volume, high polluting goods to move their factories inland. Export containers at factories in central China have two transport options – truck or barge. More than 95 percent of all highways and 65 percent of class-A roads are tolled, creating massive congestion, delays and adding 30 percent to the logistics costs of transporting containers by truck.
Barging down the Yangtze River is a cheaper option, but regular drought means the river is often too low to navigate. Locks on the Three Gorges Dam also suffer from chronic congestion, forcing many companies to truck the boxes around the dam and join the river downstream. This also adds time and cost to the journey.
The only real answer is rail. It is the cheapest, most efficient and most environmentally friendly means of transporting containers over long distances. Instead of one box per truck, trains kilometres long can transport containers stacked two high, greatly reducing the cost per unit.
The Shenzhen ports have recognized this and plan to start a dedicated container rail service to the inland cities of Chengdu, Chongqing and Kunming this year. For factories migrating inland from the former manufacturing heartland of South China, the natural route for export containers is down the Yangtze to Shanghai. A rail route to the Pearl River Delta will ensure the southern ports keep at least a portion of the cargo.
It is worth pointing out that the development of high-speed rail has freed up space for containers and logistics companies have been quick to pounce on any available capacity.
There is some way to go before China will have a fully functional and effective container rail network able to handle the volumes required. But no matter how the new China Railway Corp works out, breaking up the awful Ministry of Railways was a gigantic step in the right direction.