Rail & Infrastructure

Off the rails

Train boss ousted for corruption

Off the rails

Where’s my cut?

On August 8, 1963 a postal train was held up at a railway bridge in Ledburn in England. The heist soon gained fame as The Great Train Robbery. Some of the gang were caught, others fled the country. Accounting for inflation, they stole the equivalent of £40 million, in today’s money. Most of it was never recovered.

The news from China this week is that it may have had a railway robbery of its own. But unlike the British heist, this looks like it may have been more of an inside job.

Last weekend the official news agency Xinhua reported that the head of China’s rail ministry had been removed from his post. The 58 year-old Liu Zhijun – minister of railways and Party secretary of the rail ministry – is being investigated for a “severe violation of Communist Party discipline”. The elaborate phraseology employed by Beijing for such matters normally indicates a corruption case.

The bolder elements of the Chinese press were quick to elaborate on the graft. The Economic Observer quoted an insider from the Party’s Central Commission for Discipline Inspection who said that Liu’s misdemeanours related to Rmb10 billion of train contracts and the Southern Metropolis Daily reported that Liu had received Rmb1 billion of bribes. (Another eye-opening stat: corruption and mistresses seem to go hand-in-hand for Chinese bureaucrats – China Business discovered Liu had an impressive 18).

Securities Daily reported that the suspect contracts may have related to high-speed train equipment purchased from Broad Union Group. The Shanxi-based firm had won massive tenders on the Beijing-Tianjin high-speed railway and other bullet train lines, providing the wheel pairings for the electrically-powered carriages. Broad Union’s boss, businesswoman Deng Shumiao, has been under investigation since January.

Liu’s replacement as head of the rail ministry told the China Daily: “The ongoing investigation into the activities of my predecessor shows the Party’s resolve to punish corrupt officials and pursue clean governance.” He added that the rail sector continues to be a “major battleground” in the war on graft.

The scale of Liu’s misdemeanours will become clearer in coming weeks. What is not in doubt is that China’s gargantuan spending on the rail sector opens up vast opportunities for the less-than-saintly official. In the wake of the financial crisis, the railway ministry was one of the quickest to boost its capital spending, as part of wider efforts to stimulate the economy. For example, in 2009 it spent $102.5 billion. Over the next five years, China has budgeted to invest Rmb3.5 trillion more in high-speed trains.

Liu ran this powerful department for eight years, with three million staff and combining the potentially conflicting roles of owner, operator, supplier and regulator. Many have likened it to a state within a state.

That meant that Liu may have been considered too powerful a figure to purge, even when his own family members were accused of wrongdoing. Liu’s brother was given a suspended death sentence when he was found guilty of hiring an assassin to kill someone about to reveal his own involvement in graft.

However, Liu leaves a considerable legacy. Under his stewardship China built 8,000km of high-speed track, the world’s longest; by 2015 that’s projected to rise to 13,000km.

The current scandal has rekindled debate over how Liu went about his work. One concern is safety. The South China Morning Post quotes a professor from Sun Yat-sen University as observing: “With corruption, the safety and quality of railways will suffer. People will cut costs and lower quality.”

Caijing magazine prefers to focus on another problem ahead: making the huge investments in rail pay. It’s a theme WiC first explored in issue 82, with local governments concerned that their debts to pay for railway construction may not be serviced by ticket receipts. Caijing also cites a recent report from Minsheng Bank that estimates the rail ministry’s annual interest costs will reach a staggering Rmb100 billion (versus Rmb40 billion in 2009). That’s a financial situation it reports to be “worrying”.

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