Fears of Ticket Hikes As China Scraps Indebted Railways Ministry

China has decided to dismantle its powerful but indebted railways ministry in a bid to boost government efficiency and tackle corruption, a move that some Chinese Web users worry could mean higher ticket prices on the horizon.

The massive monopoly will be split into two arms, with its administrative powers coming under the Ministry of Transport. A company will be established to run China’s commercial railway operations.

The Ministry of Railway leaves a massive debt of 2.66 trillion yuan (420 billion US dollars), and officials have not yet decided how to deal with it, Wang Feng, deputy director of the State Commission for Public Sector Reform, said on March 11, 2013. That decision will be “left for the next step,” he said.

The ministry has long been a target of accusations of corruption and a hotbed of scandal. In 2011, a collision between two high-speed trains triggered outrage online. In 2012, Chinese questioned the frustrating ticket-booking website that cost the railways ministry 300 million yuan (47.8 million US dollars) to build, as well as promotional video that cost 18.5 million yuan (2.94 million) to produce.

Chinese media have welcomed the break-up of the ministry. China Daily commented:

China's state-owned Jiangsu TV  reports about the scrap of the railways ministry(A screenshot on youku)

China's state-owned Jiangsu TV reports about the scrap of the Ministry of Railways (A screen shot on youku)

The just-unveiled plan to reshuffle State Council agencies may not be as broad or thorough as some anticipated, but even with some apparently ‘interim’ arrangements, it is a welcome move.

However, the move triggered [zh] an outpouring of pessimistic response on the popular Chinese microblogging site Sina Weibo. Many worried that it would a rise in the price of train tickets. One Web user “Su Qun” wrote [zh]:

苏群: 铁道部变成公司,对老百姓或许并不是什么好事。。。过去的问题只是买不到票,将来可能会变成买不起票。。。铁路寡头没有私营公司竞争,又有经营压力,就会想方设法把2万亿旧账转嫁到车票上。。。过去有行政铁笼,一没了束缚,就成森林之王,和石油公司一样。

The Ministry of Railways will turn into a company, which might not be a good thing… In the past, the problem is just that we cannot get a ticket, maybe in the future, we will not be able to afford one… The railway company will not have any competition with private companies, yet they will face economic pressure. They will try many different ways to pass the 420 billion US dollars in debt onto the train tickets. They used to be bound by the administration. Now it's gone. They have become the king of the forest, just like oil companies.

User Laoxu echoed [zh]:

老徐时评: 铁道部最后一任部长盛光祖讲,票价是偏低的今后将按照市场规律办事。你们不是总嚷嚷要撤了铁道部吗,又一个牛 逼闪闪的垄断性国企即将诞生,从此将放开手脚去追逐市场利润…

The last Minister from the Ministry of Railways, Sheng Guangzu, said the fare is rather low. In the future, they will set the price in accordance with the rules of the market. You guys called for the ending of the Ministry of Railways; now a shiny monopoly of state-owned enterprise is born. They will soon be chasing market profits…

User “Wuyue Sanren” thought [zh] the move is a trick to get rid of the ministry's enormous debt:

五岳散人: 铁道部被合并取消这事儿大概我算是明白了,这招叫做金蝉脱壳。一旦取消合并之后,是政治上、舆论上的负资产会消失,部委都没了,骂人都找不到主语;经济上市场化,抛掉债务转成商业行为,等于切割不良资产。高,真他妈高。

I understand why the Ministry of Railways has been scraped. This trick is called “escaping by crafty scheme”. Once scraped, the negative equity in politics and from public opinion will disappear. Since the ministry is gone, no one can find a subject to blame. Adopting a market-oriented approach and making the debt the responsibility of a commercial enterprise is the same as cutting a non-performing asset. This is damn brilliant.

Economist Lu Zhengwei also asserted [zh] high debt is the momentum for the reform:

鲁政委: 铁道部已成历史,有关部门誓言市场化改革,所有这一切的推手,其实是高负债使 然:"甩包袱""嫁丑女"一直是中国30多年来的改革推进逻辑。那么,让下个十年的政府改革动力,预计也只能来自财政赤字的爆棚。还是20世纪初的熊彼特 有远见:财政,是理解一切制度变迁的关键。

High debt is the momentum for the reform of the Ministry of Railways. The Ministry of Railways has become history. The relevant departments vowed to enact market-oriented reforms, all of which are pushed by high debt. “Marry the ugly woman” has been the logic behind reform for the past 30 years. So, the government reform momentum in the next decade is also expected to come from the bursting of the budget deficit. Just like [economist] Joseph Alois Schumpeter from the early 20th century said: Finance is the key to understanding all institutional change.

Journalist Xiao Feng from New Weekly [zh] concluded [zh]:

肖锋 : 新铁路总公司背2.6万亿巨债,势将宣布新一轮涨价。这应和了“改革=涨价”的老路子。以改革之名,行涨价之实,医改如此,教改如此,房改如此,撤并铁道部亦如此。如此如此。

The new Railway Company will have a huge debt of 2.66 trillion yuan(420 billion US dollars), which will lead to a ticket price increase. This is the old way of “reform = price increase”. In the name of reform, the real deal is the increased prices, so is health reform, education reform, and housing reform. The break-up of the Ministry of Railways is also the same.

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