Chinese authorities on Feb. 12 removed Minister of Railways Liu Zhijun from his post for a "severe violation of discipline," according to the Communist Party of China's (CPC) Central Commission for Discipline Inspection. Liu was not only the first provincial- or ministerial-level official removed in 2011 under China's anti-corruption campaign, but the first minister sacked on duty in eight years. Normally, for the CPC to remove a senior official, political considerations carry greater weight than corruption charges. For Liu, who had held the post for eight years and had been working in the Chinese railway system for more than 30 years, embezzlement and pork-barrel spending may not be an entirely new issue. His political career had been in question as early as 2005 when his brother, Liu Zhixiang, also a railway official, was handed a suspended death sentence for corruption and organized crime, as well as a 2008 train collision that killed 72 people. In fact, few details were reported from official media regarding his crime. However, underneath these corruption charges is concern over prospects for China's high-speed railway (HSR) development and fundamental problems in the country's railway sector. Despite the fact that it is widely expected HSR will receive special attention under a strategic investment package as part of China's next Five-Year Plan (2011-2015), funding seems to be stagnating after Liu's ouster. A Feb. 16 Ministry of Railways (MOR) report said total fixed railway sector investment for 2011 is set at 850 billion yuan ($128 billion), with 700 billion or 82 percent of that sum slated for infrastructure construction — the same amount as in the 2010 plan.

China's Rail Boom

This comes after a dramatic increase in railway investment, aimed at railway expansion and development of HSR, during Liu's term. From 2003 to 2009, railway investment grew from 69.2 billion yuan to 623 billion yuan, nearly 10 times. Under the ambitious 2003 Mid-to-Long-Term Railway Network Plan, approved by the State Council in January 2004, the length of railways in operation was set to reach 85,000 kilometers (km) by 2010 and 100,000 km by 2020, with coverage of dual-line and electricity line rail systems both reaching 50 percent of China's total rail system. Then, under a 4 trillion yuan stimulus package approved in 2008 during the global financial crisis, development was further accelerated, extending the length of railways in operation to 120,000 km by 2020 and coverage of dual-line and electricity line to 50 percent and 60 percent, respectively. (click here to enlarge image) The biggest achievement was in HSR development. The proposal to build HSR was made in the 1990s in a bid to alleviate the strain on existing railways, which were nearing capacity. Intense debates delayed the construction until 2000. The first HSR — the Qinhuangdao-Shenyang Passenger Railway, with designated speeds reaching up to 250 km per hour — was launched in 2003, and the country subsequently experienced an HSR construction boom. The Mid-to-Long-Term Railway Network Plan called for the construction of four north-south and four east-west HSR corridors, as well as three separate intercity corridors by 2020. The total length was planned to be 12,000 km, with designated speeds of more than 200 km per hour, and this was extended to 16,000 km in 2008. By January 2011, China already possessed the world's longest HSR network with about 8,358 km of routes in service, including 1,995 km of 350-km-per-hour rail line. Under the current plan, this total length will extend to 13,000 km by 2012 and include more than 13 lines. From the beginning, Beijing stipulated railway equipment and technology should be produced domestically, not just purchased from foreign companies. HSR technology was initially imported from foreign partners such as Japan's Kawasaki or Germany's Siemens, but Chinese train manufacturers quickly localized the process, significantly improving China's domestically produced high-speed trains and technology with help from state funding and investment in research and development. In 2007, China began to indigenously manufacture high-speed trains with top speeds of 300 km per hour or faster, followed by 350- and 380-km-per-hour trains. Now one of the leading sources of high-speed train technology in the world, China began exporting to multiple countries, including a number of developed markets, enabling China to use so-called "HSR diplomacy" to enhance its presence in other countries. In other words, the development of the HSR industry has significantly reshaped China's railway network, which once lagged far behind other countries and for years was a top public transportation concern due to its inefficiency and congestion.

Financial and Political Pressures

However, while HSR was a major political achievement for Liu, it also was a tremendous burden for the MOR, which was still run in the style of the Maoist command economy. The total construction cost for three major HSR lines built in the past five years, Beijing-Tianjin, Wuhan-Guangzhou and Zhengzhou-Xi'an, was 191 billion yuan. The 1,318-km Beijing-Shanghai line scheduled to become operational in June 2011 cost 221 billion yuan, making it the country's largest single railway investment. These and other rail lines meant large debts for the MOR — estimates at the end of 2009 put MOR debt at 1.3 trillion yuan, including long-term debts of 855 billion yuan — debts that will only increase with the expansion of the railway network. Moreover, HSR is not expected to turn a profit for another 10 to 20 years, according to some estimates. The MOR has attempted to introduce lower prices to attract more passengers, but these prices still run higher than ordinary train prices and are thus out of reach for many low-income people. These concerns have raised sharp questions about how the MOR will manage to pay its debts. Debt pressure on local governments, which are responsible for part of the debt under Beijing's financing plan — some for more than one-third of the cost — also is high. These pressures may have translated into dissatisfaction for the entire railway expansion project and may have added to calls for Liu's ouster. China's railway system is almost entirely under the MOR, making it one of the largest monopolies in the country — the ministry dominates railway operation, investment, procurement, pricing and administration. Despite a series of privatization reforms in other monopolized sectors, including telecommunication, electricity and banking, MOR was one of the last fields to introduce private capital. One direct result of this system was that all profits or subsidies went to only a few MOR-related departments or enterprises directly under the MOR, which resulted in massive corruption. At the same time, with the central government, local governments and banks responsible for much of the MOR's debt (meaning ultimately taxpayers and bank depositors), the ministry did not need to consider the weight of its debt. Extensive criticism also arose from state-owned enterprises that had enjoyed huge profits from the privatization of other sectors but were largely excluded from railways. Foreign countries also demanded greater access for their companies into the sector in their negotiations with Beijing. China's leadership has been mulling reforms to the MOR for years, but Liu, who had worked his way up from the bottom of the railway system — and wielded much influence in the sector — appeared to be a tough opponent. It was widely expected that the MOR would be incorporated into the newly established Ministry of Transportation under the fifth round of ministry reform in 2008, but that idea was subsequently quelled, likely after opposition from interested groups. While Liu's firing is by no means the end of the old-fashioned railway system, it certainly opens up the possibility of reform in the sector. In particular, when the CPC holds its 18th Party Congress in 2012 to fill new state leadership positions and unveil a new round of ministry reform, the railway sector may become a top target. Meanwhile, it remains to be seen whether the country's massive HSR ambitions will be slowed down with Liu's ouster.