Railway firms get boost from State Council

Shares in railway industry-related companies saw robust growth Thursday following the decision at a meeting of the State Council Wednesday to increase investment in China's railways and reform the sector's financing mechanism.

Railway transport firms Daqin Railway Co and Guangshen Railway Co saw their shares climb by 3.77 percent and 3.42 percent, respectively, by close of trade Thursday.

Shares in locomotive and train manufacturing companies also rose, with CSR Corporation shares up by 3.07 percent and China CNR Corporation seeing a 1.80 percent gain.

Analysts said the bullish performance of railway company shares was thanks to the State Council meeting presided over by Premier Li Keqiang late Wednesday, at which it was decided to increase investment in railway construction to 3.3 trillion yuan ($537 billion) from a previous target of 2.8 trillion yuan during the 12th Five-Year Plan (2011-15) period.

"It is a crucial move by the central government to support China's railway development via both financial and political measures," Luo Renjian, chief researcher at the Institute of Comprehensive Transportation of the National Development and Reform Commission (NDRC), told the Global Times Thursday.

The railway industry will see an increase in business opportunities, said Luo.

To ensure financing resources for railway construction, the central government is studying setting up a railway development fund, which will involve both State and private financing.

Private investors will not be involved in railway construction and operation, but will enjoy a stable and reasonable return on investment, according to the statement released after the State Council meeting.

"The fund is a bit like a trust product. It will ensure returns and will be attractive to investors," Luo noted.

As far back as 2004, the central government began to encourage private capital to invest in railway construction, but private investors were hesitant to enter the area, partly because of "its low return rate," said Luo.

The China Railway Corporation, a new national railway operator and ­spinoff of the defunct Ministry of Railways, reported a loss of 6.88 billion yuan in the first quarter, with its debt-to-asset ratio reaching 62.31 percent.

The State Council also decided to speed up railway construction in central and western regions of China, as well as intercity railway development.

"It is a wise move," Sun Zhang, a rail expert with Tongji University, told the Global Times Thursday, explaining that relatively poor transportation infrastructure is one of the major obstacles for economic development in western regions of China.

Sun also noted that the investment fund should be allocated toward construction of ordinary intercity railways, rather than high-speed rail, "which sometimes is a waste of money."

The State Council meeting also required more comprehensive development of the land used by railways and railway stations.

Currently most of the railway stations in China only have one or two floors and lack commercial property development, unlike stations in developed countries.

"Comprehensive development could offset capital shortages for railway construction," Luo of the NDRC noted.