Ex-Railways Minister Liu Given Suspended Death Sentence

The corruption trial of Liu Zhijun, the disgraced former railways minister who dipped his hand deep into the honeypot of China’s rapid expansion of its high-speed rail network, has been overshadowed by the Bo Xilai affair. Yet it is arguably a purer test of President Xi Jinping’s stated intention to crack down on corrupt officials as it doesn’t carry any of the political theatre of the Bo case.

Liu becomes the most senior official to be sentenced since Xi came to power, though the investigation and arrest of the 60-year old former railways minister predates that. A Beijing court convicted Liu of accepting 64.6 million yuan ($10.5 million) in bribes between 1986 and 2011, though this Bystander suspects that isn’t even the half of it. By some estimates 3% was skimmed off China’s 2 trillion yuan buildout of its high-speed rail system.

Liu’s sentence of death with a two-year reprieve is effectively a life sentence. Sufficient deterrent, not just for what Xi called the powerful “tigers” but also for the low-ranking “flies” that the anti-corruption drive is targeting? More cases of both kinds being brought to court would help, but institutional reform is needed to break the systemic grip of graft.

Breaking Up China’s Railways Ministry

The Railways Ministry’s days have long been numbered. A year ago this Bystander noted a sentence in the to-do list of the National Development and Reform Commission:

We will study and formulate a plan for reforming the railroad system in accordance with the principle of separating government functions from enterprise management and state asset management.

This followed a World Bank working paper that outlined how the powerful and monstrously large ministry could be broken up. One of its key recommendations has been taken up: putting the oversight and planning for rail under a revamped transport ministry with multi-modal responsibilities for coordinating transport. Operations are going into a separate corporation, a likely prelude to sell-offs.  (State media announcement of the ministry’s dismantling.)

China’s is the only significant rail network in the world where the railways ministry makes policy, builds and owns the infrastructure, operates the services and regulates the system. Beyond the obvious conflicts of interests, which have shown themselves most prominently in the scandal-plagued build-out of the high-speed rail network, China’s rail system is just so massive it is beyond the management of a single entity.

Taking on breaking up the railways ministry in isolation would have been a tough political ask for the new leadership. The ministry has long successfully defended the autonomy of its turf. But the combination of the scandals with the high-speed rail build-out and the desire for a less corrupt and more efficient government overall as necessary for the next stage of China’s economic development changed the political calculation. The “gold bowl that will never break’ has, at last, done so, and China’s transport system will be the better for it.

It also sends a signal that the new leadership is serious about taking on structural reform. That it has only managed to pick off some of the (relatively) easier targets–dismantling railways, consolidating coastal patrol agencies and promoting food and drug safety–but not made as much headway in areas such as  financial markets and energy shows where some of the political constraints on it still lie.

GM To Expand Its Dealerships In China

Our man in Detroit tell us that General Motors intends to increase the number of dealerships it has across China to 4,200 from 3,800 by the end of this year. One in ten of those additional dealerships will be for Cadillac, taking the number of its dealerships to 200 from 160. Luxury marques are selling well.

Bob Socia, president of GM’s China operations, is aiming to get ahead of the growing demand for vehicles in what is now the world’s largest car market. Sales of cars and commercial vehicles are forecast to increase by 5%-8% this year, which could take the annual sales total beyond 21 million. Last year they rose 4.3% to 19.3 million vehicles even as economic growth slowed. That, though was a big improvement on 2011’s 2.5% growth in sales, hit hard by the removal of tax breaks for new-car purchases.

The biggest risk to the sales forecast for this year could be more legislation to thin traffic congestion and clean the air in big cities. Guangzhou, Beijing and Shanghai have all already done so. They may see their way to doing more on that front to, if anyone in Beijing can see anything right now. But other cities are expected to start following suit. GM’s dealership expansion could be to keep it ahead of that trend, too.

China Inaugurates World’s Longest High-Speed Rail Line

Train G502 on the inaugural run of the Beijing-Guangzhou line, the world’s longest high-speed rail line.

Passenger service has started on the world’s longest high-speed rail line, connecting Beijing and Guangzhou, a journey of 2,298 kilometers. The link cuts the travel time to eight hours from 21. It is a centerpiece in the build-out of the country’s at times scandal and safety-plagued high-speed rail network which is due to cover 16,000 kilometers by 2015. By then, the Beijing-Guangzhou line is due to be extended to Hong Kong.

China Takes Wing

Another irregular indicator of the reshaping of the global economy: routes within or connected to China are expected to account for 193 million of the 831 million new passengers–almost a quarter–that the International Air Transport Association (IATA) expects to be flying by 2016. Domestic air travel dominates that number. IATA says China’s forecast 10.1% growth rate in domestic passenger numbers to 2016 translates into 158.9 million new domestic passengers. No other country is expected to experience double-digit growth rates over the forecast period.

By 2016, IATA says, China will have the second largest domestic passenger market after the U.S. That is a big reason that passenger traffic in the Asia-Pacfic region will surpass that of North America and Europe by 2016. At that point, China will also have the third largest international freight market by volume after the U.S. and Germany.

China Still Spending Billions On New Railways

A quick update to our note yesterday on China’s newest high-speed trains being tested on tracks that can stand extremes of hot and cold weather: The official Economic Information Daily says that China will invest 2.3 trillion yuan ($366 billion) in its railways over the current five-year plan to 2015. While that is 500 billion yuan less than originally planned, it is still up from the 1.9 trillion yuan spent in the great build-out under the 2006-201o five-year plan.

It is likely that the bulk of the cuts have already been made. Spending was reined in in the wake of the bribery and corruption scandal around sacked railways minister Liu Zhijun and then the Wenzhou crash. In July, state media reported that railway investment spending for this year, at 580 billion yuan, would be up 12.4% on the originally planned 516 billion yuan. Already approved projects were brought forward to counter slowing growth in the economy overall. State media have also reported that China’s railways lost 8.8 billion yuan ($1.4 billion) in the first half of this year.

China Tests The Fastest Train For The Coldest Weather

China’s financial- and safety-scandal plagued high-speed rail system is getting its mojo back. It has started testing its first high-speed rail line capable of operating in bitterly cold weather. The test run was from Harbin to Dalian through three northeastern provinces where winter temperatures can fall to -35° Celsius.

The track is engineered to be operable in temperatures down to -40° Celsius with trains running at an average speed of 350 kilometers an hour (kph). The test train, seen to the right in its shed ahead of the run, covered the 920 kilometer journey in three hours, averaging 300 kph, state media said.

Conventional rails are susceptible to cracking in cold weather and warping in hot. China’s new track is also intended to be operable in extreme heat, up to 40° Celsius. That would make it suitable for use in the high altitudes of the Tibetan Plateau, where temperatures can swing between the two extremes in a single day. That is a double challenge for a railway. Beyond having to operate in a region of permafrost and the associated problems of icing and  snow drifts, rail operators also face the problem of rising temperatures threatening track bed stability. The Qinghai-Tibet railway, the world’s highest, is already familiar with both.

Just because China will have trains that can speed through an extremely cold day — and operate in icy weather and in conditions of poor visibility that road traffic couldn’t safely do at any speed — it doesn’t mean it can do the same with the costs of doing so. Running rail services in cold weather is expensive, as rail companies with long experience of harsh winter conditions, such as Norway, Canada and Switzerland can testify.

Not that that may bother China’s railmen too much. They have become addicted to throwing vast sums of money at having a rail network that is fastest and biggest. Coldest and hottest are just two more superlatives.

China’s Stimulus Spending Back On Track

Subways, railways and bridges. That is what China’s latest growth-restoring stimulus spending will look like for the most part. The railways ministry says it plans to spend 470 billion yuan ($75 billion) on lines and bridges this year, 14% more than last year, when spending was still depressed in the wake of the continuing corruption investigations that have dogged the ministry since its former minister, Liu Zhijun, was brought low on graft charges in 2011.

The new spending goal is also a tad higher than the annual spending figure mentioned early in July, 461 billion yuan, a sign that the government thinks the slow down in growth hasn’t yet bottomed out. The latest figure, and news of 27 billion yuan of bond issues to help finance it, followed a meeting of the State Council to discuss the economy. It is still well short of the 700 billion yuan the ministry spent in 2010. Beijing would also like some private investment in the system, and in the utilities, energy, telecommunications, financial, health and education industries.

Meanwhile, 28 cities have plans to build or extend subway systems by 2015, at a total cost of 1 trillion yuan. That is a potential addition to the local government debt bomb that should raise some eyebrows at the very least. Nor is running a subway system once built necessarily cheap. But that is a problem for tomorrow. Today’s priority, as Prime Minister Wen Jiabao repeated this week, is growth. Not that that makes tomorrow’s problems go away.

Railroading China’s Environment

Construction of the Harbin-Qiqihar railway was suspended at the beginning of this month because its work camps threatened the Zhalong nature reserve (above), a wetlands nesting ground for red-crowned cranes. Perhaps surprisingly, the Ministry of Environmental Protection is proving itself a diligent guardian of the environment in the face of the rapid expansion of the country’s rail network. Even more surprisingly, the scandal-tainted railways have shown themselves to be pioneers in adopting environmental impact analysis and management into their expansion, according to a new paper* by the World Bank.

The world’s largest national railway development program for more than a century poses significant challenges to the environment and humans alike. There is no sugar-coating that. Some new lines cross sensitive ecosystems, are built in fragile mountain ecosystems, pass through densely populated areas, or threaten the traditional social and geographical connections of the countryside.

Environmental and social protection has been integrated into rail infrastructure development on six fronts, the paper says:

• The simplest and most obvious one: routing lines around environmentally sensitive sites.
• Implementing mitigation measures where social and environmental impacts are unavoidable, such as the provision of safe crossings under or over the new lines for humans, domesticated animals, wildlife and irrigation.
• The use in mountainous areas of tunnel-bridge-tunnel schemes instead of embankments, which are at risk of landslides and erosion, despite bridges and tunnels costing half as much again to twice as embankments.
• Recycling of waste materials.
• Minimizing the impact of noise, vibration and erosion during construction.
• Preserving of cultural resources and historical artifacts. The environmental impact assessment that every infrastructure project has to have includes a physical cultural resources survey. Where relics are suspected and impacts probable, detailed site investigation and excavation by experts is conducted prior to construction.

Building railways is disruptive and destructive, beyond doubt. Few residents who have had new lines pushed through where they live would argue with that. While the World Bank paper, No 6 in its series on China transport topics (Nos. 3 and 4 here), casts the efforts of the railways in a favorable light in terms of their sensitivity to the environment, its authors have a number of recommendations for further improvement:

• Current environmental regulations and procedures remain specific to each railway administration. The authors suggests introducing an industry-wide code of practice for railway construction environmental management to standardize good practice and ensure uniform application.
• Environment impact assessment documents are technically strong, but focus on the biophysical environment. Assessments would benefit from deeper analysis of the broader social and cultural impacts, such as land acquisition and involuntary resettlement, and on induced or cumulative impacts.
• The environmental management plan that is often prepared in connection with any bank financing for each project should become mandatory. Such plans turn the conclusions of an environmental impact assessment into measures incorporated in to project design, bidding documents and implementation.

* China: The Environmental Challenge of Railway Development  by Peishen Wang, Ning Yang and Juan D. Quintero, World Bank Office, Beijing. China Transport Topics No. 6,  June 2012.

Party Expels Former Railways Minister Liu Zhijun

Disgraced former Railways minister Liu Zhijun has been expelled from the Party for corruption. He is also taking the fall for the extensive corruption and mismanagement throughout China’s sprawling railway system.

Xinhua reports:

Investigators found Liu used his position to seek huge illegal interests for Ding Yuxin, chairman of Beijing Boyou Investment Management Corporation, maneuvering which caused great economic losses and negative social influence, according to a statement issued by the CPC’s Central Commission for Discipline Inspection (CCDI).

The CCDI also discovered Liu, who the statement labeled “morally corrupted,” had taken a huge amount of bribes and bore the major responsibility for severe corruption in the railways system.

Liu was removed from office in February last year. He will now face criminal charges which carry a lengthy jail term and possibly a death sentence.

The rapid expansion of China’s high-speed rail network has had the bloom taken off it by massive fraud, waste and mismanagement. The Railways Ministry’s all-encompassing control of the system–alone among the world’s largest railways, it makes policy, builds and owns the infrastructure, operates the services and regulates the system, which stands alone from all other forms of transport–is starting to be undone. Last month, plans to allow more private investment into the system were announced, a first step to breaking up the ministry. This would separate the infrastructure from operations, but not go as far as a World Bank proposal to put railways under a new transport ministry.