Crash Put’s Rail Ministry’s Debt in the Spotlight

After the July 23rd train crash in Wenzhou China, where over 40 people were killed, safety isn’t the only thing that has come under the spotlight.

China’s railway ministry is saddled with debt. A debt of over 320 billion US dollars, or five percent of China’s GDP. This debt has built up through the rapid expansion of the railway network. Several railway ministry officials have also been charged with corruption for siphoning off money for themselves.

The railway ministry has been criticized for calling off the rescue efforts early in order to get trains running again. Some analysts believe this is because the railway ministry needs to ensure its cash flow.

[Professor Xie Tian, University of Southern Carolina Aiken School of Business]:

“I feel that this incident, if we look at it from another angle, reflects the railway ministry's anxiety to earn money, and it is feeling pressure to pay of its debts. So there's a concern to return the money it owes, a pressure to make money, so in this state of mind, while trying to get ahead, they don’t care about human life or people’s safety.”

Now after the recent accident, demand for railway ministry bonds has dropped even lower. Standard Chartered economist Stephen Green said in the Chinese version of the Wall Street Journal, he thinks it will be a long time before the railway ministry returns to the bond market. He also doubts the ministry has enough free cash to pay its debt interest.

China’s railway ministry is a self-regulating body and many have called for it to be broken up and sold. Mao Shoulong, a professor of public policy and politics at Beijing’s Renmin University told Bloomberg, quote: “The ministry’s dual role as referee and market player should be ended.”

The Wenzhou crash may be the thing that starts the wheels turning on the road to reform.