Beijing seeks investment in rail container project
Financial Times: November 1 2005
By Mure Dickie and Francesco Guerrera in Beijing
China expects to attract foreign investment in a planned Rmb20bn ($2.5bn, €2.1bn, £1.4bn) container railway service network, a deal that is likely to become a test case for government hopes of expanding overseas involvement in the rail sector.
Huang Min, chief economist at China’s Ministry of Railways, said the container network was one of “seven or eight” big railway projects recently opened to foreign and private companies as part of a government push for more diversified rail investment.
“This project has attracted close attention from very many private and overseas companies,” Mr Huang told the FT in an interview.
The container network will centre on specialist logistic centres and use existing railway lines to link ports with road haulage services.
Mr Huang said the container service network would connect to ports such as Shanghai, Shenzhen, Qingdao, Dalian and Tianjin, which handle much of the country’s manufactured exports.
China’s emergence as a leading global trade power has created a huge need for domestic and international container transport.
However, container services have been a low priority for an overburdened rail network struggling to cope with demand for essential commodities such as coal and iron ore.
The government’s decision to open such projects should allow foreign companies to play a big role in one of China’s most strategic sectors for the first time.
However, the level of enthusiasm among foreign investors is likely to depend on the terms set by the state in a heavily regulated sector traditionally operated with little emphasis on corporate profit-seeking.
Mr Huang said he had told potential investors to join together to research the project’s feasibility and they had promised an early response.
“Many companies have requested a part in this project,” he said. “I think there will be a result soon.”
Industry insiders said the project could draw interest from international port operators such as Hutchison Whampoa, Singapore’s PSA and Dubai Port International.
They argued that controlling the railway lines that move containers inland would enable such companies to cut costs and raise the efficiency of their burgeoning China business.
Chinese authorities have already had contacts with international port groups to gauge their interest in buying a stake in the project.
However, at least some of the international operators contacted by Beijing are understood to have concerns over the state of existing rail infrastructure and the regulatory framework.
In particular, the small size of some Chinese tunnels could reduce the number of containers trains can carry, reducing the cost savings of shipping by rail.
Worries about the tariff structure under which the container network will operate and the heavy capital expenditure likely to be required for the project could also hold back foreign investors.
It is unclear how big a stake in the project overseas investors might be offered, with domestic private companies expected to be involved along with Chinese state enterprises and the railway system.