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Railway Sector Needs to Be Market-based

A general impression about railway services is that ticket prices are there to rise, not fall.

In busy seasons, such as national holidays when millions more people than normal are on the move, ticket prices go up. But they don't go back down again during off-peak times.

For this reason, a price-thawing initiative in Chengdu of southwest China's Sichuan Province has made the headlines. Local railway authorities have cut prices for two short-distance passenger lines by an average of 30 percent to compete with road services.

Some media outlets have mistaken the move as the first ever price cuts by the country's railway operators. But in fact there have been sporadic price cuts in recent years on some marginal lines.

Although it is a rare step taken by rigid railway authorities, Chengdu's initiative is not worthy of such a fanfare.

What is behind the passionate reaction is the common wish that railway ticket prices should become truly market-based.

A long-standing monopoly, the sector has chugged along with heavy financial burdens in recent years as the transportation market, be it air or road travel, thaws. Flexible pricing coupled with more convenient services has meant aviation and highway operators have seen growing profits.

Their financial edge lies in the opening up of the market, which ushers in competition.

A monopolized market can easily lead to low efficiency and losses. Competition is the best way to improve management, cut operational costs and force operators to provide inexpensive services for consumers.

The changes in the civil aviation sector before and after its major competition-oriented reforms in the new millennium attest to that finding.

For the railway sector, whether or not it can embrace the market will decide its future development momentum.

Raising prices, not opening the market, used to be readily taken as a cure for financial woes. That is why the authorities have jumped to bring in price hikes, against the will of the public, to make up for losses basically incurred by systematic deficiencies.

Reform is not to be shunned. Joint-venture projects in railway building and management are under way on some regional lines but they are on a small scale.

The national blueprint for the medium and long-term development of the sector says the network will be greatly expanded to cater to market demand. To that end, corporate bonds will be issued and non-State investment will be encouraged to provide financial support, according to a formal policy paper issued by the Ministry of Railways (MOR) in July.

The ministry, both owner and supervisor of the industry, is also considering listing part of its elite assets to get more funds for industrial development.

These moves are a sign the ministry is trying to step out of the price hike impasse and shift to other alternatives.

Unfortunately, the call for non-State investment has come to nothing so far. One fear for investors could be the blurred role of the MOR. People are not sure that the ministry, as the guard of State assets, would not interfere in the market to maximize its own interests while damaging those of non-State investors.

Without assuming a detached role as independent market regulator, it will be hard for the ministry to disperse this kind of doubt and push reforms through.

It is time the ministry reformed the fundamental market framework.

(China Daily November 21, 2005)

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