BEIJING, August 28, 2014 – The long international history of attracting private capital to the railway sector may offer some valuable insights to China. A new paper published by the World Bank today has suggested five steps that China could take to attract private capital for railway development.
The paper titled Private Capital for Railway Development looks at how private capital has been attracted to the railway sector worldwide, seeks to identify common characteristics of the more successful experiences, and suggests how those successful characteristics might be replicated in China.
According to the paper, private capital has been attracted to the railway sector through four mechanisms including: (i) private sector provision of specific rail services or assets such as rolling stock; (ii) public private partnerships, (iii) leveraging commercial value of rail assets and increased land value around stations; and (iv) debt and equity financing of railway companies.
As the paper suggested, steps that China could take to attract private capital for railway development include:
- creating a policy and regulatory environment that protects the interests of different types of investors in the railway sector.
- identifying and creating profitable railway markets and entities that are suitable for private sector investment;
- managing the perception of risk in railway activities and assets;
- promoting asset sharing opportunities; and
- expanding Public Private Partnerships (PPPs) in rail assets and services.
“Private sector investors seek to earn a return on their investment that is commensurate with the risk of the investment. Therefore they will be attracted to profitable opportunities with manageable risk,” said Martha Lawrence, Senior Transport Specialist and a co-author of the paper. “Creating a regulatory framework for railways that is clear, objective, reliable, compensatory and neutral between public and private suppliers of similar goods or services and enhancing protection of rights of minority shareholders would be effective ways to reduce private investors’ perception of risks and increase incentives for them to invest in the country’s railway development.”
This paper is part of the China Transport Note Series to share experience about the transformation of the Chinese transport sector produced by the World Bank in Beijing.