International Experience Useful for China’s Railway Governance Reform

January 11, 2012

BEIJING January 11, 2012 – Today China has by traffic volume the world’s second busiest freight railway and the busiest passenger railway. This remarkable growth in China’s railway network was achieved under a railway governance and institutional structure unique to China. Changes in transport competition together with the desirability of a more coordinated national transport system suggest that China’s railway industry may wish to consider an alternative structure.

The paper titled Governance and structure of the railway industry: three pillars presents case studies of eight countries (Australia, Brazil, Canada, Germany, France, Japan, Russia, and the USA) which have large railways industries and collectively carry about two-thirds of the world’s total railway traffic outside China, suggesting that there may be useful lessons for China from the international experience.

The paper finds common elements of governance and institutional structure in these eight countries: the existence of a Ministry of Transport with oversight and multi-modal transport policy responsibility; separation of government policy and regulatory functions from the commercial management of railway services; overwhelming preference for company structures, whether private or state-owned, to deliver railway services; multiple service providers; and divisional or institutional separation of freight from passenger services.

“The railway governance and industry structures of the largest national railways outside of China contain three common policy principles, even though these countries differ substantially in most other respects,” said John Scales, World Bank’s China Transport Coordinator. “All eight countries have tried to join-up governance of the transport sector, or at least the land-transport sector, in a single ministry. All have separated the roles of policy-making and transport services delivery in all modes, including railways. And all have seen a need to independently regulate the industry, whether by ministry or agency. ”

If China were to adopt the ‘three pillars’ while still retaining the central role of the state in railway policy and network ownership, it may want to consider the following scenario:

  • A Ministry of Transport responsible for general transport oversight, multi-modal transport policies, transport integration and public resource allocation between modal networks;
  • A National Railway Administration within that Ministry of Transport which would be responsible for railway policy and technical and safety regulation for all railways in China, but without the ownership or service delivery role;
  • A number of large regionally-based autonomous railway companies operating under a special state-owned enterprise law, or under company law; the shares in each company would be owned by a ministry responsible for public enterprises or other suitable ministry which would appoint their boards of directors and they would typically have separate operating divisions or subsidiaries for freight and passenger service;  
  • A number of specialist or separately branded inter-regional services run either as joint-venture companies of the adjacent regional companies, and/or through mutual track access rights granted between the regional companies to be able to use a neighbor’s tracks, and/or as new independent companies operating with track access rights for an access fee which the National Railway Administration could regulate; and
  • A number of smaller railways, including those classified as local, industrial and branch railways under the Railway Law, as well as coal and other resource railways.

Adopting a new, more diversified structure cannot be undertaken lightly. The best solution must reflect actual transport markets. Furthermore, the implementation details need careful investigation by specialists in government and institutes, said the paper.

The paper is the second of a series of papers on transport topics produced by the World Bank’s transport team in Beijing.

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