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China's Railways to Issue Some Shares

Posted on: Tuesday, 1 November 2005, 12:00 CST

By ELAINE KURTENBACH

SHANGHAI, China - China's railways plan to sell shares to private investors to help pay for major construction and upgrading of the state-run system, a Railway Ministry official said Tuesday.

China's economic blueprint for 2006-2010, recently endorsed by the ruling Communist Party, calls for the country to spend 500 billion yuan ($62 billion) on the railways, with several slated to launch initial public offerings, state media reports say. Listings could come as early as next year, the reports say.

"If the company is mature enough for an IPO, why not let it be listed on the market?" said Li Deming, a spokesman for the Railway Ministry.

Li confirmed comments by the ministry's chief economist, Huang Min, reported in the British newspaper Financial Times, saying that foreign investors would be able to take minority stakes in national lines and majority or full ownership of local railways.

The railways are due to be divided up into separate companies, and the best-run would be encouraged to go ahead with IPOs, Huang said.

Current plans call for the country to set up five independent corporations, though details of the breakup apparently have yet to be worked out.

As has been the case with most other state companies that have sold shares overseas, the government would likely retain majority control of the strategically important industry and its valuable land assets - limiting outside influence on management.

China's leaders have launched a campaign to promote faster development and greater efficiency in the public transport sector and draw more investment from both domestic and foreign sources, state newspapers reported Tuesday, citing Premier Wen Jiabao.

Wen pointed to China's limited land, large population and low income levels as key reasons to focus on public, rather than private transport.

The need to revamp the railways is gaining urgency.

With its economy growing at a rate of more than 9 percent annually, China's railways transport about a quarter of all volume on only 6 percent of the world's rail length. Two-thirds of cargo is turned away due to lack of capacity, state media reports say.

The government plans to expand the rail system to 62,500 miles by 2020, from the 45,600 miles in service at the end of 2003. It also is rushing to double-track and electrify many lines. Those plans require an annual investment of up to 200 billion yuan ($25 billion), but actual spending is less than 60 billion yuan ($7.4 billion), according to government figures.

China has already begun experimenting with private investment in the railways, on a limited basis, both to boost financing and to help break the monopoly of the state-run lines.

A 775 million yuan ($96 million) line under construction between the cities of Quzhou and Changshan, in eastern Zhejiang province, is about one-third owned by a private company, Changshan Cement Co.

The Guangshen Railway Co., which operates a line running between Guangzhou, capital of Guangdong province, and Shenzhen, which borders Hong Kong, was the first Chinese company to list its shares on the New York Stock Exchange, in May 1996.

Nearly a decade later, the company remains firmly in state hands, with the parent company Guangzhou Railway Group holding a 67 percent stake according to company filings with the U.S. Securities and Exchange Commission.

Guangshen, whose shares also are traded in Hong Kong, holds a monopoly on one of the busiest rail corridors in the world and control of land use rights in one of the country's riches regions. Its shares have traded below their $19 IPO price recently. The stock rose 33 cents, or 2.3 percent, to $14.61 Monday on the New York Stock Exchange.

Source: Associated Press/AP Online

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