China’s Railways Ministry Broke, Waiting for Bail-Out

November 3, 2011 7:49 pm Last Updated: October 1, 2015 3:11 pm
China has suspended all new railway construction projects, as controversy swirls over the nation's high-speed network nearly three weeks after a fatal crash sparked safety concerns.  (STR/AFP/Getty Images)
China has suspended all new railway construction projects, as controversy swirls over the nation's high-speed network nearly three weeks after a fatal crash sparked safety concerns. (STR/AFP/Getty Images)

China’s Ministry of Railways has halted 90 percent of projects due to lack of funds, leaving many railway stations, bridges, and tunnels in construction sites across China unfinished, and wages owed to tens of thousands of migrant workers.

The Railways Ministry has halted projects affecting about 10,000 kilometers (6,213 miles) of railway tracks, Wang Mengshu, a scholar at the Chinese Academy of Engineering and deputy chief engineer of the China Railway Tunnel Group, told Chinese media.

When the Railways Ministry couldn’t meet payments on the more than 130 billion yuan (US$20.46 billion) owed to two major railway construction giants, China Railway Construction Corporation Limited and China Railways Group Limited, most projects were halted, Wang told Yangcheng Evening News on Oct. 27.

Wang also said that many migrant workers have not been paid for six months, and in China Railways Group Limited alone, over 2,000 migrant workers were demanding or protesting their unpaid wages.

Additionally, tens of thousands of people working on the Langyu Railway, a major track from Langzhou in Gansu to Chongqing, were owed wages totaling 300 million yuan (US$47.19 million), and were protesting to demand unpaid wages, according to The Economic Observer.

The scale of this work disruption is unprecedented in China’s railway history, a high-level official from a large state-owned engineering company told The Economic Observer. Once a project stops, it triggers a domino effect; many parties, including migrant workers, construction companies, and the equipment and materials suppliers are all affected, he said.

A supervisor at one construction site told First Financial Daily that he has been working in the railway industry for 23 years and has never seen anything this serious before.

200 Billion Bail-Out

Residential buildings sitting between concrete supports of a high-speed train line in Shuandun county, in Hefei, in east China's Anhui province.  (STR/AFP/Getty Images)
Residential buildings sitting between concrete supports of a high-speed train line in Shuandun county, in Hefei, in east China's Anhui province. (STR/AFP/Getty Images)

State mouthpiece Xinhua said on Nov. 1 that the Ministry of Railways will get more than 200 billion yuan (US$31.5 billion) of financial support to improve liquidity, according to sources within the ministry, but didn’t name the source of the bail-out money.

This past year has also seen the Ministry of Railways plagued by scandals related to corruption and poor construction quality.

Liu Zhijun, the former minister of Railways was removed from his job in February and jailed for amassing a private fortune of US$120 million, leaving behind a legacy of mismanagement and debt. Soon after, Zhang Shuguang, a former deputy chief engineer of the Ministry, was sacked and accused of funneling US$2.8 billion into his offshore bank account.

The scandals have tarnished the Ministry’s reputation. Banks have refused to finance its projects or have been asking for higher interest rates, according to First Financial Daily.

In August, the Ministry published its financial statements for the first half of 2011, reporting debts in excess of 2.09 trillion yuan (US$328.88 billion), with a debt ratio of 58.53 percent.

The financial shortfall is not the Ministry’s only problem. The bullet train crash on July 23 also created public doubt and outrage. One former Railway Ministry engineer told The Epoch Times that the crash exposed a lot of problems, causing many people to realize that the Railways Ministry is a bottomless money pit, and as a result, financial backing has dried up.

However, being a huge state-owned enterprise, backed by the Chinese regime, the railway ministry must uphold the legend of never going bankrupt, according to analysts.

Safeguarding the interest of its monopolized state-owned enterprises always takes priority, Jason Ma, a commentator at New Tang Dynasty TV said. The Chinese regime therefore won’t give up on the Railways Ministry, but will rather give up its tight monetary policy and come to the ministry’s aid. This will push inflation and eventually make Chinese people pay [for the bail-out] through inflation, Ma said.

Almost like a bad omen, a locomotive caught on fire early on Nov. 2, the day after the bail-out announcement, when a train was on its way from Tianjin in Hebei Province to Hankou in Hubei Province. The Jingguang Railway, a major railway in China, was shut down for almost an hour as a result.

[email protected]