Recently, "the cold reception of private capital in the Chuan'nan Railway" has attracted public attention. The Chuan'nan Railway is a purely local railway company established by Sichuan Province. The local government intended to use this railway as a pilot field for innovative railway investment and financing reform and opening to social capital. However, since its preparation half a year ago, no social capital has joined the shareholder camp. Helplessly, the local government had to request the Railway Corporation to take a stake.

 

　　Opening railway construction to private capital has a long history. Policy barriers have not only been removed long ago, but "embroidered balls" have even been frequently thrown to social capital as a gesture of goodwill, which is different from other monopolistic industries such as petroleum, telecommunications, and electricity. As early as 2005, the former Ministry of Railways issued the "Implementation Opinions on Encouraging, Supporting and Guiding the Participation of Non-public Economy in Railway Construction and Operation," encouraging non-public capital to participate in the construction of railway trunk lines, branch lines, local railways and their bridges, tunnels, ferry facilities, and the renovation of existing lines through investment and shareholding, project financing, cooperation, and joint operations; in May 2012, the former Ministry of Railways issued the "Implementation Opinions on Encouraging and Guiding Private Capital to Invest in Railways," reiterating the importance and urgency of introducing private capital; in August 2013, the State Council issued the "Opinions on Reforming the Railway Investment and Financing System and Accelerating Railway Construction."

 

　　On the one hand, railway construction has long been plagued by funding shortages, mainly relying on loans and bond issuance to raise funds. Currently, the debt has reached as high as 3 trillion yuan, and the debt ratio has climbed year by year to 63%, reaching the limit of what railway construction can bear, urgently needing to introduce "fresh water"; on the other hand, the huge volume of private capital also lacks effective investment channels. Coupled with policy encouragement, logically, private capital participation in railway construction should be common. But in fact, in recent years, cases of private capital participating in railways are few and far between. In several railways where joint ventures have been established, private capital has either withdrawn sadly or barely managed to operate, with almost no successful cases.

 

　　"The state wants to retreat but the private sector does not advance"—why is private capital not interested in investing in railways?

 

　　The most obvious reason private capital is unwilling to invest in railways is that railway investment belongs to an industry with a long construction cycle and high debt ratio, and has certain public attributes. Although the return rate is stable, it is not too high, which makes it less attractive to private capital. However, this cannot explain why private capital is willing to invest in other public utilities such as highways, or even willing to invest in heavy chemical industries with higher debt ratios. For example, East Hope Group has invested in building electrolytic aluminum plants in Inner Mongolia, Xinjiang, and other places. It should be noted that the operational risk of electrolytic aluminum is greater, and the return rate is not necessarily higher.

 

　　The deeper reason lies in market regulation. The regulation of the railway industry is reflected in two aspects: first, freight rate regulation; second, line allocation rights regulation.

 

　　First, freight rate regulation. Passenger lines, facing full competition from highways, aviation, and other rivals, have relatively reasonable pricing despite being regulated. What is more complicated is freight lines. Since transported goods include coal, grain, and other production and living materials that are related to the national economy and people's livelihood, and some lines also undertake emergency rescue and even public welfare transportation, freight rates are divided into market freight rates, public welfare freight rates, and policy freight rates, and these are entangled and unclear, thus regulation is justified. Even freight rates, which have been raised for many consecutive years, are still lower than highway freight. There should be a reasonable subsidy mechanism in this regard. At present, public welfare and policy transportation subsidies are still under study and formulation. Without a proper subsidy mechanism, social capital finds it difficult to enter.

 

　　Second, line allocation rights. Like the power grid, railway transportation also requires unified dispatch; otherwise, efficiency will be sacrificed. It is unrealistic to call for the decentralization or liberalization of allocation rights. The biggest problem with allocation rights is that they are not transparent enough, involve black-box operations, rent-setting and rent-seeking, and breed corruption. Last December, Ma Junfei, former deputy director of the Hohhot Railway Bureau, was sentenced to death with a two-year reprieve for accepting bribes and having huge property with unidentified sources, involving 130 million yuan in illicit funds. Ma Junfei's 269 bribery instances were all concentrated in areas such as improving the fulfillment rate of railway plans or increasing railway coal transportation volume, that is, allocation rights. Therefore, line allocation rights must be open and transparent, and an external supervision mechanism must be established. Otherwise, the railway department, acting as both athlete and referee, will be unwilling to delegate power, and private capital can only be deterred.

 

　　Whether it is the reform of freight rates or line allocation rights, both are part of the railway system reform. Only by advancing railway system reform first can private capital be attracted, not the other way around. Some people believe that by attracting private capital and forming diversified investment entities, railway system reform can be forced. This reverses the causal relationship, and facts have proven it is not feasible.

 

　　In addition to market regulation, private capital is also concerned about the right to speak in joint ventures. The Beijing-Shanghai High-Speed Railway is a cautionary tale. Although Ping An Insurance led the investment in the Beijing-Shanghai High-Speed Railway in 2007 and became the second largest shareholder, it eventually wanted to withdraw capital because in the joint venture it had "no dividend right, no management right, and no right to make suggestions." Without the right to speak and not playing by corporate governance rules, which company would dare to play with the "railway giant"?

 

　　Institutional construction is also "infrastructure," soft and intangible. If this institutional "infrastructure" is not solid, the "high-rise buildings" of mixed ownership will be difficult to build. If the "railway giant" wants to attract private capital and retain it, it needs to first lay a good "infrastructure."