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According to a detailed assessment report published by China’s State Council Information Office (SCIO), all the measures outlined in the National Human Rights Action Plan of China (2009-10) had been successfully put into place by the end of 2010.
The report published on July 14 paid specific attention to the implementation of policies safeguarding citizen’s economic, civil, political, social and cultural rights, and human rights in other spheres.
In April 2009, the SCIO published the action plan. This was China’s first national plan on human rights.
“With the compilation and implementation of the action plan, citizens’ awareness of human rights has increased,” said Wang Chen, Minister of the SCIO.
“The fulfillment of all the targets and tasks in the action plan as scheduled shows that the cause of human rights in China has entered a new stage,” he said.
Better lives
Between 2009 and 2010 China faced a difficult economic situation. The global financial crisis imposed a heavy toll on China’s economic and social development, and posed severe challenges to people’s livelihoods and human rights, the SCIO report said.
Facing these difficulties the Chinese Government adopted a series of countermeasures, including a 4-trillion-yuan ($586 billion) economic stimulus package, to push forward programs related to people’s livelihoods and infrastructure development. As a result, China was the world’s first major economy to emerge from the global financial crisis and substantially improve its people’s livelihoods.
In 2009 and 2010, China’s GDP increased by 9.2 percent and 10.3 percent, urban residents’ disposable income rose by 9.8 percent and 7.8 percent, and rural residents’ net income went up by 8.5 percent and 10.9 percent, respectively.
To create employment opportunities for working-age people and protect the legitimate rights and interests of laborers throughout the country, the action plan prompted the government to implement the Employment Promotion Law.
According to the SCIO report, 22.7 mil- lion new jobs were created in urban areas, 26.1 percent higher than the target set by the action plan, and 19.39 million farmers found jobs in cities, 7.7 percent higher than the target set by the action plan. Urban registered unemployment rates remained steady at 4.1 percent, 0.9 percentage points lower than the plan’s 5 percent ceiling.
Meanwhile, the report said living and working conditions in China’s rural areas improved significantly.
At the end of 2010, the number of people living below the poverty line at 1,196 yuan ($186.41) of annual income decreased to 26.88 million, 13.19 million fewer than at the end of 2008. The number of people covered by the urban basic old-age insurance reached 257 million, 38 million more than at the end of 2008. As of 2010, the basic medical insurance for urban residents covered 430 million people, while the new rural cooperative medical insurance covered 836 million people. The total number of insurance participants reached 1.26 billion, or over 90 percent of the country’s population.
Figures from the SCIO report indicated the right to education had been fully guaranteed. In 2010, the state exempted 130 million rural students from paying tuition and other fees, and subsidized about 12.24 million boarders from poor rural families. At the end of 2010, 100 percent of the school age population had access to the nine-year compulsory education. Only 4 percent of the population above 15 years of age remained illiterate.
Safeguarding farmers’ rights and interests was emphasized by the action plan.
Local governments have published uniform standards for land requisition and raised the compensation level by 20-30 percent and even over 100 percent in some places, the report said.
A dynamic mechanism for adjusting compensation standards has been established, under which the compensation levels for land requisition are adjusted every two or three years.
Social administration
In 2009 and 2010, China took effective measures to enhance democracy and the rule of law, actively and steadily advancing the reform of the political system, the SCIO report said.
It said a socialist legal system with Chinese characteristics has been estab- lished, covering all sectors of social life and all aspects of human rights protection.
In June 2010, the Supreme People’s Court and the Supreme People’s Procuratorate jointly issued a document, stipulating confessions and witness testimony obtained by illegal means such as torture should not be taken as evidence to support a court ruling.
Meanwhile, measures on forbidding illegal detentions by law enforcement personnel have been implemented in the past two years, according to the report.
In 2009 and 2010, procuratorial organs filed and investigated cases involving 1,002 government functionaries who had taken advantage of their positions and powers to conduct illegal detentions, take revenge, disrupt election and commit other crimes. Courts at all levels held hearings for 18,600 cases of illegal detention, including those committed by government functionaries who abused their positions and powers.
In February this year, the Standing Committee of the National People’s Congress (NPC), China’s top legislature, adopted the eighth Amendment to the Criminal Law.
The amendment abolished the death penalty for 13 types of economic and nonviolent crimes, such as fraud. The reform reduces by one fifth the total number of crimes punishable by the death penalty.
It also listed progresses achieved in the
past two years in guaranteeing people’s rights to know, to participate, to be heard and to oversee.
On March 2010, the NPC passed a resolution on the revision of the Electoral Law, stipulating urban and rural deputies to people’s congresses shall be elected in accordance with the corresponding population proportion, so as to ensure citizens’ equal right to vote. Rights of special groups
China has taken further measures to protect the rights and interests of ethnic minorities, women, children, elderly people and the disabled.
According to the SCIO report, China earmarked 2.779 billion yuan ($433.14 million) as a development fund for ethnic minority groups in 2009-10. In Tibet, 46,000 households of Tibetan farmers and herdsmen moved to new houses in 2010.
At present, all 55 minority ethnic groups in China have representatives in the NPC. Of all the deputies to the 11th NPC, 411 are from ethnic minorities, accounting for 13.76 percent of the total. On the 11th NPC Standing Committee, 25 members are from ethnic minorities, accounting for 15.53 percent of the total.
By the end of October 2010, the state had provided 16.61 billion yuan ($2.59 billion) in small loans to aid 410,500 women across the country to start up businesses.
Women’s right to participate on an equal footing with men in the management of state and social affairs has also been guaranteed, the SCIO report said.
Women account for 21.3 percent of all deputies to the 11th NPC, and female members account for 17.7 percent of members of the 11th National Committee of the Chinese People’s Political Consultative Conference, China’s top advisory body. The proportion of women in leading government posts, at all levels, is increasing.
The legal system for the protection of minors has also been improved.
By 2010, among all the country’s provinces, autonomous regions and municipalities directly under the Central Government, 18 had revised relevant local regulations to conform to the Law on the Protection of Minors, and five had made lo-
cal regulations on the prevention of juvenile delinquency.
Moreover, welfare institutions for children have been established in cities at and above the prefecture level all over the country, basically forming a service network for child welfare, the report said.
The Central Government allocated more than 2.5 billion yuan ($389.63 million) to offer per-capita subsidies of 180 yuan ($28.05), 270 yuan ($42.08) and 360 yuan ($56.10), respectively, every month to orphans in eastern, central and western regions.
The rights of disabled people also assumed a higher position in the government’s agenda under the action plan.
“China has 83 million people with disabilities, 6.43 percent of the total population, and their rights are now better protected by law,” said Wang Naikun, a senior official with the China Disabled Persons’ Federation.
In the past two years, the basic problems of food and clothing were solved for more than 4 million disabled farmers, and the dilapidated houses of 220,000 households of impoverished disabled people living in rural areas were renovated, Wang said.
The government has also paid attention to the treatment of disabled people at the community level, building 145,000 rehabilitation stations across the country, the backbone of the national rehabilitation system. More than 40,000 children under 4 years old are being properly treated in a special program established to help disabled children from poor families.
Wang said 625,000 disabled people found jobs in urban areas during the two years. The government had built 2,504 occupational training agencies where 833,000 disabled people had received training. The working urban disabled population is 4.43 million and the working rural disabled population is 17.57 million.
Despite the remarkable improvements in many fields, the SCIO report admitted the cause of human rights in China was still facing many challenges. Minister Wang said the Chinese Government was drafting a new national human rights action plan for the next four years, which would set“comprehensive and systematic” goals in various fields of human rights and measures to achieve the goals.
While China mourns the lives lost in the high-speed rail crash on July 23 near Wenzhou, the accident’s far-reaching implications for the economy are being increasingly felt.
One casualty of the disaster is likely to be the country’s ambitious plan to press ahead with a building spree of high-speed railways—the crash may lead to a delay or scaling-down of these projects.
The Chinese Government has poured exorbitant sums into developing the world’s largest high-speed rail system, which had reached 8,358 km of tracks by the end of last year. It is expected to exceed 13,000 km by 2012 and 16,000 km by 2020. The train collision was the first serious accident involving China’s bullet trains, which began running in 2007.
China aimed for a small decline in railway infrastructure investment this year, setting the annual spending target at 745.5 billion yuan ($115.6 billion). But now many analysts believe China could miss that target, as it will have to slow down the pace of construction and focus on rail safety.
“Since 2008 China has experienced a significant leap forward in railway building,” said Song Bin, a senior analyst with the Beijing-based Tianxiang Investment Consulting Ltd. “The speed of construction is set to slow down.”
Whatever the cause of the crash, China will attach greater importance to making its bullet trains safer, said the Ping An Securities Co. Ltd. in a recent report.
“The government is bound to tighten its efforts to address problems in train dispatching and signaling systems and railway management,” the report said.
Jiang Langting, an analyst with the Gao Hua Securities Co. Ltd., said the accident, along with other recent malfunctions in high-speed rails, can help push forward a new round of reforms within the Ministry of Railways (MOR).
“It is now imperative for the ministry to heighten its management efficiency and profitability,” Jiang said.
Zhao Jian, a professor at the School of Economics and Management of the Beijing Jiaotong University, said this accident is the outcome of exponential development in highspeed railways.
“The MOR should rethink the development model of high-speed railways and balance speed and quality, as well as benefits and safety,” he said.
Even before the crash, high-speed rails were the target of criticism due to possible environmental damage and ticket prices that are too high for ordinary Chinese consumers.
“After so many years of rapid expansion, China’s high-speed railway investment needs to take a breath,” said Zhen Yi, an analyst with the GF Securities Co. Ltd. in Shenzhen.
“However, it’s very unlikely for the country to give up those lines already under construction, which involve trillions of yuan in total investment,” she added.
As the Chinese economy moves out of the shadow of the financial crisis, robust investment deserves much of the credit. But economists believe the recent railway tragedy will promote policymakers to put the breaks on aggressive investment expansion, marking a turning point in the country’s growth model.
“Authorities may choose intentionally to slow economic growth gradually but firmly
to 7-8 percent in following years and spend more time fixing the problems caused by fast growth,” said Minggao Shen, chief economist for Greater China, Citigroup Inc.
Financial strains
Meanwhile, worries have been abounding about the debt sustainability of the MOR since the accident may hinder its ability to finance future projects.
In a move to fund massive high-speed railway projects, the MOR has taken on a mountain of debts. By the end of June 2011, debts of China’s railway operators, all affiliated to the MOR, had totaled 2.0907 trillion yuan ($324.1 billion), with an asset-liability ratio of 58.53 percent, slightly up from 58.24 percent in the first quarter of this year, according to data from the Shanghai Clearing House, an inter-bank clearing house under the People’s Bank of China, the central bank.
The Ministry of Finance and the MOR are the only government departments that can issue direct financing such as short-term financing bills, corporate bonds and mediumterm notes.
On July 21, the finance ministry planned to auction short-term financing bills of 20 billion yuan ($3.1 billion) with a yield of 5.18 percent, but only raised 18.7 billion yuan ($2.9 billion). Concerns are rising that the MOR’s securities may further lose their appeal to investors due to the deadly accident.
Now, after the recent accident, demand for railway ministry bonds has dropped even lower, said Stephen Green, a Hong Kongbased economist with the Standard Chartered Bank.
“It will be a long time before the MOR returns to the bond market,” he added, citing doubts if the ministry’s operations can generate enough free cash flow to cover the interest payments on its debts.
“If the ministry is a company, then it already faces the risk of going bankrupt,”said Zheng Ruxi, an analyst with the Huatai Securities Co. Ltd. “But it is a government agency, and its bonds are guaranteed by government credit, which provided a cushion against the impact of the train crash.”
Zhao Qingming, a senior researcher with China Construction Bank, said the MOR, with solid and stable returns, remains an appreciated customer for commercial banks, and the tragic train collision will not change its credit rating.
His view was shared by Guo Tianyong, Director of the Research Center of China’s Banking Industry under the Central University of Finance and Economics, who said the accident will fuel the MOR’s risks but won’t alter the big picture.
Chain reaction
As China is likely to curtail railway investments, a number of relevant industries may receive a heavy blow, such as those that supply cement, steel and coal. The China Galaxy Securities Co. Ltd. estimated that 700 billion yuan ($108.5 billion) of railway investments could create demands for 30 million tons of steel and 140 million tons of cement.
Bearing the brunt are also a string of railway equipment manufacturers, including China Railway Signal & Communication Corp. (CRCS), one of the contracted builders of the signal system of the Ningbo-TaizhouWenzhou Railway, where the crash occurred.
As the state-owned company gears up to debut on the stock market next year, many fret that the accident has cast an ominous shadow over the prospect of its initial public offerings.
In addition, Chinese manufacturers of bullet trains—CSR and CNR—are also expected to suffer painful losses. The two companies are competing for export orders of high-speed trains, technologies and equipment, as well as contracts to make bullet trains overseas. CSR, for example, in December 2010 signed an agreement with the U.S. conglomerate General Electric to make high-speed trains in the United States. Just because of the latest accident, they are experiencing a frustration on the path of expanding offshore.
“The disaster exposed key flaws in China’s railway system and it could take 20 years for local train and rail builders to convince foreign buyers their high-speed technology is safe,” said Edwin Merner, President of Atlantis Investment Research Corp.
“The accident does not mean the end of high-speed trains, but it will force other countries to think more about whether they really need it and where they get those technologies,” said Ingrid Wei, an analyst at Credit Suisse.
Li Xuerong, a senior researcher with the Shenzhen-based think-tank CIConsulting, downplayed the worries, saying “despite the stumbling blocks, Chinese companies will adhere to the significant strategy of going global and lay a solid global foothold.”
Meanwhile, the ripple effect of the accident is spreading throughout the economy.“The train crash may damp demand for property in cities along new railway lines,” said Credit Suisse, in a report.
“Chinese policymakers vowed investigations into the illegal confiscation of land by local governments in the name of railway and highway development. And the recent accident could trigger a movement that may affect developers’ existing land banks,” said the report.
The only beneficiary may be airlines, which faced intense competition from high-speed railways. After the ZhengzhouShanghai Express Railway came into operation in February 2010, Henan Airlines saw passenger numbers shrink by half and eventually shut down the route in January 2011.
But since the train accident on July 23, the balance of power has been obviously tipping in favor of airlines. As many travelers consider flying a safer option, air ticket prices across the nation have staged a powerful rebound.
“We believe airlines in the short term may regain market shares lost to high-speed railways, as travelers’ confidence in China’s high-speed railways could take time to rebuild,” said Goldman Sachs in a report.
“Over the longer term, however, we expect safety issues to be resolved and, in our view, high-speed railways will still be a competitive and energy-efficient mode of transportation in China,” it concluded.
The report published on July 14 paid specific attention to the implementation of policies safeguarding citizen’s economic, civil, political, social and cultural rights, and human rights in other spheres.
In April 2009, the SCIO published the action plan. This was China’s first national plan on human rights.
“With the compilation and implementation of the action plan, citizens’ awareness of human rights has increased,” said Wang Chen, Minister of the SCIO.
“The fulfillment of all the targets and tasks in the action plan as scheduled shows that the cause of human rights in China has entered a new stage,” he said.
Better lives
Between 2009 and 2010 China faced a difficult economic situation. The global financial crisis imposed a heavy toll on China’s economic and social development, and posed severe challenges to people’s livelihoods and human rights, the SCIO report said.
Facing these difficulties the Chinese Government adopted a series of countermeasures, including a 4-trillion-yuan ($586 billion) economic stimulus package, to push forward programs related to people’s livelihoods and infrastructure development. As a result, China was the world’s first major economy to emerge from the global financial crisis and substantially improve its people’s livelihoods.
In 2009 and 2010, China’s GDP increased by 9.2 percent and 10.3 percent, urban residents’ disposable income rose by 9.8 percent and 7.8 percent, and rural residents’ net income went up by 8.5 percent and 10.9 percent, respectively.
To create employment opportunities for working-age people and protect the legitimate rights and interests of laborers throughout the country, the action plan prompted the government to implement the Employment Promotion Law.
According to the SCIO report, 22.7 mil- lion new jobs were created in urban areas, 26.1 percent higher than the target set by the action plan, and 19.39 million farmers found jobs in cities, 7.7 percent higher than the target set by the action plan. Urban registered unemployment rates remained steady at 4.1 percent, 0.9 percentage points lower than the plan’s 5 percent ceiling.
Meanwhile, the report said living and working conditions in China’s rural areas improved significantly.
At the end of 2010, the number of people living below the poverty line at 1,196 yuan ($186.41) of annual income decreased to 26.88 million, 13.19 million fewer than at the end of 2008. The number of people covered by the urban basic old-age insurance reached 257 million, 38 million more than at the end of 2008. As of 2010, the basic medical insurance for urban residents covered 430 million people, while the new rural cooperative medical insurance covered 836 million people. The total number of insurance participants reached 1.26 billion, or over 90 percent of the country’s population.
Figures from the SCIO report indicated the right to education had been fully guaranteed. In 2010, the state exempted 130 million rural students from paying tuition and other fees, and subsidized about 12.24 million boarders from poor rural families. At the end of 2010, 100 percent of the school age population had access to the nine-year compulsory education. Only 4 percent of the population above 15 years of age remained illiterate.
Safeguarding farmers’ rights and interests was emphasized by the action plan.
Local governments have published uniform standards for land requisition and raised the compensation level by 20-30 percent and even over 100 percent in some places, the report said.
A dynamic mechanism for adjusting compensation standards has been established, under which the compensation levels for land requisition are adjusted every two or three years.
Social administration
In 2009 and 2010, China took effective measures to enhance democracy and the rule of law, actively and steadily advancing the reform of the political system, the SCIO report said.
It said a socialist legal system with Chinese characteristics has been estab- lished, covering all sectors of social life and all aspects of human rights protection.
In June 2010, the Supreme People’s Court and the Supreme People’s Procuratorate jointly issued a document, stipulating confessions and witness testimony obtained by illegal means such as torture should not be taken as evidence to support a court ruling.
Meanwhile, measures on forbidding illegal detentions by law enforcement personnel have been implemented in the past two years, according to the report.
In 2009 and 2010, procuratorial organs filed and investigated cases involving 1,002 government functionaries who had taken advantage of their positions and powers to conduct illegal detentions, take revenge, disrupt election and commit other crimes. Courts at all levels held hearings for 18,600 cases of illegal detention, including those committed by government functionaries who abused their positions and powers.
In February this year, the Standing Committee of the National People’s Congress (NPC), China’s top legislature, adopted the eighth Amendment to the Criminal Law.
The amendment abolished the death penalty for 13 types of economic and nonviolent crimes, such as fraud. The reform reduces by one fifth the total number of crimes punishable by the death penalty.
It also listed progresses achieved in the
past two years in guaranteeing people’s rights to know, to participate, to be heard and to oversee.
On March 2010, the NPC passed a resolution on the revision of the Electoral Law, stipulating urban and rural deputies to people’s congresses shall be elected in accordance with the corresponding population proportion, so as to ensure citizens’ equal right to vote. Rights of special groups
China has taken further measures to protect the rights and interests of ethnic minorities, women, children, elderly people and the disabled.
According to the SCIO report, China earmarked 2.779 billion yuan ($433.14 million) as a development fund for ethnic minority groups in 2009-10. In Tibet, 46,000 households of Tibetan farmers and herdsmen moved to new houses in 2010.
At present, all 55 minority ethnic groups in China have representatives in the NPC. Of all the deputies to the 11th NPC, 411 are from ethnic minorities, accounting for 13.76 percent of the total. On the 11th NPC Standing Committee, 25 members are from ethnic minorities, accounting for 15.53 percent of the total.
By the end of October 2010, the state had provided 16.61 billion yuan ($2.59 billion) in small loans to aid 410,500 women across the country to start up businesses.
Women’s right to participate on an equal footing with men in the management of state and social affairs has also been guaranteed, the SCIO report said.
Women account for 21.3 percent of all deputies to the 11th NPC, and female members account for 17.7 percent of members of the 11th National Committee of the Chinese People’s Political Consultative Conference, China’s top advisory body. The proportion of women in leading government posts, at all levels, is increasing.
The legal system for the protection of minors has also been improved.
By 2010, among all the country’s provinces, autonomous regions and municipalities directly under the Central Government, 18 had revised relevant local regulations to conform to the Law on the Protection of Minors, and five had made lo-
cal regulations on the prevention of juvenile delinquency.
Moreover, welfare institutions for children have been established in cities at and above the prefecture level all over the country, basically forming a service network for child welfare, the report said.
The Central Government allocated more than 2.5 billion yuan ($389.63 million) to offer per-capita subsidies of 180 yuan ($28.05), 270 yuan ($42.08) and 360 yuan ($56.10), respectively, every month to orphans in eastern, central and western regions.
The rights of disabled people also assumed a higher position in the government’s agenda under the action plan.
“China has 83 million people with disabilities, 6.43 percent of the total population, and their rights are now better protected by law,” said Wang Naikun, a senior official with the China Disabled Persons’ Federation.
In the past two years, the basic problems of food and clothing were solved for more than 4 million disabled farmers, and the dilapidated houses of 220,000 households of impoverished disabled people living in rural areas were renovated, Wang said.
The government has also paid attention to the treatment of disabled people at the community level, building 145,000 rehabilitation stations across the country, the backbone of the national rehabilitation system. More than 40,000 children under 4 years old are being properly treated in a special program established to help disabled children from poor families.
Wang said 625,000 disabled people found jobs in urban areas during the two years. The government had built 2,504 occupational training agencies where 833,000 disabled people had received training. The working urban disabled population is 4.43 million and the working rural disabled population is 17.57 million.
Despite the remarkable improvements in many fields, the SCIO report admitted the cause of human rights in China was still facing many challenges. Minister Wang said the Chinese Government was drafting a new national human rights action plan for the next four years, which would set“comprehensive and systematic” goals in various fields of human rights and measures to achieve the goals.
While China mourns the lives lost in the high-speed rail crash on July 23 near Wenzhou, the accident’s far-reaching implications for the economy are being increasingly felt.
One casualty of the disaster is likely to be the country’s ambitious plan to press ahead with a building spree of high-speed railways—the crash may lead to a delay or scaling-down of these projects.
The Chinese Government has poured exorbitant sums into developing the world’s largest high-speed rail system, which had reached 8,358 km of tracks by the end of last year. It is expected to exceed 13,000 km by 2012 and 16,000 km by 2020. The train collision was the first serious accident involving China’s bullet trains, which began running in 2007.
China aimed for a small decline in railway infrastructure investment this year, setting the annual spending target at 745.5 billion yuan ($115.6 billion). But now many analysts believe China could miss that target, as it will have to slow down the pace of construction and focus on rail safety.
“Since 2008 China has experienced a significant leap forward in railway building,” said Song Bin, a senior analyst with the Beijing-based Tianxiang Investment Consulting Ltd. “The speed of construction is set to slow down.”
Whatever the cause of the crash, China will attach greater importance to making its bullet trains safer, said the Ping An Securities Co. Ltd. in a recent report.
“The government is bound to tighten its efforts to address problems in train dispatching and signaling systems and railway management,” the report said.
Jiang Langting, an analyst with the Gao Hua Securities Co. Ltd., said the accident, along with other recent malfunctions in high-speed rails, can help push forward a new round of reforms within the Ministry of Railways (MOR).
“It is now imperative for the ministry to heighten its management efficiency and profitability,” Jiang said.
Zhao Jian, a professor at the School of Economics and Management of the Beijing Jiaotong University, said this accident is the outcome of exponential development in highspeed railways.
“The MOR should rethink the development model of high-speed railways and balance speed and quality, as well as benefits and safety,” he said.
Even before the crash, high-speed rails were the target of criticism due to possible environmental damage and ticket prices that are too high for ordinary Chinese consumers.
“After so many years of rapid expansion, China’s high-speed railway investment needs to take a breath,” said Zhen Yi, an analyst with the GF Securities Co. Ltd. in Shenzhen.
“However, it’s very unlikely for the country to give up those lines already under construction, which involve trillions of yuan in total investment,” she added.
As the Chinese economy moves out of the shadow of the financial crisis, robust investment deserves much of the credit. But economists believe the recent railway tragedy will promote policymakers to put the breaks on aggressive investment expansion, marking a turning point in the country’s growth model.
“Authorities may choose intentionally to slow economic growth gradually but firmly
to 7-8 percent in following years and spend more time fixing the problems caused by fast growth,” said Minggao Shen, chief economist for Greater China, Citigroup Inc.
Financial strains
Meanwhile, worries have been abounding about the debt sustainability of the MOR since the accident may hinder its ability to finance future projects.
In a move to fund massive high-speed railway projects, the MOR has taken on a mountain of debts. By the end of June 2011, debts of China’s railway operators, all affiliated to the MOR, had totaled 2.0907 trillion yuan ($324.1 billion), with an asset-liability ratio of 58.53 percent, slightly up from 58.24 percent in the first quarter of this year, according to data from the Shanghai Clearing House, an inter-bank clearing house under the People’s Bank of China, the central bank.
The Ministry of Finance and the MOR are the only government departments that can issue direct financing such as short-term financing bills, corporate bonds and mediumterm notes.
On July 21, the finance ministry planned to auction short-term financing bills of 20 billion yuan ($3.1 billion) with a yield of 5.18 percent, but only raised 18.7 billion yuan ($2.9 billion). Concerns are rising that the MOR’s securities may further lose their appeal to investors due to the deadly accident.
Now, after the recent accident, demand for railway ministry bonds has dropped even lower, said Stephen Green, a Hong Kongbased economist with the Standard Chartered Bank.
“It will be a long time before the MOR returns to the bond market,” he added, citing doubts if the ministry’s operations can generate enough free cash flow to cover the interest payments on its debts.
“If the ministry is a company, then it already faces the risk of going bankrupt,”said Zheng Ruxi, an analyst with the Huatai Securities Co. Ltd. “But it is a government agency, and its bonds are guaranteed by government credit, which provided a cushion against the impact of the train crash.”
Zhao Qingming, a senior researcher with China Construction Bank, said the MOR, with solid and stable returns, remains an appreciated customer for commercial banks, and the tragic train collision will not change its credit rating.
His view was shared by Guo Tianyong, Director of the Research Center of China’s Banking Industry under the Central University of Finance and Economics, who said the accident will fuel the MOR’s risks but won’t alter the big picture.
Chain reaction
As China is likely to curtail railway investments, a number of relevant industries may receive a heavy blow, such as those that supply cement, steel and coal. The China Galaxy Securities Co. Ltd. estimated that 700 billion yuan ($108.5 billion) of railway investments could create demands for 30 million tons of steel and 140 million tons of cement.
Bearing the brunt are also a string of railway equipment manufacturers, including China Railway Signal & Communication Corp. (CRCS), one of the contracted builders of the signal system of the Ningbo-TaizhouWenzhou Railway, where the crash occurred.
As the state-owned company gears up to debut on the stock market next year, many fret that the accident has cast an ominous shadow over the prospect of its initial public offerings.
In addition, Chinese manufacturers of bullet trains—CSR and CNR—are also expected to suffer painful losses. The two companies are competing for export orders of high-speed trains, technologies and equipment, as well as contracts to make bullet trains overseas. CSR, for example, in December 2010 signed an agreement with the U.S. conglomerate General Electric to make high-speed trains in the United States. Just because of the latest accident, they are experiencing a frustration on the path of expanding offshore.
“The disaster exposed key flaws in China’s railway system and it could take 20 years for local train and rail builders to convince foreign buyers their high-speed technology is safe,” said Edwin Merner, President of Atlantis Investment Research Corp.
“The accident does not mean the end of high-speed trains, but it will force other countries to think more about whether they really need it and where they get those technologies,” said Ingrid Wei, an analyst at Credit Suisse.
Li Xuerong, a senior researcher with the Shenzhen-based think-tank CIConsulting, downplayed the worries, saying “despite the stumbling blocks, Chinese companies will adhere to the significant strategy of going global and lay a solid global foothold.”
Meanwhile, the ripple effect of the accident is spreading throughout the economy.“The train crash may damp demand for property in cities along new railway lines,” said Credit Suisse, in a report.
“Chinese policymakers vowed investigations into the illegal confiscation of land by local governments in the name of railway and highway development. And the recent accident could trigger a movement that may affect developers’ existing land banks,” said the report.
The only beneficiary may be airlines, which faced intense competition from high-speed railways. After the ZhengzhouShanghai Express Railway came into operation in February 2010, Henan Airlines saw passenger numbers shrink by half and eventually shut down the route in January 2011.
But since the train accident on July 23, the balance of power has been obviously tipping in favor of airlines. As many travelers consider flying a safer option, air ticket prices across the nation have staged a powerful rebound.
“We believe airlines in the short term may regain market shares lost to high-speed railways, as travelers’ confidence in China’s high-speed railways could take time to rebuild,” said Goldman Sachs in a report.
“Over the longer term, however, we expect safety issues to be resolved and, in our view, high-speed railways will still be a competitive and energy-efficient mode of transportation in China,” it concluded.