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Railway Reform in China
OECD Observer

How do you manage transport in a rapidly growing country of over 1 billion people? Developing the railways may be the simple answer. Increasing demands are being placed on China’s transport infrastructure, and the OECD’s Railway Reform in China suggests that the development of an efficient, innovative and market-oriented rail network would facilitate investment and modernisation, alleviate the growing income gap and spread the benefits of economic reform more widely.

Rail still carries the bulk of transport in China. The figures have decreased somewhat from 1980, when rail transport accounted for 48% of the freight transport market (now 31%) and 61% of the passenger market (now 37%). However, more freight and people have to be transported than 20 years ago, and the density of traffic on the Chinese railway is the highest in the world, 10 times higher than for rail systems in Europe. So, today’s rail usage figures are still significant when compared to western Europe, where rail carries 14% of the freight and less than 7% of passengers.

As with other state-owned railways in OECD countries, Chinese railways have relatively low labour productivity, and do not perfectly match consumer demand. Problems include slow travelling speeds, poor frequency of trains, and overcrowding, which drives away some consumers. The government uses an elementary system for regulating prices, based on passenger kilometres, varying according to the hardness of the seat (or bed) and the speed of the train. There is no difference made according to peak or offpeak periods. Yet demand for rail transport, though not growing at the rate of the economy overall, is still rising.

China’s Development Research Center (DRC) identifies four goals for rail reform in China, including a separation between government functions and enterprise management, with an independent regulation/supervision body, promotion of competition within the rail sector, and the creation of market incentives based on a sounder regulatory framework. Some separation of the different roles the state plays in running the railway may be required, along with the flexibility to set prices and services.

Successful rail reform takes time; if the Chinese economy is to have an effective rail sector by the year 2010, according to the DRC, he government should start now to determine the reform path for Chinese railways in the future.

©OECD Observer No 238, July 2003




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