Railway debt issue tabled

Addressing debt concerns remains on hold in the wake of the overhaul of the Ministry of Railways and is pending further study by relevant government departments, a senior government official said Monday, in response to swirling fears that the railway debt bubble might burst.

"The debt issues should be next on the agenda after the implementation of the railways split," Wang Feng, deputy director of the State Commission Office for Public Sector Reform, told reporters Monday on the sidelines of the two sessions.

Wang's statement came one day after the State Council announced a restructuring plan to streamline the nation's administrative bodies, including a long-awaited decision to dissolve the super-powerful Ministry of Railways.

After the ministry is dismantled, what remains will be divided into three parts, with policymaking responsibilities merged into the new Ministry of Transport, other administrative responsibilities handled by a new State Railway Administration, and all commercial functions under the new China Railway Corporation.

While the move has earned considerable plaudits, worries are rising over potential fallout when it comes to resolving the debt accumulated by the railways ministry over the years.

"In the end, the government will buy the huge bill, but it is likely to lead to a rise in bad loans," Zhao Jian, a professor at Beijing Jiaotong University, said Monday.

The railways ministry, which has played a key role in materializing the nation's railway construction ambitions, had incurred debts totaling 2.66 trillion yuan ($421.19 billion) as of the third quarter of 2012, equivalent to a debt ratio of 61.81 percent, according to the ministry's fiscal disclosure at the end of October.

Some members of the National Committee of the Chinese People's Political Consultative Conference (CPPCC) in the financial sector have also voiced concerns during the ongoing two sessions.

A number of banks, both at the national and local levels, have provided loans to the country's railway construction, so it is of vital importance to clarify who is responsible for repaying the debts, Yi Gang, vice governor of the central bank and a CPPCC member, said Sunday.

The management of the massive debts incurred by the railways ministry has a big impact on market stability because the ministry is the only issuer of bonds with a credit rating on par with the sovereign debt rating other than the Ministry of Finance and the central bank, Zhang Jianguo, president of China Construction Bank, stated Sunday, emphasizing that how the debts are repaid after the split will be crucial to financial safety.

Minister of Railways Sheng Guangzu, however, reportedly vowed Sunday that the debt issues won't be a big concern, noting that the proposed railway investment during China's 12th Five-Year Plan (2011-15) is unlikely to be impacted.

Echoing Sheng's views, Huang Ping, an analyst with Lianxun Securities Co, said that railway construction investment is expected to continue growth momentum in years to come.