The Chinese government will soon allow private capital into the railway sector to help solve the existing strained rail transport capacity.

The railway authority is working out a program on the reform of a financing and investing system to attract private capital, including foreign funds, to enhance the railway network's operations, a Ministry of Railways officials said on Friday.

"While dominating the major investment in the operation of trunk lines, the railway ministry will allow public investment to be injected into branch lines," the official surnamed Li, ministry planner.

But Li declined to give exact date.

This move is considered as an important step for the rail industry's reforms, experts say.

Since the sector is among a few of the industries that remains a government monopoly, its reform has always been a focus of public attention at home and abroad.

Railway minister Liu Zhijun took it as a major task this year to reform the system of financing for his sector to attract both domestic and overseas capital when he made a work report at a conference in February.

"Multiple investment channels must be explored to change the current severe shortage of capital in railway construction," he said.

Statistics from railway ministry indicate the nation's total investment in the construction of railway systems per year is less than 60 billion yuan (US$ 7.3 billion).

The number is far less than that of investment in road construction, totaling 300 billion yuan (US$ 36.3 billion) each year, according to China Youth Daily report.

The big gap in the two numbers is a result of the current backward financing system of the sector, said Dong Yan, an expert with the State Macro-economy Research Institute.

Currently, the construction capital of the nation's railway network mainly depends on government input, including the railway construction fund from central government, the loan from the State Development Bank and economic input from local government.

In accordance with the current investment scale, it might take at least 15 years to satisfy the basic needs of the nation's railway transport system, said Wang Derong, deputy director of the China Transport Association.

Introduction of multiple investment entities will help solve the existing problems in railway transport, Wang said.

Statistics from Ministry of Railways indicate the daily demand for rail cars has surged to 300,000 in recent months, up from last year's daily average of 160,000. However, the rail network can handle less than 100,000 cars a day.

Because of intense rail freight transport, most of trunk lines have been operating at full capacity.

The strained railway transport capacity has constituted a bottleneck for the sound development of the nation's economy since the end of last year, said Huang Min, director of the ministry's Department of Development and Planning.

To alleviate heavy transport pressure, railway departments are looking to set up share holding companies to attract private capital, railway officials say.

In the meantime, three railway companies affiliated with the railway ministry -- which respectively handle container, special cargo and cargo express transport businesses -- might be listed in overseas markets in the future, China Youth Daily reported.

(China Daily July 24, 2004)