Profits tipped to go off the rails as costs mount

By Irene Shen  |   2008-6-25  |     NEWSPAPER EDITION

CHINA'S railways, used by more than 1 billion passengers annually, may make their first combined loss in a decade because of rising fuel costs and disruptions caused by snowstorms and an earthquake, the Ministry of Railways said.

The government aims to return the mainly state-owned companies to profit by winning overseas investment and by introducing a "more market-oriented regime," Wang Yongping, a ministry spokesman, told Bloomberg News in Beijing. He didn't provide an exact loss forecast.

Chinese train operators may make a loss because they scrapped services after the February snowstorms and last month's earthquake to help with relief efforts.

The companies are also struggling with higher coal and electricity prices, as they haven't been able to raise passenger fares for 12 years.

"The control of railway ticket prices is a huge barrier," Wang said. "However, we hope to find a solution, balancing the industry's profitability and its role as a major public service."

Fare increases have to be approved by the National Development and Reform Commission, China's top planning agency. Prices for moving coal, iron ore and other cargos have also remained little changed over the past decade, at an average of 0.0925 yuan per ton-kilometer, according to the ministry.

Guangshen Railway Co., which is listed in Hong Kong and Shanghai, posted a 40 percent drop in first-quarter profit. The company runs trains in Guangdong Province, one of the areas hardest hit by the snowstorms, China's worst in five decades.

The nation's railways are operated by dozens of different companies spread across the country, most of which aren't listed.