Fast Track Wreck for Rail Minister's Circle

The Ministry of Railways, with Liu still at the helm, took steps to clean up the process last October by unveiling new regulations for rail construction tenders and bidding. Details were released in December. But the rules remained opaque, sources said, and the use of mediators continued right up until Liu's removal.

Today, a legacy of Liu is that high-speed railways are spreading nationwide but "almost every project exceeds budget," a railway contractor said. "The Beijing-Shanghai high-speed railway was initially estimated at 12.34 billion yuan. In the end it cost 21.5 billion.

Construction of the "Guangzhou South Station went from an estimate of a couple billion yuan to 14.8 billion yuan. This is because every project is contracted, subcontracted and subcontracted again," the contractor said. "If you want to profit from the process, you have to continuously modify the plan."

Since the Liu shakeup, the rail industry and the public have wondered whether the future of high-speed rail may be affected. One ministry official said the development strategy would not change. But others familiar with high-speed rail say high-speed projects are likely to be reevaluated.

An analyst for a foreign securities firm who specializes in infrastructure construction told Caixin that "the overall development strategy for high-speed rail shouldn't be affected" by Liu's demise. "But high-speed rail projects that have not yet been launched may be postponed."

High-speed rail currently accounts for 8,358 kilometers of the 91,000 kilometers of tracks nationwide. Another 17,000 kilometers of high-speed rail are currently under construction.

During the period of the 11th Five-Year Plan, which ended in December, national railway infrastructure investment totaled 1.98 trillion yuan. The 12th Five-Year Plan calls for more than 3 trillion yuan in spending.

Liu's successor, Sheng, faces a complex task. He'll have to select routes for new high-speed construction projects, and try to resolve the legacy of debt and risk tied to high-speed rail tracks laid in recent years.

A government audit of the Ministry of Railways said the agency's debt had ballooned to 1.3 trillion yuan by the end of 2009, and paying off that debt with interest will cost 73.3 billion yuan annually.

Zhao Jian, a professor at Beijing Jiaotong University, said Japan's high-speed Tokaido-Shinkansen line is the only profitable high-speed railway in the world. China's high-speed systems are unlikely to make money anytime soon.

Sheng is also being forced to decide whether to steer the railway system into a period of market reform after years of stagnation. Questions remain over how to separate government and private business, overhaul railway financing, and open the freight system and the rest of the rail system – China's largest bastion of state monopoly – to outside capital.

And safety issues are on the agenda for the post-Liu period. China's rail construction cycle is considered by many industry experts to be too fast, since contractors are laying rails even while ministry experts are still formulating high-speed rail construction standards.