China’s railways minister under investigation

February 15, 2011

On 12 February, Xinhua reported that China’s minister of railways, Liu Zhijun, has been placed under investigation. It is presumed that he will be charged with corruption and replaced.

Although there have not been any indications that the case relates to contracts overseas, it is likely that the recent scandal surrounding the Mecca Light Railway, which made a huge loss and was one of the high-profile cases seemingly leading the State Assets Administration to issue a new directive on state enterprises’ overseas investments, has played a role. Compared to that, the award of the Lao railway construction contract to the mysterious Xiaoxiang Company is small fry, but it again signals that the ministry and its affiliated parastatals are likely involved in murky and possibly unprofitable transactions abroad. (In an article published three days after Liu’s fall, Xiaoxiang’s chairman, Li Zhanqun, commented that it was much easier for a private company to get the contract because state companies’ offers needed to be approved by the Development and Reform Commission.)

Liu’s innovations included the involvement of provincial governments as shareholders in the construction of railways in exchange for land provided by them. This made provinces eager to compete for high-speed railways. This is the model that seems to be applied now to Laos.