China will allow private investors to invest in a railway fund to help better finance the country’s ambitious railway development plan and bring further reforms to the state-monopolized industry, according to rules published July 8.<br /> <br /> The government will provide the initial capital through China Railway Corp., while the rest coming from private investors, according to the rules drafted by National Development and Reform Commission (NDRC), Ministry of Finance and Ministry of Transport.<br /> <br /> The fund will be managed by a new company, China Railway Development Fund Co. Ltd. The new company will be allowed to issue short-term bonds and borrow from banks to maintain cash flow, but barred from providing guarantees and trading futures and financial derivatives.<br /> <br /> Private investors, as holders of preferred shares, shall not participate directly in the management of the fund, the rules said.<br /> <br /> At least 70% of the fund would be invested in railway projects, with the rest invested in land development and other higher-yielding projects, according to the rules.<br /> <br /> No details on the initial investment were given, but the government said in late April it would create a fund worth 200 billion yuan to 300 billion yuan ($32-$48 billion) each year, as part of its policy measures to support the slowing economy.<br /> <br /> The fund has a maturity of 15 to 20 years. The most likely investors are state-owned enterprises and institutional capitals that seek stable long-term incomes, a hedge fund manager said.<br /> <br /> Opening the railway investment to private capitals would also help expedite reforms in liberalizing the rail freight market, industry insiders said.<br /> <br /> In February, China changed the railway freight rates from government-mandated to government-guided, a small but significant step towards market-based pricing mechanism.<br /> <br /> Starting from April 1, the 180-km Zhunchi rail line which connects coal-rich Zhunger in Inner Mongolia to Shenchi in Shanxi -- the starting point of the coal-dedicated Shenshuohuang rail line, became the first railway to adopt market-based freight rates, the NDRC said in a circular dated March 13.<br /> <br /> The operator, its customers and investors will have the liberty to decide freight rates based on market conditions, provided the adjustments no higher than 10% of the base rate of 0.20 yuan/t.km, the circular said.<br /> <br /> China’s coal sector could benefit the most from the railway reforms, as the transportation cost constitute more than half of the coal prices. For coal produced western regions, such as western Inner Mongolia, Gansu, and Xinjiang, the rail freight cost account for more than two thirds of the price.<br /> <br /> <p> Large coal miners and power companies have profited greatly from investing in railways. Yitai Group, Inner Mongolia’s largest private coal miner, owns or co-owns over 1,000 km of rail lines, which contributed a great part to the company’s 3.4 billion yuan net income in 2013. </p> <p style="text-align:center;"> <img src="/upfiles/news/image/20140714/20140714175051_2344.jpg" alt="" /> </p>