China Railway to Accelerate Mixed-Ownership Reform With Alibaba, Tencent
Zhu Yanran
/SOURCE : Yicai
China Railway to Accelerate Mixed-Ownership Reform With Alibaba, Tencent

(Yicai Global) Aug. 9 -- China Railway Corp., the nation's state-owned railroad operation giant, will boost efforts to bring in a mixed-ownership structure in the second half of this year, experts said ahead of the 19th National Congress.

Internet giants Alibaba Group Holding Ltd. [NYSE:BABA] and Tencent Holdings Ltd. [HKG:0700] are expected to take key roles in the company's transformation.

A key feature of the new structure would be a separated network and transportation, meaning the firm would split its national network infrastructure construction and passenger and goods railway businesses, Li Jin, chief researcher at think tank China Enterprise Research Institute, told Yicai Global.

"It needs to separate its public-welfare business and operating businesses and determine its best-performing assets," Li added. "Small-scale superior assets can attract better social capital, presenting better investment prospects."

China Railway aims to open up to private capital in order to deal with its large scale liabilities and its current insufficient marketization.

Mixed-ownership restructure pilots have been carried out in some provincial, regional and special railway lines. Means for reform could lead to some private companies being wholly responsible for building some special railroads, said Wang Mengshu, an academic at the Chinese Academy of Engineering.

China Railway invited internet giants Alibaba and Tencent to participate in the mixed-ownership reform of the state-owned enterprise in July.

The firm's cooperation with Tencent will focus on intelligent railways including options for cashless travel, facial recognition-based admission, and user experience, while cooperation with Alibaba will lay more emphasis on logistics, Li said.

CRC has total assets worth more than CNY6 trillion (USD895 billion) and liabilities totaling CNY4 trillion. The enterprise's vast scale presents huge opportunities for internet companies.

The tech giants can develop new revenue streams by expanding their business scope to the railway sector, said Hu Chi, a researcher at China's State-Owned Assets Supervision and Administration Commission.

The transport giant could introduce leading internet and logistics firms as strategic investors in order to utilize technical and service capabilities, and thereby improve service quality and operating efficiency, said Xiang Anbo, director at the State-owned Enterprises Research Institute.

Specifically, CRC will divide its progression to mixed-ownership into four parts: assets securitization, introducing private capital, equity investment in private firms and shareholding for internal employees, Li Jin said.

The firm must strictly follow features common in mixed-ownership enterprises, Hu Chi said. It must adhere to the laws related to companies and come under the authority of a board of directors in order to be governed effectively.

The monopolistic structure of China's railway industry began to change at the end of last year when construction started on the Hangzhou-Shaoxing-Taizhou high-speed railway line, the county's first line funded by a public-private partnership. The Jinan-Qingdao High-speed Railway, approaching completion in northeastern Shandong Province, is the first line to be owned by local government.

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Keywords: SOE , Ownership Restructure , CRC