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May 10, 2011

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High-speed rail trials start tomorrow

A MONTH-LONG trial of the Shanghai-Beijing high-speed railway will start tomorrow, a railways ministry spokesman said yesterday.

The line is expected to be fully operational by the end of June.

Ticket prices are still under discussion, Wang Yongping said during an online session with the public.

Price issues are crucial as the rail link is competing with airlines on the route.

Railway Minister Sheng Guangzu said last month that China was slowing the operational speed of its bullet trains from 350 kilometers per hour to 300kph following safety concerns and complaints that tickets were too expensive.

Also yesterday, Wang said that the Ministry of Railways' debt level was manageable after a huge first-quarter loss raised concerns about its financial health and the development of China's high-speed rail services.

The railway ministry had 3.41 trillion yuan (US$525 billion) in total assets by the end of the first quarter and 1.98 trillion yuan in total liabilities, according to figures released last week. Such a debt-to-asset ratio, of 58 percent, is within control and the ministry can avoid a debt crisis, Wang said.

Some industry experts and economists have voiced concerns about the economic sustainability of the railways, especially the costly high-speed lines, especially after the sacking of former Railway Minister Liu Zhijun, who led an investment boom in the high-speed railway sector before being caught up in a graft probe in February.

The Ministry of Railways, which acts as a corporation in the debt market, has sold at least 50 billion yuan of bonds this year to fund construction.

The high debt ratio and a pre-tax first-quarter loss of 3.76 billion yuan triggered a sell-off in rail-related stocks last week on concern the government would scale back its ambitious rail spending program. The slide also came after a media report said the government would cut spending on high-speed railways by more than 200 billion yuan from 700 billion yuan this year.

The railway ministry soon denied the spending-cut figures and attributed the quarterly loss to rising costs of raw materials such as fuel and steel. And later, on Friday, the ministry said total investment this year would be 745.5 billion yuan.

This boosted rail shares yesterday. CSR Corp, China's largest train maker, surged 5 percent to 6.93 yuan and China CNR Corp, the second largest, gained 5.64 percent to 6.95 yuan.

"The ministry's clarification means the worst environment for the railway-equipment industry is gone," Dong Yaguang, a Sinolink Securities analyst, said in a note.


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