Why rail baron’s fall will not hit policy

The announcement that China’s Minister for Railways is under investigation for “severe disciplinary violations”, usually a code word for corruption, does not mean that Beijing is going to scale back on its ambitious railway development plans. As we showed in our report last year on the sector, the railways are a core element in the government’s growth strategy. This will not change: the current plan is to invest Rmb700 billion (US$106 billion) in the railways this year, with work taking place on some 70 intercity projects in addition to the urban transport systems described in our report published January 2011. This means that the departure of China’s railway baron is not going to hit China’s demand for track, rolling stock, steel and cement.

Rather, the fall of Liu Zhijun, who has headed the Ministry since 2003, is a political act signalling that the central government wants to bring the sector’s pell-mell growth under better control. This could be a healthy development at a time when questions are being asked about the way in which capital has been allocated under the stimulus programme launched in November 2008. China still needs railway expansion for continued growth, but it also requires better management of that expansion.

Liu’s sin was that he wanted to do it his way, running his Ministry as a fiefdom and resisting government efforts to bring it into an integrated transport administration. His membership of the “Shanghai Faction” that ran China under the former Party boss, Jiang Zemin, made him a natural target for Hu Jintao and Wen Jiabao as they seek to impose their authority. It has to be assumed that his eviction was approved by Xi Jinping and Li Keqiang who have been lined up to succeed Hu and Wen in 2012-13.

Liu’s fall took the form of dismissal from his post as head of the Communist Party Committee in the Ministry pending investigation. It follows a pattern seen when Hu Jintao and Wen Jiabao deposed another apparently well-entrenched but independent-minded figure, Chen Liangyu, the Communist Party Secretary in Shanghai, in 2006. Like Chen and other senior figures who have been had up on corruption charges, Liu has been put under investigation for “severe violations” by the Party Disciplinary Committee, which meets in secret and can hold the accused for months without any formal charge. The civil proceedings which follow if the committee decides that the accusations are substantiated are usually a formality leading to a sentence such as the 18 years passed on Chen.

Although official media gave no details, the assumption is that Liu will be accused of corruption in connection with the huge building programme for high-speed trains launched at the end of 2008. The main case seems to involve a woman entrepreneur from Shanxi province whose firm had contracts for sound-blocking technology and advertising in railway installations. His family had already been tarnished by scandal four years ago when his brother, a senior railway official in Wuhan, was given a suspended death sentence after being found guilty of hiring a man to kill somebody who had informed on him for having taken bribes and embezzling the equivalent of US$5 million. The Liu case will be paraded as evidence of the government’s ongoing attempt to show itself ready to tackle graft in high places even if the political factors involved mean that public cynicism about elite corruption is unlikely to be dissipated. But railway policy is not going to be a victim of the purge.