China’s National Railways (CR) is diver-sifying its business on a massive scalewithin the context of the national policyof economic reform and opening up tothe outside world. In the mid-1980s, theCommunist Party of China and the gov-ernment set the tone for economic de-velopment of large- and medium-sizedstate enterprises based on the slogan,‘Keep the main business, but diversify’,as well as on a series of other importantpolicy directives. In 1984, under the ban-ner of this slogan and other guidance,China’s National Railways broke with thelong tradition of being merely a rail pas-senger and freight enterprise and startedsetting up businesses in other areas.
Growth ofDiversified Businesses
In the last 10 years, China’s NationalRailways has used its niche in the rail-way industry, regional areas, resources,capital and manpower to diversify, ex-tending operations from passenger andfreight transport to services both inside
and outside the traditional train opera-tions in markets at home and abroad. Thebusiness sphere is ever-widening; inmany cases, new businesses were liter-ally started from scratch. Small business-es were built into big ones at a brisk pace.By late 1985, the National Railway sys-tem had created 1,504 new businesses.Staff exceeded 40,000, income reached6.3 billion Yuan racking up a profit ofabout 170 million Yuan. During the Sev-enth Five-Year Economic Plan (1986–
1990), business diversification looked tothe market, quickening the pace of de-velopment. During this time, both busi-ness gross income and net profi tincreased substantially. By the end of1990, the entire national railway systemhad blossomed into 3,900 businesseswith fixed assets of 1.34 billion Yuan, and237,000 employees. 1990 showed agross income of 6.28 billion Yuan, witha profit of 1.29 billion Yuan. During theEighth Five-Year Economic Plan (1991–1995), the National Railways grew at thefastest pace since 1949 while its diversi-fied businesses also experienced relative-ly rapid growth. Everyone in the railwaysworked toward building strong leader-ship, achieving integrated planning, ex-panding business areas, promotingindustry and commerce, and strengthen-ing management—requirements set forthby the Railway Ministry in the slogan‘Grasp opportunity, accelerate develop-ment, promote new business diversifica-tion’ and in the Eighth Five-Year Planoutlining the development for diversifiedbusinesses until year 2000. By the endof 1995, the various business units to-talled over 8,000, with assets estimatedat 32.3 billion Yuan, representing an in-crease of 450% over the 5.9 billion Yuan
Peking West Station, opened early 1996, is the largest railway station in Asia. Its huge building provides amplespace for various diversified business activities. (CR)
Longrui Hotel run by China Railway’s Kunming Railway Bureau (CR)
assets in 1990. Fixed assets were peggedat 7.1 billion, an increase of 430% overthe 1.3 billion Yuan fixed assets in 1990.Net assets of 12.1 billion Yuan comprise37.5% of total assets. Business incomefor 1995 reached 29.8 billion Yuan. Busi-ness income for the Eighth Five-Year Plantotalled 97 billion Yuan, which comparesfavourably with the 21 billion Yuan totalbusiness income generated during theSeventh Five-Year Plan, representing anincrease of 360% at an average annualincrease of 36.5%. The railways gener-ated profits of 3.44 billion Yuan in 1995.The total profits for the Eighth Five-YearPlan was 12.9 billion Yuan, or an increaseof 190% over the 4.4 billion Yuan gener-ated during the Seventh Five-Year Planat an average annual increase rate of21.1%. During the Eighth Plan, taxesreached 5.02 billion Yuan, representingan 95.3% increase over taxes of 2.57 bil-lion Yuan during the Seventh Plan.
Types ofDiversified Businesses
For the last 10 years, China’s NationalRailways has pursued diversified busi-nesses using market demand as a yard-stick, placing priority on developingpassenger and freight-forwarding servic-es to establish key businesses. To in-crease passenger comfort and freightconvenience, and to expand the servicescope and variety, the National Railwaysopened 255 ‘trackless train stations’ toreach remote areas away from railwaylines. Door-to-door delivery services re-quire new facilities so new storage- andfreight-handling facilities were built.Hotels, guest houses and restaurants havebeen built near railway lines and in largeand small cities and towns, to providebetter services for a wide variety ofdomestic and international customers.Travel agencies established by the diver-sification have passed the 100 mark, andservice the entire nation. Tours and trav-
el services are available to large- andmedium-sized cities and popular touristdestinations in China, Southeast Asia,Russia and European countries. Diversi-fied businesses handling bulk cargo, havedeveloped at a favourable pace. By theend of 1995, income from large-scalerail-related businesses accounted for ahuge 40% of all income generated by thebusiness diversification. The NationalRailways used its own capital, humanresources, technology, land and equip-ment to vigorously develop businesses
ranging from construction, real estate,and value-added manufactured goods. Incases with the appropriate preconditions,The National Railways has also expand-ed its economic activities through agri-culture, livestock farming, mining, andproduction of building materials. Atpresent, business has diversified in tenmain areas: freight forwarding, warehous-ing, commerce and trade, overseas ship-ping, container shipping, food andbeverage service, travel, advertising, realestate, mining, building construction
Open-air market operated by Shenyang Railway Bureau in Jinzhou. The slogan says ‘Protect consumerinterests and support market economy’. (CR)
The East Express Company, a subsidiary of Shanghai Railway Bureau, offers on-board food and beverageservices. (CR)
20 Japan Railway & Transport Review • January 1997
materials, international trade, etc. Theseeconomic pillars involve a huge rangeof business giving the National Railwaysa well-rounded economic profile.Business has been diversifying for justover 10 years, but it is already benefit-ting the entire system; it is a crucialpillar supporting development of man-power, improving life, and adding spar-kle to local economies. Consequently, itis making a major contribution to Chi-na’s National Railways as follows:First, by 1995, diversification incomeamounted to 47.2% of all railway trans-portation income and total profits fromdiversification exceeded those of the trans-portation sector itself. The still-incompletestatistical data suggest that diversificationincome from 1986 to 1995 totalled 128.9billion Yuan, producing profits of 18.3 bil-lion Yuan. Taxes paid to local govern-ments by diversification businessestotalled 6.1 billion Yuan, and taxes paidto the Railway Ministry totalled 3.2 mil-lion Yuan. 350,000 railway employeeswere dispatched to new assignments. Thetransportation business received econom-ic support in terms of wages, bonuses, staffhousing allowances, and welfare facilitiesfrom the diversified businesses totalling17.85 billion Yuan.Second, the construction and renovationof transport-related customer facilities has
improved the efficiency of the transportsector as well. To compensate for lackof capital to develop railways, an aggres-sive funding programme has been under-taken, the quality of many railwaywaiting rooms has been improved by ren-ovation and new construction, high-qual-ity equipment has been installed inalmost 10,000 carriages, 1,692 ware-houses have been built, the freight-han-dling area has been increased by almost9.47 million m2, expanding storage ca-pacity to nearly 68 million tons and in-creasing daily in/out movement of goods
to 1.7 million tons, greatly alleviatingfreight bottlenecks.Third, diversification has prompted atten-tion to market demand, and has expand-ed the railway’s readiness to deal withthe outside world. Diversification hasforced the railway to explore its marketadaptability and responsiveness.The benefits can be seen in the ‘tracklesstrain stations’, the new warehouse facil-ities, the special lines servicing specialneeds, the improved service facilities,and the overall increased sensitivity tomarket demands. Not only does diversi-fication enable rail transport to handleever-growing freight volumes, it also con-tributes to the evolving shape of the trans-portation market. The value-addedmanufacturing, construction, commerce,service and R&D sectors are each aggres-sively pursuing market-oriented compe-tition. Diversification continues underthe slogan, ‘Commercialization, collec-tivization, scale merits and internation-alization’.Industrial production groups and keyenterprises were established one-by-onein rapid succession. Starting in 1993, theRailway Ministry focused on creating anddeveloping companies under its direct
Newly-constructed station building in Lake Baykal region, Siberia. The project was undertaken by HarbinRailway Bureau’s International Economic and Engineering Cooperation Company. (CR)
Kindergarten in Siberia constructed by Harbin Railway Bureau (CR)
Mr Li Haicheng is Section Chief in China National Railways’ Business Diversification HQ in Beijing.
He has wide-ranging experience in the China National Railways which he joined in 1972. From
1987 to 1994, he worked at various senior posts related to business diversification in the Harbin
Railway Bureau.
supervision including the China RailwayInternational Service Company, the Chi-na Railway Import-Export Company, theHua-Tieh Estate General Company, theHua-Yun Travel Group, and other eco-nomically-viable businesses. Last year,companies to be organized eventually assubsidiaries of the Ministry of Railwayswere established in Hong Kong, Shang-hai’s Pudong district, Xiamen (Amoy),Shenzhen, Hainan Island, and othercoastal economic zones. These groupsand key enterprises take advantage oftheir niche in rail transport to aggressivelyopen and develop coastal and border re-gions and river ports to promote interna-tional business. By the end of 1995,China’s National Railways internationaltrade programme had already pulled inbusiness worth more than 5 billion Yuan,had attracted foreign investment of morethan 800 million Yuan, and led to the cre-ation of some 78 joint enterprises withforeign companies.Fourth, diversification brings the sparkleof economic activity to local regions,benefitting society as a whole. To meetthe requirements of the huge number ofconsumers using passenger and freightservices in rural areas, the diversificationis engaged in aggressive expansion offood and beverage outlets, commerce,entertainment, real estate and hotels,guest houses and other related business-es. This creates small economic zonescentred on train stations and freightfacilities serving as engines of vigorouslocal economic activity. Some railway-related enterprises take advantage of poortransportation, high freight demand andrich natural resources by entering intojoint ventures with local companies tooperate factories, and build freight for-warding stations and private spurs. Thishelps carry quality rural products to re-mote markets, which in turn supports thelocal economy and brings obvious socialbenefits.
Minibus manufactured by China Railways’ Wanda Motor Company in Guiyang. The minibus is still a major formof transport supplementing railways in China. (CR)
Future Prospects
The Ninth Five-Year Plan will be a periodof even greater importance to the businessdiversification. Recently, the RailwayMinistry prudently summarized the expe-rience of the Eighth Plan and studied howrail-related enterprises developed abroad.Based on the points raised, the Ministryset forth a list of requirements and chang-es for the Ninth Plan. In terms of struc-ture, the emphasis will no longer be strictlyon key industries, but on all-around di-versification. In terms of management,diversification will proceed by linkingsmall, dispersed units into units of largereconomic scale. In terms of administra-tion, there will be a shift from assessingdiversified business separately to a newtrend towards combined assessment.To effect this important strategic change,the diversification businesses must re-spond to the market by vigorously ex-
panding the ten key pillars while tryingto develop new technologies and lead-ing-edge industries. Future plans includebuilding a new railway infrastructure tosupport the five special economic zones,specifically, building the Beijing-Kow-toon Line, and the coastal lines, devel-oping the Yangtse River region, buildingoverland links between Asia and Europe,and developing the Tumen River region.These five zones will form the founda-tion for the expansion of China’s railwaysand economy. At the same time, morelinks will be created, transportation gapswill be filled, and science and technolo-gy will be developed to the limits.By 2000, the annual income, profits, totalassets and other main business indicatorsshould be double the figures at the end ofthe Eighth Plan. With strengthening mer-its of scale, and gradual rationalization ofproduction, China’s National Railwaysfaces a new chapter in a multi-facetedbusiness modernization programme. �
