Source: Reuters By Ben Blanchard and Sui-Lee Wee

BEIJING (Reuters) – Six months ago China’s state media was lauding North Korea as a great place to invest as both countries tried to promote a cross-border economic zone.

One nuclear test, a long-range rocket launch and much sabre-rattling later and China is a central player in new U.N. sanctions against Pyongyang, something Chinese experts say marks a major shift in Beijing’s policy toward its impoverished neighbor.

At the same time, Chinese newspapers have been calling North Korea an ungrateful and unreliable liability. Businessmen and officials charged with building commercial ties don’t even want to talk about the country.

No one is suggesting China will abandon the regime of leader Kim Jong-un or even implement the new sanctions to the letter, but a relationship once regarded “as close as lips and teeth” is on thin ice as China’s frustration grows.

“I think it’s remarkable and identifiable, the change in China’s policy towards the Korean peninsula,” said Zhu Feng, director of the International Security Programme at the elite Peking University.

Zhu said China was now putting its hopes on diplomatic coercion to get North Korea to change its behavior.

“Beijing has ultimately woken up to reality … At the U.N. Security Council, Beijing very noticeably shifted to a harder policy to get North Korea very badly hurt.”

China has backed previous sanctions against North Korea’s nuclear and ballistic missile programs. China also officially says it does not believe sanctions will resolve the latest crisis over North Korea, a position repeated by Foreign Minister Yang Jiechi on Saturday.

But after North Korea’s third nuclear test, on February 12, China negotiated the new sanctions with Washington and said it wanted them implemented fully. The measures, announced on Thursday, tighten financial curbs on North Korea, order mandatory checks of suspicious cargo and strengthen a ban on luxury goods entering the country.

An exasperated China appears to have run out of patience after years of trying to coax Pyongyang out of isolation and to embrace economic reform.

To top it off, Kim Jong-un has failed to pay fealty to China, his country’s only major ally, as his father and grandfather did. He has not visited China since taking over when his father Kim Jong-il died at the end of 2011.

Even the modicum of affection Chinese used to feel towards North Koreans, brothers-in-arms during the 1950-53 Korean War, has all but vanished, the country and its leader becoming an object of derision and incomprehension, especially as China powers ahead economically and rises in global stature.

The Global Times, an influential tabloid published by Communist Party mouthpiece the People’s Daily, has called for China to cut North Korea off completely. It warned on Friday that Pyongyang should not underestimate China’s anger.

“The ‘friendship’ between China and North Korea … obviously cannot be decided by Pyongyang’s temper,” the widely read newspaper wrote in an editorial.

HOW QUICKLY THINGS CHANGE

Back in August, an editorial by a Chinese Commerce Ministry official in the People’s Daily said China needed to encourage and support its companies to invest in North Korea. The China Daily cited another official as praising North Korea’s growth prospects.

At this month’s annual meeting of China’s largely rubber stamp parliament, Chinese with North Korea links wanted to talk about anything but North Korea.

A question from a Reuters reporter at a news conference by officials from Jilin province, which borders North Korea and does a lot of business with the country including trying to develop the Rason economic zone, caused consternation.

Asked if the central government had ordered Jilin to reduce trade and investment with North Korea in the wake of the February 12 nuclear test, officials looked flustered and finally asked a low-ranking bureaucrat to answer.

“Regarding international trade, I haven’t noticed anything in particular. As for the next step, the Chinese government has already expressed its attitude on this issue. I’ll leave my response at that,” said Jin Shuoren, an ethnic Korean legislator from part of Jilin which sits on the border.

Not long after the nuclear test, one Chinese official at the economic zone told Reuters that plans to invest had not been put on hold.

North Korea has not helped by treating some major Chinese investors poorly — and then denouncing their complaints in its state media. North Korea previously almost never criticized its neighbor or any Chinese entities in public.

Signs of unhappiness with Pyongyang have seeped out of China’s military establishment too, although it is hard to know for certain what the top brass are thinking.

“It does not matter if you were a comrade and brother-in-arms in the past, if you harm our national interest then we’ll get even with you,” retired major-general Luo Yuan, a prominent foreign policy hawk, wrote on his blog on Saturday.

LAST THING XI JINPING NEEDS

Kim’s actions have also become an unwanted headache for incoming Chinese president Xi Jinping, who is already facing a host of domestic problems from corruption to pollution.

Besides the February 12 nuclear test and a long-range rocket launch in December, Pyongyang last week threatened the United States with a preemptive nuclear attack, a largely empty warning since experts believe it does not have the capability to hit the U.S. mainland.

North Korea has also told China it was ready to push ahead with a fourth and even a fifth nuclear test, a top official with direct access to both capitals told Reuters in February.

“The timing of this with the new leadership coming onboard causes some discussion amongst the leaders when there normally would be very little foreign policy discussion,” said Paul Haenle, former China director on the U.S. National Security Council and White House representative to the North Korea denuclearization talks.

“The elites within China have really come out strongly.”

China’s new leadership, including Xi, do not have the emotional ties to North Korea that their predecessors had. Visits then used to be marked with smiles and bear hugs.

Xi also understands there is little public sympathy at home for Pyongyang.

“North Korea’s behavior has infuriated ordinary Chinese, and this has put pressure on the government. Xi Jinping has talked about how the government has to pay attention to public opinion,” said Cai Jian, an expert on Korea at Shanghai’s Fudan University.

“The new leadership will be more practical, more cooperative with the international community when it comes to North Korea.”

To be sure, China will not cut North Korea off completely.

The country is a useful buffer from U.S. troops stationed in South Korea, and Japan too. China also does not want North Korea to go the same route as Myanmar, once a staunch ally of Beijing but which is now rapidly expanding ties with Washington.

And if China turns the screws too much then North Korea could collapse — Beijing’s ultimate nightmare scenario.

Not only would that release a flood of refugees into northeastern China, it would also raise the question of what would happen to North Korea’s nuclear material.

“China does not want these sanctions to affect North Korea’s stability or cause domestic unrest or instability in the leadership,” said Fudan’s Cai.

In fact, China may not enforce the sanctions as toughly as it could.

One well-connected Chinese expert on North Korea, Zhang Liangui of the Central Party School, said he didn’t think the sanctions would do any good, given how adept Pyongyang is at skirting them.

“These sanctions will not cause pain for North Korea,” he said.

Source: Reuters By Michael Martina and Sui-Lee Wee

BEIJING (Reuters) – China unveiled a government restructuring plan on Sunday, cutting cabinet-level entities by two and dissolving its powerful Railways Ministry, as the country’s new leaders look to boost efficiency and combat corruption.

The reforms mark the biggest reduction in ministries since 1998 when then-premier Zhu Rongji oversaw the overhaul of the State Council, and coincides with growing public concern over transparency and overlapping bureaucracies.

The government will join the Family Planning Commission — the agency that controls the controversial one-child policy — with the Health Ministry, and strengthen the powers of the food and drug regulators, it said in a report released during the on-going annual meeting of parliament.

“Currently, numerous operational, organizational and division of labor problems exist in State Council ministries,” State Council Secretary-General Ma Kai said in a speech on the plan to the National People’s Congress.

Ma added that “breach of duty, using positions for personal gain and corruption” under the structure had not been effectively constrained.

China’s president-in-waiting Xi Jinping and premier-designate Li Keqiang assume their new roles after the annual congress concludes next week.

The Railways Ministry and Family Planning Commission have been particularly unpopular, and their restructuring was widely expected.

The Railways Ministry has faced numerous problems over the past few years, including heavy debts from funding new high-speed lines, waste and fraud.

Railways planning will be coordinated under the broader transport ministry. The government has pledged to open the rail industry to private investment on an unprecedented scale.

Family planning officials, meanwhile, have been known to compel women to have abortions to meet birth rate targets. High profile cases have sparked national fury, such as when a woman in inland Shaanxi province was forced to abort her 7-month pregnancy last year.

Some analysts have said the merger of the health and family planning agencies would be a blow to the political base needed to maintain the one-child policy, which many demographers say should be relaxed.

The report said family planning must continue “on the basis of stable and low birth rates”, but added that policies would be “improved”. China’s one-child policy is still generally enforced, although there are a number of family situations exempt from the rule.

A recently retired official from the Family Planning Commission who maintains close ties with the agency, said the merger does not mean the commission’s power will be reduced.

“For such a long time, hundreds of millions of people had to have contraception and birth control, this kind of work is necessary. But it’s possible that there will be fewer things done by force,” the retired official said.

SUPER MINISTRIES

The restructuring plan, which will cut cabinet-level agencies to 25, will also boost the role of the food and drug regulators, placing it within the cabinet in response to an almost never-ending series of scandals over product safety.

Prosecutions for producing or selling fake drugs or toxic food jumped to more than 8,000 in 2012, more than five times the number in 2011, according to a report by the office of China’s top prosecutor also issued on Sunday.

China’s maritime enforcement agencies will be consolidated, as well, giving the National Oceanic Administration control over coast guard forces, customs police and fisheries enforcement as China faces growing tensions with Japan and South East Asian neighbors over disputed seas.

Tokyo and Beijing have sent patrol boats in a game of cat-and-mouse in the waters near disputed islands in the East China Sea, and coordinated control over China’s vessels could reduce the risk of an escalation sparked by unintended collisions.

One parliament delegate said on the sidelines of the congress session that the move was not linked to the military.

“Our coastline is very long and our oceans cover a vast area. There is no military thinking behind it,” said Zhang Guibai, who is also a military officer.

China will also merge its two media watchdogs — the General Administration of Press and Publication and the State Administration of Radio, Film and Television — and restructure the National Energy Administration, Ma said.

Source: Reuters

(Reuters) – The United States was the origin of more than half of the hacking attacks on China in the first two months of 2013, state news agency Xinhua said on Sunday, amid escalating tensions between Beijing and Washington over the use of the Internet.

Beijing and Washington have been squaring off for months over the issue of cyber attacks, each accusing the other of hacking into sensitive government websites.

China has long singled out the United States as the top source of intrusion on its computers.

China’s top Internet security agency, the National Computer Network Emergency Response Coordination Center (CNCERT), said the hacking attacks from other countries have become “increasingly serious”, Xinhua said.

For the first two months of the year, 2,196 control servers in the United States “controlled” 1.29 million host computers in China, making it “the top-ranking country” that hacked into servers and host computers in China, according to Xinhua.

“A large amount of facts have proven that for many years, China has been one of the primary victims of cyber attacks,” an unnamed official from the China National Internet Information Office told Xinhua.

In February, the Defense Ministry said that two major Chinese military websites, including that of the Defense Ministry, were subject to about 144,000 hacking attacks a month last year, almost two-thirds of which came from the United States.

A U.S. computer security company in February said that a secretive Chinese military unit was likely behind a series of hacking attacks mostly targeting the United States, setting off a war of words between Washington and Beijing.

China has denied the allegations and said it was the victim.

The hacking dispute adds to diplomatic tension between China and the United States, already strained by Chinese suspicion about Washington’s “pivot” back to Asia and arguments over issues from trade to human rights.

Source: Global Times

Sun Cong, chief designer of the J-15 carrier-borne fighter jet and a member of the National Committee of the Chinese People’s Political Consultative Conference, accepted a special interview with Xinhua News Agency on March 2.

The J-15, nicknamed “lying shark”, is China’s first generation of carrier-borne fighter jet. When the piloted J-15 fighter landed on the Liaoning aircraft carrier for the first time and successfully took off, Sun was filled with excitement.

J-15 carrier-borne fighter jet has filled the technological gap in the related fields. Compared with land-based aircraft, the carrier-borne aircraft raised more and higher requirements in technological aspects.

Sun said the carrier-borne fighters must have the same combat capability as the land-based fighters in terms of bomb load, combat radius, and maneuverability; it must have good low-speed performance. It also raised higher requirements in terms of blocking landing in the sea and ski-jump takeoff.

“The engine is the key. If we can halve the fuel consumption, the combat radius will increase.” Sun said that a J-15 equipped with domestic engines can have a combat radius of more than 1,000 kilometers. Considerable progresses have been made in fire control radar and guided missiles. “The indicators of J-15 are generally close to US F/A- 18 Hornet , reaching world-class standards.”

To make sure the aircraft slides at a relative velocity of about 60 meters per second in a fixed and constant posture on the glide slope and land precisely on the fight deck, many key technological difficulties including the operation methods of the pilot, the technical design characteristics, and other aspects need to be overcome.

Sun is also the chief designer of the J-31. He hopes the J-31 can pair up with J-20 in the future in tasks of both high and low altitudes, to maintain continuing striking capability. He also hopes the improved version of J-31 can become China’s next-generation carrier-borne fighter jet.

At present, Sun and his team are exploring key technologies of the next generation of fighter planes, and “will make breakthroughs in terms of whole time-domain, whole airspace, and greater combat radius”.

Source: Reuters By Aileen Wang and Nick Edwards

(Reuters) – China’s uneven economic recovery signals a looming dilemma for policymakers as official data released at the weekend showed inflation at a 10-month high in February while factory output and consumer spending were weaker than forecast.

Data from China’s National Bureau of Statistics showed the consumer price index rose 3.2 percent in February from a year ago, versus expectations of a 3.0 percent rise, while annual industrial production (IP) growth in January and February combined at 9.9 percent was the lowest since October 2012 – the starting point of China’s nascent economic recovery.

The NBS numbers revealed state-mandated fixed asset investment (FAI) was the key driver of economic growth in the first two months of the year, up 21.2 percent and the strongest in 12 months, while annual retail sales growth of 12.3 percent was the slackest January and February combined since 2004.

“This data shows that the economy is in the process of a mild recovery and that it is still fragile,” Xu Gao, chief macro-economic analyst at Everbright Securities in Beijing, told Reuters. “It faces a lot of uncertainties.”

The key uncertainty is how much the data has been distorted by the fall of China’s annual Lunar New Year holidays, which were in February this year and in January in 2012 and which typically see factories shut up shop for two weeks.

The risk is that the economy needs monetary policy tightened to cool prices before industrial activity and retail sales regain momentum lost last year as the Chinese economy delivered its slowest full year of growth since 1999, at 7.8 percent.

MIXED PICTURE

“January-February data have painted quite a mixed picture,” said Ren Xianfang, senior economist at consultancy IHS Global Insight in Beijing.

“Property and credit data point to signs of overheating, whereas IP and FAI, as well as early indicators for manufacturing, such as PMI, have languished again,” she wrote in a note to clients.

Purchasing managers indexes (PMIs) in the manufacturing sector released on March 1 had already flagged February factory activity at multi-month lows as domestic demand dipped.

Excess capacity would appear to remain ample, given Saturday’s producer price data that showed prices at the factory gate remained in deflation in February, falling at the same 1.6 percent rate year-on-year as they did in January.

Though a 0.2 percent month on month rise in producer prices offer some sign that demand for Chinese goods is stabilizing.

The picture for foreign demand, however, remains uncertain, despite a 21.8 percent surge in February exports versus a year ago that was reported on Friday.

The export bounce is, at face value, a sign that China’s modest economic revival is intact and suggestive of global demand being on the mend, but imports were surprisingly weak, falling 15.2 percent from a year earlier to 13-month lows and highlighting vulnerability lurking in the domestic economy.

“China’s economy is increasingly being driven by domestic demand and recent data cast doubt on a strong recovery,” Zhang Zhiwei, chief China economist at Nomura in Hong Kong, said.

POLICY CHALLENGE

Lending data saw a surge in January and economists polled by Reuters expect February’s numbers to be well above November and December levels when the data is released later this month, suggesting that monetary conditions remain loose.

The People’s Bank of China will target 8.5 trillion yuan in new local-currency loans in 2013 and 13 percent annual growth in M2, the official China Securities Journal has reported.

Relatively easy liquidity has fuelled investment in China’s notoriously frothy real estate sector – property investment jumped 22.8 percent in January and February combined from 2012 – pushing up home prices and triggering hawkish talk on property tightening from Beijing policymakers to contain the risk of an asset bubble rapidly inflating.

Food prices may have been the biggest distorting factor in the February inflation data, gaining 6 percent year on year and most likely a sign of increases ahead of Lunar New Year festivities.

The mixed messages from the data make any policy tweaks particularly sensitive – especially as China puts the finishing touches to a government transition that began in November and is set to be sealed by March 17 with Xi Jinping and Li Keqiang taking over as president and premier, respectively.

“The Chinese government is caught in the dilemma of dealing with slower growth and yet higher inflation again,” Ren at IHS said, adding that the government had little real room to wiggle on the monetary policy front while stabilizing growth.

“The government’s policy challenge for this year is to strike a balance between containing an asset bubble and pushing the economy out of the growth malaise,” she said.

Source: Reuters By Jack Kim and Terril Yue Jones

(Reuters) – North Korea formally rejected a U.N. Security Council resolution on Saturday that demands an end to its nuclear arms program, as China called for calm, saying sanctions were not the “fundamental” way to resolve tensions on the Korean peninsula.

Pyongyang said it would pursue its goal of becoming a full-fledged nuclear weapons state, despite the sanctions which were unanimously imposed on Friday by the Security Council.

The sanctions aim to tighten financial restrictions and crack down on North Korea’s attempts to transport banned cargo.

The resolution, the fifth since 2006 aimed at stopping the North’s nuclear and ballistic missile program, coincides with a sharp escalation of security tensions on the Korean peninsula after Pyongyang’s third nuclear test on February 12.

“The DPRK, as it did in the past, vehemently denounces and totally rejects the ‘resolution on sanctions’ against the DPRK, a product of the U.S. hostile policy toward it,” the North’s foreign ministry spokesman said in a statement.

DPRK is short for the North’s official name, the Democratic People’s Republic of Korea.

“The world will clearly see what permanent position the DPRK will reinforce as a nuclear weapons state and satellite launcher as a result of the U.S. attitude of prodding the UNSC into cooking up the ‘resolution.’”

The North’s sole major ally China has said it wants sanctions fully implemented, but Chinese Foreign Minister Yang Jiechi told a news conference on Saturday the best way to resolve the problem was still through dialogue.

“We always believe that sanctions are not the end of Security Council actions, nor are sanctions the fundamental way to resolve the relevant issues,” Yang said, urging all sides to exercise calm and restraint.

“The only right way to resolve the issue is to take a holistic approach and resolve the concerns of all parties involved in a comprehensive and balanced manner through dialogue and consultations.”

AVOIDING INSTABILITY

The sanctions are designed to make punitive measures more like those used against Iran, which Western officials say have been surprisingly successful.

Analysts say China’s leaders have become increasingly irritated with North Korea and its recent actions have sparked policy debate within China, but caution that Beijing is not likely to give up on its old friend any time soon.

“The calculus in China is changing to the point where it is starting to ask the question: Is North Korea more of a liability than a benefit?” said Paul Haenle, former China Director on the U.S. National Security Council and White House representative to the Six Party Talks.

“What Yang Jiechi said today is a reflection that it will not be taking actions with respect to North Korea that will cause more instability. It will not change its policy overnight and abandon North Korea.”

The United States warned North Korea it will achieve nothing by repeating threats of provocative actions and will only drive itself deeper into international isolation.

“The United States of America and our allies are prepared to deal with any threat and any reality that occurs in the world,” U.S. Defense Secretary Chuck Hagel said ahead of his visit to Afghanistan on Friday. “We are aware of what’s going on. We have partnerships in that part of the world that are important.”

North Korea defied international warnings and conducted a third nuclear test in February, setting off a device that yielded a stronger blast than its previous test in 2009. It claimed it had made progress in miniaturizing an atomic weapon.

Experts are skeptical of such a claim, and the threat this week to attack the United States, seeing them more as an attempt to boost its security leverage in the face of deepening diplomatic isolation and growing military pressure from the United States and South Korea, which are conducting joint military drills to deter any armed aggression from Pyongyang.

North Korea has accused the United States of using military drills in South Korea as a launch pad for a nuclear war and declared on Tuesday it would scrap the armistice with Washington that ended hostilities in the 1950-53 Korean War.

The two Koreas are technically at war because the armistice and not a formal peace treaty ended their 1950-53 conflict.

Source: Reuters

(Reuters) – Incoming Chinese president Xi Jinping’s first trip as head of state will take him to Africa, the government said on Saturday, as China seeks to cement a growing trade and energy relationship that has caused alarm bells to ring in Washington.

Chinese Foreign Minister Yang Jiechi said that Xi, scheduled to take over formally from Hu Jintao as national leader next week, would visit South Africa, Tanzania and Republic of Congo, as well as Russia, though he provided no exact dates.

“China and Africa are good brothers, good friends and good partners. The visit by China’s new national chairman to Africa fully shows the importance we attach to Sino-African ties,” Yang told a news conference at China’s annual parliament meeting.

While in South Africa Xi will attend a summit of BRICS nations — made up of Brazil, Russia, India, China and South Africa — which will be held in Durban at the end of March, he added.

China has courted Africa for decades, but its efforts have kicked into high gear in recent years as Beijing seeks to satisfy growing demand for raw materials and energy for its booming economy, now the world’s second largest.

Last year Hu offered $20 billion in loans to African countries over the coming three years, part of what China says is a no-strings-attached aid policy widely appreciated in Africa.

Many Western nations though say China turns a blind eye to rights abuses and corruption in handing out aid and loans in its bid to get access to resources like oil, copper and timber.

U.S. Senator Chris Coons, chairman of the Senate Foreign Relations Subcommittee on African Affairs, called on Thursday for early renewal of U.S. trade benefits for Africa as part of a broader strategy to counter growing Chinese investment and influence on the continent of nearly one billion people.

Yang said such concerns were unwarranted, and that China’s interest in Africa was not meant to exclude any other country and was in line with the African people’s wishes.

“Now all countries are pushing forward their cooperation with Africa, and China sincerely welcomes such a development,” he added.

“At the same time we hope that all parties will view China-Africa cooperation in an objective light and respect Africa’s choice of its own development partners. We hope that there will be more exchanges and mutual learning and less suspicion or accusations.”

Source: Wall Street Journal by Colum Murphy

BEIJING—China signaled it is on the verge of shaking up its massive railway system, long plagued by corruption allegations and heavy debt and since a deadly 2011 train crash also under a cloud of safety concerns.

Reform of China’s Railways Ministry will start once a plan to merge it with China’s Transport Ministry is approved, said Vice Railway Minister Hu Yadong on the sidelines of China’s once-a-year legislative session.

One concern has been the that the Railway Ministry both regulates and operates the country’s railways industry, which had made for a murky structure and had impeded both competition and financing. Chinese media in recent weeks have reported that officials want to break up the ministry and move its regulatory duties to the Ministry of Transportation.

“We are confident that after the proposal gets approved, we’ll carry out the reform accordingly,” said Mr. Hu on Friday. He said the ministry’s reform plans are in line with Beijing’s broader goal of consolidating the country’s many ministries into more powerful superministries. He didn’t elaborate or disclose details.

Wang Mengshu, deputy chief engineer of state-owned construction company China Railway Group, said Friday that reform could involve separating out railway construction and give oversight of the railway network to the Chinese regulator that manages the central government’s state-owned enterprises, the State-owned Assets Supervision and Administration Commission, or Sasac.

Shaking up the ministry would be a considerable task, but one that analysts say is necessary to keep China’s economy and transportation sector humming.

“The large railway system is critical to China’s economy—and will become even more so with the economy’s shift from coastal areas inland,” said Gerald Ollivier, senior transport specialist with the World Bank, adding that the current multiplicity of roles at the ministry creates “some conflicting objectives.”

Splitting it up into parts—which could eventually entail setting up several regional rail companies—could intensify competition and improve fundraising among Chinese rail companies, which could help reduce China’s relatively high rail costs and fuel the system’s continued build out. It could also create additional business for international companies that supply parts and know-how for China’s rail ambitions.

In 2012, China’s rail system carried 1.9 billion people—or 29% of total passenger kilometers. It carried 17% of the country’s freight expressed in freight-ton kilometers, according to national statistics. Under Beijing’s current five-year plan, the ministry also oversees annual investment of around $90 billion a year, equivalent to around 1% of China’s GDP.

China has 98,000 kilometers of railway and plans an additional 5,200 kilometers. Only the U.S. has more rail, with 228,500 kilometers, according to the World Bank. China also has ambitions to build out its high-speed rail capabilities. In October, the central government said China aims to complete the construction of its high-speed railway network stretching 18,000 kilometers by the end of 2015, nearly double its current size.
According to the China Federation of Logistics and Purchasing, transportation and logistics costs accounted for the equivalent of around 18% of GDP—double that of advanced economies. Inefficiencies related to rail such as poor interconnectivity with other transport modes contributes significantly to costs, said Tom Behrens-Sorensen, a transportation specialist with consulting firm Navisino (Beijing) Advisors Ltd. “The Chinese economy has paid a very high price in terms of transportation inefficiencies,” he said.

China’s rail build out also came at a price. As of the end of September, the Railways Ministry had debts totaling 2.66 trillion yuan ($422 billion) and a leverage ratio of 62%, its financial reports show. In the January-September period, it reported a loss of 8.54 billion yuan.

Former Railway Minister Liu Zhijun—nicknamed Great Leap Liu on account of his ambitious plan to roll out high-speed trains in China—was sacked from his post in February 2011 for what state media said was “severe violation of discipline.” State media said he helped Ding Yuxin, a chicken farmer turned businesswoman, win around 3 billion yuan (about $471 million) in contracts. Under one such arrangement, Mr. Liu walked away with a consulting fee of 10 million yuan, Xinhua said. Mr. Liu, whose case was transferred to the judiciary in January, has been unavailable for comment.

The ministry’s biggest public blow came later in 2011 when one bullet train rear-ended another in the eastern China city of Wenzhou, killing 40 people and injuring 172. The incident prompted intense public criticism of China’s breakneck growth, prompting one anchor on the official China Central Television to ask on air, “Can we ride a train that arrives safely?”

Breaking up the ministry could improve fundraising for the rail industry, after the Wenzhou crash made financing more difficult and as debt has mounted. “This will improve financial transparency and is an initial step toward leveraging capital markets,” said Patrick Xu, analyst with Barclays Bank. “This will open up the avenue to equity markets.”

Citibank analyst Paul Gong said China still needs more railway capacity.

“The pressing issue is how to fund,” he said, adding that equity is the “missing piece.” If more competition is introduced to China’s rail sector—which is seen as a long-term outcome of reform, then that too could also bring a windfall to suppliers to the railways sector. “When you set up competing [rail] companies, it will trigger greater capital expenditure as players push to buy more trains to grow market share.”