Railway Reform is Coming to Town

In the Hutong
Managing Chaos
1311 hrs.

In a characteristically articulate editorial last week, Caixin called for an extensive overhaul of China’s Ministry of Railways (MoR) in the wake of the high-speed train crash in Wenzhou on July 23rd. The publication called for an open investigation into the accident conducted by experts from outside the control or influence of the MoR, for the functions of railway development, construction, operation, and regulation to be divided among independent entities, and for the folding of the resulting regulator into a larger ministry with a purview over the wider transport sector.

These changes are not without precedent in China. Aviation went through a similar change in the early 1990s, the telecommunications sector was similarly reformed five years later, and the energy sector has gone through a series of reforms that have separated the regulatory function from the business of generating and distributing energy. There are so many examples of where this has happened, in fact, that not only is the MoR something of a relic of China’s pre-reforming-and-opening past, it is also a matter of suggestive speculation as to why the MoR was left alone for so long.

So this sort of reform is overdue, and it looks like the higher organs of the Chinese government will try to unravel the hairball of conflicts-of-interest and mismanagement that serve as China’s railway industry.

Quis Custodiet Ipsos Custodes?

Unfortunately, even the measures suggested in Ciaxin’s excellent piece will not be enough. The world is replete with examples of industry-specific regulators who have become intertwined with – and co-opted by – the very industries they were created to regulate. One need look no further than the U.S. financial industry and its relationship with the Federal Reserve, the Department of the Treasury, and the Securities and Exchange commission to find proof, and there are ample additional examples.

The lesson of history is that regulators are most effective when they themselves are watched from the outside. While Caixin’s editors would be too modest (or timid) to say so, it is Caixin and all of the others who are watching the regulators from the outside who provide the best guarantee of a better and safer railway system for China.