Operating costs far outweigh rail profits

China's Ministry of Railways said in a report that profits made by its companies stood at 4.29 billion yuan ($670 million) in the first half year of 2011, while it recorded more than 2 trillion yuan in debt. 

The data was released on the website of Shanghai Clearing House, which is authorized by the People's Bank of China and the Ministry of Finance. Because the Ministry of Railways has issued debt several times, it is required to reveal related financial data.

According to the half-year report, companies owned by the Ministry of Railways achieved total operating revenue of 352.6 billion yuan, and 4.29 billion yuan in profits.

A previous report released by the ministry showed that its companies suffered a loss of 3.76 billion yuan in the first quarter of 2011. 

The Beijing News quoted Wang Yongping, a spokesman of the Ministry of Railways, as saying that the price rises of raw materials and diesel were the main reasons for the loss. For instance, the price of diesel increased by nearly 1,000 yuan per ton in the first quarter. 

The newspaper said the profits of the ministry's companies in the second quarter totaled 8.05 billion yuan. 

The paper cited Chen Yujing, an accounting professor at the University of Shanghai for Science and Technology, as saying that the rise of the gross profit rate can explain why they turned profitable in the first half year. 

While the prices of raw materials remained high, old inventory and selling price rises can make gross profits rise. The recent three years' financial reports of the ministry showed that its inventory has kept increasing. 

The paper said that in the first quarter, the assets of companies owned by the ministry totaled 3.4 trillion yuan and the debts reached 1.98 trillion yuan, so the debt ratio exceeded 58.24 percent. 

According to the paper, companies had assets of 3.57 trillion yuan by the end of the first half year, and debts of 2.09 trillion yuan, with a debt ratio of 58.53 percent, slightly higher than that in the first quarter. 

The paper quoted Ou Guoli, a professor at the Beijing Jiaotong University, as saying that the ministry burdened huge pressure because debts are not small.

Ou predicted that the Ministry of Railways is likely to raise more money and banks will have more risk evaluation on the ministry. 

Ou was cited by the newspaper as saying that the ministry should pay attention to the financial sustainability of the railway sector and consider twice developing high-speed rail so quickly.