(Updates with analyst comment in fourth paragraph.)
Dec. 29 (Bloomberg) -- China pledged to fix design flaws blamed for a high-speed rail crash last July and punish the officials responsible, as the government released the results of an investigation that sought to allay criticism of how the accident was handled.
Mismanagement and design flaws were the main causes for the crash that killed 40 people near the eastern Chinese city of Wenzhou, according to the report issued yesterday by the State Council, China’s cabinet. The government punished 54 officials and ordered the railway ministry to improve management of the high-speed rail network, the report said.
Suspicions of corruption sparked by the February removal of Railway Minister Liu Zhijun and the discovery of a two-year-old alive as crews cleared wreckage fueled public outrage over the accident. The outcries prompted nationwide safety checks, project delays and a call on the front page of the Communist Party’s People’s Daily newspaper for economic development that isn’t “stained with blood.”
“They realize that a breakneck pace of expansion is not sufficient to guarantee success and delivering service is higher up their priority list,” said Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing. “Has that changed the dynamic of officials being rewarded for generating growth while other things are secondary? I doubt it.”
China Railway Group Ltd., China Railway Construction Corp. and CSR Corp. have all fallen more than 26 percent in Hong Kong trading since the accident, compared with an 18 percent drop for the city’s benchmark Hang Seng Index.
The accident occurred on the evening of July 23 after a lightning strike caused signaling equipment to malfunction. One train rammed another that had stopped and sent four carriages tumbling off a viaduct, according to yesterday’s statement.
The railway ministry and the Shanghai railway bureau also released information in an untimely way and didn’t respond properly to concerns about rescue operations, according to the statement.
The report’s findings were similar to a preliminary investigation by the Shanghai Railway Bureau released after the crash that also blamed a signaling system design flaw. In the crash’s aftermath, the government called for safety checks on other sites, including coal mines, roads and bridges, and fired removed officials.
In yesterday’s report, authorities also said former railway minister Liu and Zhang Shuguang, former deputy chief engineer at the ministry, are among those most responsible for the crash.
Liu was removed on accusations that he abused his position and received “a large amount of money” in bribes, the official Xinhua News Agency reported in February. Zhang was placed under investigation in March for “severe violation of discipline,” according to Xinhua.
Both men had championed the high-speed rail system that’s set to reach 120,000 kilometers (74,500 miles) under a 2.8 trillion yuan, five-year investment plan running through 2015. That includes boosting the high-speed network, which opened in 2007, to 16,000 kilometers.
The State Council also signaled in its report yesterday that development of the network would continue. High-speed rail has improved transportation, boosted economic development and the direction of the development and construction of the network “is correct,” the report said.
The scale of investment may have been reduced. The China Daily newspaper on Dec. 24 quoted Railway Minister Sheng Guangzu as saying the ministry will reduce spending on railway construction to 400 billion yuan ($63.2 billion) next year, a cut of about 15 percent. Rail construction spending was estimated at 469 billion yuan in 2011 and 709 billion yuan in 2010, the China Daily said.
“The red-hot boom days we saw before may be gone now,” said Simon Zhang, a Beijing-based senior consultant with Lloyd’s Register. The punishments are a deterrent that “will reduce the possibility that future railway construction will be rushed to meet deadlines at the expense of safety.”
--With assistance from Jasmine Wang in Hong Kong and Feifei Shen and Kevin Hamlin in Beijing. Editors: Nicholas Wadhams, Bloomberg News
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