Bloomberg News

China Charges Former Railway Chief in Corruption Crackdown

April 10, 2013

Former Chinese Railway Minister Liu Zhijun

Liu Zhijun, China's former railway minister, was among the highest ranked Chinese officials to face corruption-related charges until the downfall of Politburo member Bo Xilai, the Chongqing Communist Party secretary who was also expelled from the party in September and is awaiting trial on graft allegations. Source: AFP/Getty Images

Former Chinese Railway Minister Liu Zhijun was charged with corruption and abuse of power as the Communist Party roots out graft that blossomed during the debt- fueled roll out of the world’s biggest high-speed rail network.

The charges were filed against Liu with the Beijing No. 2 Intermediate People’s Court, the official Xinhua News Agency reported today. Xinhua didn’t say when his trial may begin.

Liu, who was removed from his post in 2011 and later expelled from the Communist Party, championed what he called leapfrog development of a rail network that accumulated more than 2.6 trillion yuan ($419.8 billion) in debt as it laid almost 10,000 kilometers (6,200 miles) of track. The allegations of corruption surrounding the rail construction, along with a July 2011 bullet-train crash that killed 40 people, have come to symbolize broader concern over the quality of China’s infrastructure expansion.

“The wreck calls into real question many of the visible gains from high-speed growth,” Andrew Wedeman, a political science professor at Georgia State University and author of “Double Paradox: Rapid Growth and Rising Corruption in China.” Liu’s case has become “a more general trial for all the fancy new infrastructure construction” in the last decade, Wedeman said.

Highest-Rank

Liu, 60, was among the highest ranked Chinese officials to face corruption-related charges until the downfall of Politburo member Bo Xilai, the Chongqing Communist Party secretary who was also expelled from the party in September and is awaiting trial on graft allegations. Bo’s wife was convicted in August of murdering a British businessman.

Acknowledging the threat posed by corruption, Xi Jinping, speaking after he was appointed Communist Party general secretary in November, called it one of the “severe challenges” faced by the party. Xi, named China’s president last month, later said social unrest may rise and could lead to the party’s demise unless leaders address corruption.

The Communist Party’s decision to punish Bo and Liu shows its “firm determination to fight corruption,” Xinhua reported in November.

“During Liu’s tenure, there were a lot of practices that violated the rules, and not only Liu but also many other officials fell from grace,” China Railway Group Ltd. (390) Chairman Li Changjin said in Hong Kong today. “The case will help to clean up the network and China Railway will benefit from that.”

China Railway rose 1.9 percent to close at HK$3.78 in Hong Kong trading today. The stock has gained 32 percent in the past year, compared with an 8.2 percent increase in the benchmark Hang Seng Index.

Beijing to Shanghai

Liu presided over the ministry at a time when millions of yuan were wasted or stolen. In one case, at least 187 million yuan was misappropriated by individuals or companies involved in building the high-speed rail line from Beijing to Shanghai, the National Audit Office reported in March 2011.

The auditor, which also investigated the railway from June to September 2011, also found that 491 million yuan was embezzled in land deals tied to the railway project, according to a separate audit report.

Criticism of the rail expansion peaked after the accident near the eastern city Wenzhou in 2011. A train rammed into a stopped locomotive, sending four carriages tumbling off a viaduct, after a lightning strike had caused signaling equipment to malfunction.

‘Stained With Blood’

In the crash, the discovery of a two-year-old survivor after crews began clearing away the wreckage fueled public outrage and claims that the government was trying to cover up the reasons behind the accident. In a front-page editorial, the People’s Daily newspaper demanded economic development that isn’t “stained with blood.”

The Chinese government punished 54 officials and ordered the rail ministry to improve management of its high-speed rail system after an investigation found the crash was caused by mismanagement and design flaws. Liu was also singled out for blame in the crash, though he had been removed from his post before it happened.

The crash also reignited public calls for separating the ministry’s regulatory and operating roles, bringing it in line with other parts of China’s state-run economy, including aviation, telecommunications and energy. In those sectors, government-backed companies, which are often listed, run the day-to-day business while separate state agencies regulate them.

China’s National People Congress approved the rail ministry’s dismantling last month. It was split into two, with regulatory functions being absorbed by the Ministry of Transportation and the commercial operations made into a new company, China Railway Corp.

In his eight-year stint, Liu approved landmark projects including the 221 billion-yuan rail link connecting Beijing and Shanghai, the nation’s two biggest cities. The line was put into service months after Liu was removed from his post. China opened the world’s longest high-speed link, a 2,298-kilometer track between Beijing and Guangzhou, last year.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net


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