(Yicai Global) July 4 -- Foreign capital now has broader access to the rail sector since China lifted restrictions on overseas investment in railroad equipment manufacturing.

The National Development and Reform Commission and Ministry of Commerce jointly issued a new negative list for foreign investment on June 28 that removes prescriptions that railway construction and operation must be controlled by Chinese companies and that passenger rail transport concerns are to be under the sway of Chinese investors.

This development holds profound significance for rail reform, since broader access for overseas investment will bring more capital and advanced management experience to the country's construction and operation of its train networks, a China Railway official said.

The Chinese government has never prohibited foreign capital in the rail industry, but no instances of investment from abroad in domestic rail projects have occurred thus far. Rail construction and operation implicate the public weal and have huge capital investment, a long cycle and a relatively low return in the early stages, Liu Zhe, assistant dean of Wanbo Institute, said in an interview with Yicai Global.

Most passenger railroads run at a loss in the initial operating phase, and this causes investors to shy from the industry, Wang Mengshu, a rail industry expert and academician with the Chinese Academy of Engineering, told Yicai Global.

Promoting profitable passenger and freight businesses to attract foreign investment is also crucial for the sector, said Liu, as is drawing on the experience of railway reform in the US that eliminated price controls in the 1970s, and introduced market-based pricing based on changes in peak and off-season passenger and freight volumes.

To relax market access, promote investment returns and exit mechanisms, and enhance the confidence of non-governmental capital -- including that from overseas -- to deploy in the rail industry with government cooperation is likewise key, Wang advised.

Editor: Ben Armour