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China Rail Investment Drops 26% on Crash

China’s rail construction investment slumped 26 percent last month after a deadly high-speed train collision prompted officials to suspend approvals for new projects and impose more safety checks.

Rail construction investment in July amounted to 41.2 billion yuan ($6.4 billion), compared with 55.8 billion yuan a year earlier, based on Ministry of Railways data released Aug. 15. It was the biggest drop in eight months.

“The slump in July construction investment started the downward spiral of China’s rail investment,” said James Chung, a Shanghai-based analyst with Masterlink Securities, “I think it’s impossible for the ministry to reach this year’s investment target.”

Rail investment in the second half is expected to plunge by between 40 percent and 44 percent from a year earlier as new projects are halted, Chung said. The Chinese government ordered trains to lower speeds and reduced Beijing-Shanghai bullet-train services after the July 23 collision, which killed 40 people.

The railway ministry said in May that rail construction investment this year will total 600 billion yuan, down from an earlier estimate of 700 billion yuan.

Total rail construction investment in the first seven months of the year dropped 2.5 percent from a year earlier to 283 billion yuan, according to the ministry data. In the first half, the figure was 242.2 billion.

Lightning Disaster

The collision occurred near Wenzhou when a high-speed train lost power after being struck by lightning and was rear-ended by a second train, according to state-run Xinhua News Agency. A preliminary probe attributed the crash to a signaling fault.

Railway builders including China Railway Group Ltd. (390) and China Railway Construction Corp. will be affected most by the slowdown in investment, said Jack Xu, a Shanghai-based analyst with Sinopac Securities Asia Ltd. Equipment providers including CSR Corp. are less affected because they have big backlogs, he said.

China Railway Group, which has slumped about 29 percent since the crash, rose 3.1 percent in Hong Kong as of 2:28 p.m. The shares were little changed in Shanghai trading.

Public Backlash

The government also ordered trainmaker China CNR Corp. to recall 54 high-speed locomotives for safety checks.

The railway ministry has decided to dismiss spokesman Wang Yongping, Xinhua reported yesterday without elaborating. Wang, 56, was criticized for explanations he gave after the crash as he “infuriated the public” when he defend rescue efforts following the accident, including dismissing accusations that a rail-car had been buried as part of a cover up, the state-run China Daily newspaper said today.

“The rescuers decided to bury the train’s carriages to make their work easier,” Wang said at a press conference, according to newspaper. “Whether you believe (this explanation) or not, I do.”

To contact the reporters on this story: Jasmine Wang in Hong Kong at Jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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