China Crash Victims Prove Obstacle for Sale of New Rail Bonds to Investors

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Photographer: Mark Leong/Bloomberg Markets via Bloomberg

Wang Hui, whose husband died in the July 23 high-speed rail crash, holds her daughter in Lianjiang, Fujian Province, China on Sunday.

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Photographer: Mark Leong/Bloomberg Markets via Bloomberg

Wang Hui, whose husband died in the July 23 high-speed rail crash, holds her daughter in Lianjiang, Fujian Province, China on Sunday. Close

Wang Hui, whose husband died in the July 23 high-speed rail crash, holds her daughter in Lianjiang, Fujian Province, China on Sunday.

Photographer: STR/AFP/Getty Images

A high-speed train passes the wreckage of two other high-speed trains which collided in the town of Shuangyu in the eastern Chinese province of Zhejiang, on July 25, 2011. Close

A high-speed train passes the wreckage of two other high-speed trains which collided in the town of Shuangyu in the... Read More

Photographer: STR/AFP/Getty Images

Premier Wen Jiabao visited the accident site July 28 and promised the government would issue a report to “get to the bottom” of what happened. Close

Premier Wen Jiabao visited the accident site July 28 and promised the government would issue a report to “get to the... Read More

Source: Bloomberg

Zheng Hangzheng, with his daughter Tangtang, in People's Square in Lianjiang, Fujian Province, China, on July 19, 2011. Close

Zheng Hangzheng, with his daughter Tangtang, in People's Square in Lianjiang, Fujian Province, China, on July 19, 2011.

Wang Hui says she doesn’t care about the money. She wants to know why her husband, Zheng Hangzheng, never made it home from a business trip on July 23.

Zheng, a 34-year-old entrepreneur, was one of 40 people killed when two high-speed trains collided in Wenzhou, eastern China. The first official explanation reported for the accident -- a lightning strike knocked out power to one of the trains before the second plowed into it -- drew ridicule on China’s Internet and triggered a protest near the crash scene by Wang and other victims’ families demanding a full investigation, Bloomberg Markets magazine reports in its November issue.

Wang, 32, says 10 days after the crash, authorities offered her 915,000 yuan ($143,000) to give up any claims against the Ministry of Railways. She says they hinted that if she didn’t agree, they would let Zheng’s body rot. She signed.

“It was too early to discuss compensation when the truth of the accident and who was responsible were unknown,” Wang says, comforting her 17-month-old daughter in the three-bedroom apartment they share with Zheng’s parents. Internet coverage of her ordeal struck a chord with many Chinese. A video of Wang asking for justice in an interview at Wenzhou train station went viral after being posted on two of the country’s biggest video- sharing websites, and 127,000 followers now read her microblogs on a Chinese version of Twitter.

The accident brought focus on the safety and financial shortcomings of China’s showcase rail network. Public outrage went further with citizens openly questioning whether the world’s fastest major economic expansion is worth the death of people like Zheng, as well as the suppression of information and corruption that has come with it.

‘Growth Not Enough’

“Economic growth is increasingly not enough,” says Cheng Li, a senior fellow at the Brookings Institution in Washington. “The Chinese people are saying that their government proved it can deliver development, now it should deliver accountability.”

That so many Chinese are reassessing the costs of the country’s economic growth, which averaged more than 10 percent annually over the last decade, poses one of the stickiest challenges for one-party rulers in the years ahead: balancing a drive for wealth with the public satisfaction necessary for social stability.

The crash bruised the reputation of the rail industry at the heart of China’s plans to spread prosperity inland and provide exports more sophisticated than consumer goods. The high-speed network -- dubbed Harmony after the regime’s goal to create a prosperous, “harmonious society” -- opened in 2007 and was slated to be the world’s biggest network at 16,000 kilometers (9,900 miles) by 2015.

Built on Debt

To build it, the rail ministry has run up a debt of 2.1 trillion yuan ($330 billion), equal to 5 percent of everything produced in China last year.

Since the accident, the rail ministry has suspended approvals on new projects nationwide, recalled 54 high-speed trains and removed three top regional railway officials from their posts.

“The accident is a blow to government’s ambition to attain world class technology for the country,” says Nicholas Yeo, the Hong Kong-based head of China and Hong Kong equities at Aberdeen Asset Management, who oversees $70 billion. “It points to the country focusing on speed at the compromise of quality.”

Wen’s Promise

Premier Wen Jiabao visited the accident site July 28 and promised the government would issue a report to “get to the bottom” of what happened. Huang Yi, a spokesman for the State Administration of Work Safety which is carrying out the probe, wouldn’t answer faxed questions on the content of the report or when it will be released.

The July 23 tragedy “could have been avoided and prevented,” Huang told the state-run Xinhua News Agency Aug. 22. Liu Lianguang, a professor at North China Electric Power University who was a member of the investigative panel, said Sept. 16 it had found signal software problems and human error contributed to the crash. The Railways Ministry didn’t respond to faxed questions seeking comment.

Even before the tragedy, it was getting harder for the rail ministry to raise funds. China’s largest corporate borrower wasn’t able to find buyers for all its one-year notes in a 20 billion-yuan sale on July 21. Since the crash, the extra yield investors demand to hold such notes rather than government debt has risen 20 percent, according to chinabond data on Bloomberg.

California Bid

“After the accident the financial industry will have even less confidence in high-speed trains,” says Zhao Jian, a professor of economics at Beijing Jiaotong University. “Its funding crisis is approaching.”

The central government may have to bail out the rail system because its failure would lead to the collapse of the economy, Zhao says.

China’s plans to export its rail technology may also be damaged, says Kao Tsung-chung, a visiting professor of railroad engineering at the University of Illinois in Champaign-Urbana who’s involved with planning for high-speed rail projects in California and Illinois.

The rail ministry and companies including China Railway Construction Corp. are among more than 900 firms that have expressed interest in bidding on work to build the planned 616- mile (991-kilometer) line linking San Francisco and San Diego.

“Now there will be more scrutiny,” Kao says. “The reputation and future of China’s high-speed rail is at stake with this report. The government isn’t known for transparency so they’ll have more difficulty convincing people the problems are addressed.”

Investigators ought to look beyond the cause of the accident to the government’s response, says Andrew H. Wedeman, a political science professor and director of the Asian Studies program at the University of Nebraska-Lincoln.

‘Miracle of Life’

The days following the accident on the Ningbo-Wenzhou line showed how some of China’s 485 million online users are willing to challenge authorities. Some watching video images and reading reports from the scene said it appeared authorities were burying the rail cars and had abandoned the search for survivors about six hours after the accident.

About 14 hours later, 2-year-old Xiang Weiyi was discovered alive in the wreckage. Microbloggers asked whether her parents and others could have been saved had the rescue effort not been called off.

And, after Wang Yongping, a rail ministry spokesman, said at a July 24 news conference the girl’s survival was an example of “the miracle of life,” he was derided by many in the online community. The spokesman was removed from his job in August and posted to Poland in a diplomatic role.

Power of Weibo

Microblogs, which have at least 300 million registered users in China, highlight the contrast between the official version of events and how people actually see them, says Hu Yong, an associate professor of journalism and communications at Peking University.

“They make public opinion more visible, and that means pressure on the ruler,” Hu says.

Wang, the widow, also used the Internet to voice her disgust. “I will never accept the railway ministry’s apology,” she wrote Aug. 12 to her followers on weibo, the Chinese name for microblogs.

Some members of the public still question the official death toll.

Hua Xinmin, whose grandfather was a prominent Chinese railway engineer, is collecting the names of riders in six of the most damaged rail cars to determine if the government’s accounting is accurate. Her weibo posts were forwarded 10,000 times before being stopped by the service provider.

“This is about the dignity of each life and a safe tomorrow,” Hua, a French citizen living in Beijing, says. “What’s at stake is the credibility of the government.”

Human Cost

China’s government has faced public outrage before over tragedies that exposed the human cost of China’s explosive growth. They included the May 2008 Sichuan earthquake, in which thousands of children were crushed by poorly built schools, and tainted milk that sickened almost 300,000 babies later the same year.

What’s different this time is the public scrutiny on weibo meant the government “lost control of the story line,” says Patrick Chovanec, a professor at Tsinghua University’s School of Economics and Management in Beijing.

“The crash isn’t the problem as much as the government’s response, which is seen to be patronizing and not credible,” he says. “People just weren’t buying it.”

Middle Classes

The outrage over the crash has a very middle class tone to it, says Wedeman of the University of Nebraska-Lincoln. China has pulled more than 500 million people -- almost a quarter of the population -- out of poverty since China began economic reforms in 1978, according to a United Nations estimate.

“They’re angry about the quality of the train and the cover-up,” Wedeman says. “China’s professionals, the beneficiaries of reform, who should be rock solid in their support for the regime, are beginning to question the ability of the government to furnish a better life.”

In all, China’s high-speed rail suffered 168 glitches in July, the 21st Century Business Herald reported Sept. 5, citing a separate Railways Ministry internal report.

Some of those failures may be related to corruption, says Siva Yam, president of the U.S.-China Chamber of Commerce in Chicago. Railways Minister Liu Zhijun, who championed the high- speed network, was fired early this year over corruption. The ministry has a virtual monopoly, as many employees as the U.S. government and its own court system.

Great Leap Mentality

“Liu had this great-leap mentality and he wanted to roll out this system much faster than they should have,” says Damien Ma, China analyst at Washington-based Eurasia Group. “They did a lot of scrimping.” Liu couldn’t be reached for comment.

Wang says she hopes the government report on the accident will fix blame and prevent future accidents.

“When we have the truth, my husband’s soul can rest and the whole family can have a little comfort,” Wang says from her home in Lianjiang in Fuzhou, 368 miles (592 kilometers) south of Shanghai. “Give us some guarantee that the lives of ordinary Chinese are safe.”

The widow and her late husband exemplify China’s economic transformation. Hailing from Xuzhou in northern China, Wang moved to the southwestern coastal town of Xiamen, across the strait from Taiwan, to work on cruise ships. Zheng was her colleague.

They married in 2005 and moved to Zheng’s hometown of Lianjiang and he started a foot-massage business, eventually expanding into restaurants and Internet cafes. Over those six years, per-person annual income for China’s city dwellers almost doubled to more than 19,000 yuan.

Good Life

“He promised me a good life,” Wang says. The couple vacationed at beach resorts on Hainan Island, off China’s southern coast, and visited Beijing to see Tiananmen Square. Two years ago, Zheng bought a black Buick luxury sedan. When a daughter arrived, they nicknamed her Tangtang, or Sweetie, and Wang became a stay-at-home mom.

“I didn’t have to worry about money,” she says. Wang shows the last photo she has of her husband, taken with her iPhone in the People’s Square in Lianjiang on July 19. In it, Zheng is wearing jeans, black T-shirt and flip-flops, bending next to Tangtang, whose hair is swept off her face with barrettes. He’s pointing to Wang.

Car Crushed

Zheng left that night, Wang says. Instead of driving, as he usually did, he opted to take the bullet train.

Four days later, Zheng called his wife, who was attending a wedding with Tangtang, to say he was heading home. His seat was near the back of the last-but-one car, the ticket found on his body showed.

At about 8:40 p.m., Wang remembers, Tangtang started screaming and crying. They had to leave the wedding early.

What she didn’t know was that 10 minutes earlier, another train, traveling more than 100 kilometers per hour, slammed into Zheng’s train. The impact knocked three rail cars off a viaduct and another hanging over the side.

On her way home from the wedding, Wang got a call from the family of a friend who was traveling with Zheng informing her of the collision. The friend had tried to find Zheng in the chaos but couldn’t.

Wang says she tried Zheng’s phone. No answer. He probably lost his phone in the accident, she remembers thinking.

‘The Sky Collapsed’

Early on July 25, Wang was driven by relatives to Wenzhou. When they reached the highway exit, she received a call telling her to go to the morgue not a hospital, as she had believed.

“It felt like the sky collapsed on me,” Wang says.

The dead included two schoolgirls, an Italian tourist and a pregnant woman who was killed with four family members, according to accounts in the Chinese press.

On July 29, Chinese media received an order from national authorities to “calm down” coverage. They were told to focus on positive news or information from the authorities, according to a copy seen by Bloomberg News.

The Economic Observer, a Beijing-based national business weekly, was among publications that defied the gag order, printing an open letter to the rescued orphan Xiang on its August 1 front page starting “Dear Yiyi,” which said:

“This country has created one economic miracle after another. They claim that’s for people’s benefit, but wouldn’t slow down to listen to the living beings.”

Critical Mass

Journalists posted images online of newspaper pages that were spiked because of the government directive. They were later deleted. The Communist Party’s publicity department, which oversees China’s media, didn’t answer faxed questions about the directive.

Whether this outpouring of anger will result in greater transparency from the government or a tighter crackdown is an open question, says Elizabeth C. Economy, director for Asia Studies at the Council on Foreign Relations in New York.

“Does all the chatter build to critical mass?” Economy says. “I’m a firm believer that the day will come.”

For all her discontent, Wang Hui accepted the compensation offer after she was repeatedly visited by unidentified officials. On Aug. 2, one group came to her hotel in Wenzhou to offer condolences and muttered audibly about potential problems with her husband’s body because it wasn’t refrigerated, she says.

No Choice

“I felt that I had done things that hurt my husband,” she says, tears rolling down her cheeks. “As if I were the one discussing compensation using his body.”

There was no choice but to sign, she says. Huang Leping, a Beijing attorney Wang had consulted, said she had little chance of winning if she sued the ministry.

Victims in such cases are often helpless because China’s courts may not hear the cases and lawyers are warned away from representing them, says Jerome Cohen, a professor of law at New York University who specializes in China legal issues.

Those who continue to protest for greater justice also risk recriminations. Zhao Lianhai, whose son was poisoned by milk contaminated with melamine, was jailed after he tried to organize other parents to campaign. He’s since been freed.

Wang says she just wanted to ensure her husband was cremated so she could take his ashes back home.

When she collected his body, there was one thing missing: Zheng’s silver Audemars Piguet wristwatch. He’d planned to give it to Tangtang when she got older. Only a mark remained on the wrist where it was, Wang says. The police told her it must have been lost in the crash, she says. She thinks it was stolen.

“When my daughter grows up, what can I say to her?” Wang says. “Her dad is gone. Just like that. Leaving her nothing but a watch, which nobody knows who took.”

Since the accident, Tangtang has become clingy and likes to open her parents’ wedding album, Wang says. When she sees her daddy’s picture, she kisses it.

Wang kept her husband’s last train ticket.

“It feels as if he’s still on a business trip,” she says.

On Aug. 22, a day before the one-month anniversary of Zheng’s death, the widow commemorated his 35th birthday.

She bought him some new clothes.

--Wenxin Fan, Bob Ivry. With assistance from Jasmine Wang in Hong Kong, Henry Sanderson in Beijing and Margaret Conley in Shanghai. Editors: Neil Western, Melissa Pozsgay.

To contact Bloomberg News staff for this story:

Wenxin Fan in Shanghai at +86-21-6104-3045 or wfan19@bloomberg.net; Bob Ivry in New York at +1-212-617-5157 or bivry@bloomberg.net.

To contact the editors responsible for this story: Melissa Pozsgay at mpozsgay@bloomberg.net; Gary Putka at gputka@bloomberg.net.

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