China Rail Stocks Rally on Report of Train Supply Resumption

China’s train and rail-equipment companies surged in Hong Kong trading on a Shanghai Securities News report that the government may resume tenders to supply bullet trains.

China Railway Group Ltd. (390) advanced as much as 9.6 percent to HK$3.76 in Hong Kong, and China Railway Construction Corp. (1186) jumped as much as 10.3 percent to HK$6.97 as of 1:44 p.m. local time. The two companies are the biggest Chinese builders of rail and metro lines.

China, which has the world’s biggest high-speed rail network, may start taking bids to supply bullet trains in the second half, Shanghai Securities News reported today, citing an unidentified rail transportation-equipment company. Orders were withheld last year because of the nation’s leadership transition, according to JPMorgan Chase & Co.

“This is a short-term positive for train providers as there will be an increase in orders,” Li Kun, an analyst at Northeast Securities Co., said by phone.

China will budget 650 billion yuan ($106 billion) in 2013 on rail-related fixed-asset investment, more than the 631 billion yuan spent last year, Rail Minister Sheng Guangzu said in January, according to Xinhua News Agency.

The government could start accepting bids for high-speed trains as early as August, according to Xu Minle, an analyst at Bank of China International Ltd. in Shanghai.

The Ministry of Railways was dismantled earlier this year as the government sought to rein in graft and red tape. It was divided into two entities, and a new company China Railway Corp. was formed to take over commercial operations.

Wenzhou Crash

The reform comes after allegations of corruption surrounding rail construction, along with a 2011 bullet-train crash in the eastern city of Wenzhou that killed 40 people. Former Railway Minister Liu Zhijun was given a suspended death sentence on July 8 for abuse of power and taking bribes.

The development of the railroad network could help absorb overcapacity in steel and cement industries, 21st Century Business Herald reported today, citing unidentified people close to China Railway Corp. Rail infrastructure investment this year may exceed by “a little” the 520 billion yuan target set by the former railway ministry, the report said.

Trainmaker CSR Corp. (601766), gained 7.5 percent to HK$4.72 in Hong Kong, while its shares in Shanghai gained 3.9 percent to 3.77 yuan in Shanghai.

China Railway Group rose 8.9 percent to HK$3.73 at 1:44 p.m, and China Railway Construction gained 9.7 percent to HK$6.93 as of 1:44 p.m. local time. The two companies are the biggest Chinese builders of rail and metro lines.

To contact the reporters on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net; Michelle Yun in Hong Kong at myun11@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net

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