Getting on Board

The choice of Zhejiang was symbolic, as the province is home to China’s only two privately controlled high-speed regional railways: the 267-kilometer Hangzhou-Shaoxing-Taizhou Railway (Hang-Shao-Tai), operational since January 2022, and the Hangzhou-Wenzhou Railway (Hang-Wen), a 276-kilometer line that began operating in September 2024. These two lines exemplify China’s evolving approach to public-private partnerships in infrastructure.

While “social capital” officially refers to domestic and foreign enterprises not controlled by government investment, such PPPs have mostly involved State-owned enterprises (SOEs).　

In 2016, the NDRC launched eight pilot projects to test the feasibility of public-private partnerships (PPPs) in the traditionally State-dominated railway sector. Among these were the Hang-Shao-Tai and Hang-Wen railways.　

“At the time, the central government only allowed social capital to participate in [and not control] these pilot projects,” said Chai Xianlong, a director at the Zhejiang Provincial Development and Planning Institute. A State Council directive in 2023 allowed fully private enterprises to hold controlling stakes in select PPP projects, which still exclude public projects like water and gas supply and transportation.　

“However, Zhejiang’s provincial government took it a step further by enabling private entities to hold controlling stakes in the two high-speed railways,” Chai said.　

Initially, private investors were cautious. “Through strategic promotion and carefully designed financial frameworks, we managed to build confidence and attract significant interest,” said Chai, who previously worked with Zhejiang’s development and reform department to design the Hang-Shao-Tai project.　

The Hang-Shao-Tai Railway adopted a PPP model under a Build-Own-Operate-Transfer (BOOT) framework. This arrangement allows private investors to finance, construct and operate the railway for 30 years before transferring ownership back to the government.　

Zhejiang has precedent for private involvement in railways. In 2005, Changshan Cement collaborated with the former Ministry of Railways and Changshan County government to construct the Quzhou-Changshan Railway, holding a 32.5 percent stake. However, due to the lack of a clear mechanism for financial returns, the company eventually withdrew from the project.　

In contrast, the Hang-Shao-Tai High-Speed Railway addressed this issue through operational revenue sharing and “viability gap funding,” which includes government subsidies to guarantee a minimum income level.　

“The government implemented a financial backstop to ensure viability,” Chai said. “This reassured private investors, offering them a pathway to reasonable returns while sharing the project’s risks.”　

The Hang-Shao-Tai project’s total investment was estimated at 44.9 billion yuan (US$6.3b), with 40.9 billion yuan (US$5.6b) financed through a government-private partnership. Of this, 12.4 billion yuan (US$1.7b) was registered capital, with the rest sourced through bank loans. A private consortium led by the Shanghai-based Fosun Group secured a 51 percent stake in the PPP entity, while the State-owned China State Railway Group held 15 percent, and provincial and local governments held 13.6 percent and 10.2 percent respectively.　

Fang Jianhong, CEO of Fosun Infrastructure Industry Development Group, described the investment as challenging but rewarding. “The expected return of 5.5-6 percent is modest but acceptable, given the project’s strategic importance and stability,” Fang said.　

Building on the Hang-Shao-Tai model, Zhejiang provincial government and Baisheng United Group, based in Wenzhou, signed a cooperation agreement in June 2018 for the Yiwu-Wenzhou section of the Hang-Wen Railway. Baisheng United invested approximately 5 billion yuan (US$688m) to hold a controlling 51 percent stake, while China State Railway Group and local governments retained minority shares.

Fang Jianhong said that after constructing the Hang-Shao-Tai Railway, Fosun had to transfer the project to the Shanghai Railway Bureau for unified transportation management. Despite Fosun’s controlling stake, the railway was integrated into the national railway network, subject to scheduling by the China State Railway Group, with ticket prices determined according to national regulations. In essence, privately controlled railways operate with similar efficiency to State-invested and -owned ones, with the primary distinction being their funding source.　

“In terms of operations, the railway aligns with the national system. We hope that future market-oriented reforms in railway operations will bring breakthroughs, granting private enterprises greater autonomy in the process,” Fang said.　

“Autonomy in railway construction and operation – or more specifically, railway ownership – is a fundamental right for private capital,” said Li Hongchang, a professor at Beijing Jiaotong University who focuses on transportation. “Achieving autonomy in construction requires reforms in railway planning, project approvals and related authorities. Similarly, operational autonomy demands changes in scheduling, market access and other aspects. These reforms present significant challenges to the current administrative and economic systems,” Li told NewsChina.　

Besides limited autonomy, private capital faces higher financing costs compared to State-backed projects. “Private investors often encounter interest rates 70 to 100 basis points higher than those for State-led projects,” Fang noted. “Additionally, we experience considerable difficulties in financing, including high costs, long cycles and steep thresholds – especially for large-scale projects worth billions, which exert immense pressure on us.”　

An industry insider, speaking on condition of anonymity, told NewsChina that while banks actively support railway projects funded by national or local governments, they adopt a more cautious stance toward private enterprises. This makes securing loans challenging for private investors, who often face stricter requirements for collateral, guarantees and higher interest rates. To address this disparity, State and central authorities must introduce clear, supportive policies to promote private investment and financing, the insider added.　

A source close to Zhejiang Provincial Development and Reform Commission told NewsChina that private enterprises still face challenges under the new PPP mechanism. The provincial government has reported these issues to the central government, requesting clearer operational guidelines and frameworks for private enterprise involvement in railway investment and construction.　

Notably, most of the eight pilot projects launched by the NDRC in 2016 to attract private investment struggled to secure participation from private enterprises. In most cases, State-owned enterprises (SOEs) filled the role of “social capital” investors.　

For example, Fosun Group sought to invest in the Jinan-Qingdao Railway project in Shandong Province, which followed a PPP model similar to that of the Hang-Shao-Tai Railway. However, the Postal Savings Bank of China ultimately won out over 10 competing companies. The project was completed and began operation in December 2018.　

In another pilot project, the Wuhan-Shiyan Railway in Hubei Province, the State-owned China Railway Construction Corporation (CRCC) participated as a social capital entity through a “construction-for-investment” approach. The project also involved Hubei provincial government and the China State Railway Group.

In 2023, the NDRC released a priority project list that included railways, highways and renewable energy projects, signaling a broader push for public-private collaboration. The list aims to create opportunities for private investors by emphasizing projects with clear revenue streams and manageable risks. Nevertheless, even for these projects, investors must still coordinate and negotiate with the China State Railway Group on critical aspects such as traffic management, information systems and financial settlements – challenges that persist under the current framework.　

“The difficulty for private capital investing in railways is that the basic institutional mechanisms of China’s railway industry cannot fully support it,” Li said.　

Li suggested that China could further deepen the separation of the railway ownership and transportation services in the railway network. The country’s first round of railway reform in 2013 aimed to separate government functions from enterprise operations, resulting in the abolition of the Ministry of Railways and the establishment of the National Railway Administration and the China State Railway Group. A second round of reforms could focus on further separating the railway ownership from transportation services, potentially widening the door for private capital to enter the sector.　

Another approach, Li suggested, is to adopt the Transit-Oriented Development (TOD) model used in Hong Kong and Japan’s railway systems. This model integrates land use, commercial ventures and other developments with rail transit, creating opportunities for private capital to participate in broader, more profitable projects.　

For now, the Hang-Shao-Tai and Hang-Wen railways stand as promising testaments to the potential of private investment in China’s infrastructure. However, further innovation and institutional reforms are essential to attract significant private capital.