China hammers out rail restructuring: Sources

BEIJING (REUTERS) - China is likely to split its sprawling, scandal-plagued Railways Ministry into operations and commercial arms, two sources said, part of an overhaul of the bureaucracy as a new set of leaders takes charge in Beijing.

In other plans, the government is also likely to set up a single regulator for food safety, although details are still being finalised.

The changes will address long-standing inefficiencies. The Ministry of Railways has a reputation for insularity and corruption. Responsibility for food safety in China is currently divided among over a dozen agencies, meaning there is little effective oversight.

The changes are set to be approved at the annual full session of the National People's Congress, or parliament, which begins on Tuesday. A cabinet reshuffle is expected as Mr Xi Jinping takes over formally as president and Mr Li Keqiang as premier.

"Part of the Ministry of Railways will be merged with a super Ministry of Transport," one source with leadership ties told Reuters, requesting anonymity to avoid repercussions for speaking to foreign reporters.

A state-owned enterprise will absorb the Ministry of Railways' commercial arm, the sources added.

The Railways Ministry has faced numerous problems over the past few years, including heavy debts from funding new high-speed lines, waste and fraud. The government has pledged to open the rail industry to private investment on an unprecedented scale.

"Our deep hope that the (railway) reforms become the clarion call for a new round of trade reform and a trigger for the huge potential of reforming the monopoly state sector, to create the maximum benefit for China's future development," wrote Mr Hu Shuli, editor in chief of Caixin, a respected financial weekly.

The Ministry of Railways will likely be split into a "Railways Bureau" that will oversee operations and personnel for the sprawling network, the 21st Century Business Herald newspaper reported on Monday.

The lucrative freight business and passenger transport would be incorporated and added to state-owned enterprises overseen by the State-owned Assets Supervision and Administration Commission, or SASAC.

Railways Minister Liu Zhijun was sacked in February 2012 and expelled from the ruling Communist Party last May for taking bribes and using his position to help the chairman of an investment company get "enormous illegal profits".

He successfully resisted a merger with the Ministry of Transport five years ago, but the Ministry of Railways was dealt a big blow and its reputation damaged when he was sacked and by a deadly 2011 crash on its flagship high-speed service that killed 40 people.

"The Railways Ministry will be demoted (in status)," a second source said.

While reformers push to break up the Ministry of Railways fiefdom, food safety regulation has the opposite problem of too many overlapping jurisdictions.

A new watchdog similar to the US Food and Drug Administration could be set up, streamlining a complex regulatory system that has seen a series of scandals over food contamination and fake medicines, the South China Morning Post said on Monday.

Last-minute wrangling could keep pharmaceuticals out of the watchdog's purview, after an unsuccessful first attempt several years ago, the Hong Kong-based newspaper said.

China's State Food and Drug Administration (SFDA) was founded in 2003 as a ministerial-level agency directly under the State Council but was downgraded and affiliated the Ministry of Health in 2008 after a number of corruption scandals involving the sale of drug approvals.

The SFDA is currently responsible for policies and programmes on the administration of drugs, health food, medical devices and cosmetics, while the Health Ministry mainly handles food safety and other agencies look after packaging and animal health.

The General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) also has responsibility for inspecting product quality in China and for imports or exports.

Zheng Xiaoyu, former head of SFDA, was executed in July 2007 for taking bribes and dereliction of duty after a series of drug safety scandals on his watch.