The Institutional Structure of China's Expressway Administration

In 1988, Hujia Expressway (Shanghai-Jiaxing), China's first expressway, was open to traffic. During the following years, China's expressway construction has made remarkable achievements. In recent years, how to build a healthy institutional structure has become a popular topic.

1. The existing institutional structure of China's expressway administration

With the emergence of the first stretch of expressways, the institutional structure of China's expressway administration was also established. At present, the infrastructure consists of the dominating state-owned highway companies (the enterprise type) and high-glass highway management bureaus as well as supplementary non-state owned companies and listed companies, and other co-existing multiple models as the following chart indicates:
 
[1] The administrative model

This type of model is further classified into "one province one bureau" and "one province two bureaus." "One province one bureau" means both expressways and common highways are administered by the provincial road management bureau (SRMB) and specific road sections are operated by different legal entities. The 7 places that have adopted this type of model include Heilongjiang, Inner Mongolia, Yunnan, Hebei, Tianjin, Shanhai, and Hainan. "One province two bureaus" means specially set up provincial high-class highway management bureau (SHMB), with functions parallel to those of the SRMB, is responsible for the expressway management across the province. The 9 places that have adopted this type of model include Liaoning, Jilin, Shanxi, Jiangxi, Guizhou, Guangxi, Ningxia, Xinjiang, and Qinghai. Under the administration model, the assets management and regulatory management rights go to the provincial communications department.

[2] The enterprise model

The current enterprise model normally takes the form of expressway group corporations

Such companies have evolved form the road management bureau, an administration type, which has undergone restructuring to become wholly state-owned limited liability companies. The existing toll collection companies have accordingly become the subsidiaries of the state-owned companies. Based on road assets, a holding company formed where the parent company holds the equity interests of its subsidiaries and participate the management of its subsidiaries and gets their dividends.

    (1) Directly under the leadership of provincial government under this model, the group corporation is administered by the State Asset Supervision and Administration Commission, and directly under the leadership of the provincial government, and at the same administration level with the provincial communications department (PCD). The group corporation is mainly responsible for the state asset management, financing, toll operations, etc. across the province. The provincial traffic authority is responsible for administration and enforcement. So far, 9 provinces and cities have adopted the model, including Shania, Shandong, Beijing, Henna, Annuli, Kiangs, Hewing, Fijian, and Guangdong.

    (2) Under this model, a group corporation is founded by the PCD as the sole investor or hareholder who performs property management and administration and have such rights as revenues, decision-making, and selection of management. The group corporation is responsible for authorization of construction, operation, and management of road assets. The places that have adopted this model include Hubei, Hunan, Gansu, Sichuan, and Chongqing.

2. Comparison of the two management models

Whether administration model or enterprise model, they all have their respective advantages and disadvantages.

The comparison of the administrative model and enterprise model

[1] The advantages and disadvantages of administration model

There are two prominent advantages for the administration model: firstly, with the combination of state assets overseeing and industry management by traffic authority, highway funds are managed efficiently. Secondly, by implementing preferential policies and effective control, the implementation of government highway network plan is facilitated. Its main shortage is that the direct involvement of government in the expressway management will, to some extent, increase management costs and decrease efficiency.

[2] The advantages and disadvantages of enterprise model

Comparing with the administration model, the enterprise management model is similar to a corporation model, which provides more incentives for costing, cost savings, and productivity.

But it also has its evident disadvantages, including:

Firstly, unmatched operating strategies, which makes it difficult for an overall plan to be implemented. In the real world, there is the strategic variance between the highway group corporations and the authorities. As the legal person, the investment strategies of the highway group corporations are based on project investment returns. However, as the representative of public benefits, the decision of the government is expected to meet the public's fundamental benefits. The decision by the government should be social benefits and service-oriented. With that comes the conflict between the investment return-based strategy by the group corporations and implementation strategy of regional highway network plan by the government, which makes it difficult, to some extent, for the government highway network plan to be implemented smoothly and satisfactorily.

Secondly, the institutional design is not rational enough, which makes it hard for traffic regulations and orders to be implemented. As a result of repeated institutional functions and inappropriate allocation of management functions, some expressway group corporations fail to fulfill their traffic management duties, even impair the traffic sustainable development.

3. The prospective expressway management models

Whether enterprise model or administrative model, they all have their backgrounds. The selective standard is based on operating viability of the highway network. In contrast to the enterprise model, the administrative model is more suitable for non-profit sections characterized by repayment with toll while the enterprise model is more suitable for expressways with a high current and potential traffic flow, which will have high expectations of profits.

From a long-term view, the administrative model still has considerable growing space in the future. The model will co-exist with the enterprise model for a long time. The reason is that currently most existing profitable expressways with a high traffic flow have already been awarded concessions. The ready-to-construct projects are largely "tough projects" with a generally low FIRR (Economic Internal Return Rate), which is hard to attract investment. Meanwhile, the priority of future highway construction will be put on under-developed regions which are largely non-profit projects with the aim to serve the public. Therefore, the administrative model still has a bright future.