China railway industry reform evolution approach: Based on the Vertical Separation Model

In this paper a mathematical statistics and measurement approach called trans-logarithmic total cost function is used to give an objective calculation result to support Vertical Separation (VS) based reform of China railway industry. Three questions including whether the VS is suitable for the railway reform evolution in China, whether the VS can reduce the operation cost in China and the specific VS-based reform process are discussed and solved. Three total costs related parameters, two elasticity of marginal cost values, and three total income related parameters are applied to the decision-making. The results of case study show that: The passenger-freight transport combination is not helpful to reduce the total operation cost; Freight cost and network total cost, passenger cost and network total cost are replaceable; Passenger transport volume increases per 1%, the freight transport cost increases 2.154%, freight transport volume increases per 1%, the passenger transport cost increases 2.741%; It is inefficient when applied passenger-freight transport combination model; It is better to separate the passenger transport service, freight transport service and the railway network vertically. Finally, the detail China railway industry reform recommendations are presented with three steps: first, Railway Passenger Transport Corporation, Freight-Network Combination Corporation, Railway Freight Transport Corporation, Branch Railway Corporation and Public Interest Railway Corporation can be established and managed by China Railway Corporation, some powerful and related supporting policies should be formulated and carried out by State Railway Administration to ensure the reform enforcement; second, the investment approaches, railway industry incentives system etc. are the key reform elements; third, the passenger transport service, freight transport service and network service companies can be separated totally.