China's second-biggest train maker will recall 54 bullet trains used on the new showcase Beijing-Shanghai line for safety reasons, the firm said on Friday, dealing a fresh blow to the nation's scandal-plagued rail system.

The recall of the CRH380BL-series trains comes three weeks after 40 people were killed in a high-speed rail crash, which triggered a wave of public fury, unusually critical media coverage and a freeze on approvals for new railway projects.

CSR Corp Ltd said in a statement with the Shanghai Stock Exchange that the recall would bring undetermined costs, but would not affect current sales contracts with its customers.

China's high-speed rail drive was until recently held up by senior government officials as a shining model of the nation's technological prowess. Now it has become an embarrassment.

"The government is putting a sudden brake on China's high-speed railway story, and we must wait for the bad days to pass over," said Lu Zhou, an analyst with Everbright Securities in Shanghai who follows China's high-speed railway train makers.

"A Great Leap Forward-style movement in China's high-speed railway is changing abruptly to a period of silence, and that could last a few years," he said.

The Great Leap Forward was Mao Zedong's disastrous effort in the late 1950s to catapult China into communist prosperity.

Railway officials first blamed July's crash on a lightning strike and then on faulty signals technology. But Friday, Chinese media quoted a senior investigator as saying the crash also exposed management failings and could have been avoided.

"There were serious flaws in the systems design that led to an equipment failure," said Luo Lin, the minister of China's State Administration of Work Safety, who is leading the probe.

"At the same time, this exposed problems in emergency response and safety management after the failure occurred," the Beijing Times cited Luo as saying.

"This was a major accident involving culpability that could have been totally avoided," he said.

RECALL COULD HIT STEEL, CEMENT DEMAND

As well as the political embarrassment for the ruling Communist Party, the slow-down in high-speed rail construction could also bite into demand for steel, cement and other commodities.

"The suspension of new railway projects and scaling back of affordable housing paints a worrying outlook for the steel sector," said UOB Kay Hian's commodities analyst Helen Lau.

It was unclear how drastically CNR's recall will disrupt services on the flagship Beijing-Shanghai route. Even before CNR announced the step, the railways ministry said it will cut the number of high-speed trains running on the route by a quarter, the official Xinhua news agency said Friday.

Calls to Beijing's southern railway station, where the service departs from, were not answered.

"You can buy bullet train ticket to Shanghai today, but I am not sure how long it will take to get you there," a ticket seller surnamed Zhou at the Beijing Yudixin Tourism Ticket Center told Reuters.

The latest recall came two days after CNR said its subsidiary, Changchun Railway Vehicles Co., was ordered by the Ministry of Railways to halt delivery of the CRH380BL after signaling faults in the trains' automatic safety systems.

China's flagship high-speed rail link between Beijing and Shanghai has suffered several delays due to power cuts and other technical reasons since it was launched with great fanfare in late June.

The country also plans to suspend new project approvals and to launch safety checks on existing equipments to address growing public fury following last month's crash.

Separately, the China Securities Journal cited a spokesman from China South Locomotive and Rolling Stock Corp Ltd (CSR) as saying the firm's order book remains full until the third quarter of next year and has not been affected by the accident.

China South Locomotive had built both of the trains involved in the crash last month, one of which was manufactured as part of a joint venture with Canada's Bombardier.

China China China Management