The first challenge for the Ministry of Railways (MOR) is to ensure the smooth separation of administrative functions from its commercial operations, while its debts will be handled next, an official involved in planning China's latest cabinet restructuring said Monday.

"The reform will split the MOR first and launch a new company to take over its commercial operation," Wang Feng, deputy director of the State Commission Office for Public Sector Reform, said at a press conference while explaining the central government's latest institutional reform package.

The State Council, or China's cabinet, on Sunday announced a plan to dismantle the MOR into administrative and commercial units.

The proposed State Railways Administration will be supervised by the Ministry of Transport and perform the administrative functions of the defunct MOR, while the planned China railway corporation will run commercial businesses which are now controlled by the MOR.

"The debts issue for the new company will be settled next as part of its further reform, but not at the current stage for functional breakup," Wang said.

He said the new company needs to establish a modern corporate system to carry out future investment and financing reforms, while the state will continue to support it through appropriate means.

MOR financial statements showed its total assets stood at 4.3 trillion yuan (685.6 billion U.S. dollars) as of September 2012, while the total liabilities stood at 2.66 trillion yuan, with a debt-to-asset ratio of 61.8 percent.

On Sunday, Yi Gang, vice governor of China's central bank, warned that the MOR debts must be properly handled to stabilize expectations of lenders, the market and the public, adding that a number of national and regional banks, big or small, have been involved in the construction of railways for years.

According to the MOR, China had 98,000 km of rail lines, including 9,356 km of high-speed rail lines, in operation at the end of 2012.

Minister of Railways Sheng Guangzu also promised on Sunday to properly solve the debts owed by the MOR, for business purposes and for public welfare as well.

Sheng expressed hope that private capital and foreign funds could actively participate in incorporation of the new company.

The breakup plan also triggered public concerns that train fares will rise soon, as Sheng described the average train fare as "relatively low." Sheng said the future pricing of train tickets should be decided by the market law.

The MOR recorded a combined revenue of 975.2 billion yuan last year, up 15 percent from a year earlier, MOR data showed.

The State Council's breakup plan for the MOR is subject to the vote of the first session of the 12th National People's Congress.