Date
21 September 2017
China's two dominant rail equipment makers are the world's biggest, with annual sales of US$16 billion each. Photo: Bloomberg
China's two dominant rail equipment makers are the world's biggest, with annual sales of US$16 billion each. Photo: Bloomberg

China railway rivals on a roll but key deal derailed

China’s two dominant railway equipment makers bagged landmark contracts in October, but by November, one had been derailed.

China CNR won a contract to supply more than 280 subway cars to Boston’s transit system in the first successful bid in the United States by a Chinese rolling stock company.

Main rival CSR Corp. secured the country’s first ever overseas contract for a high-speed rail project from the Mexican government.

By early November, however, the Mexico contract had been cancelled, according to the Financial Times.

Both companies suspended trading in their shares ahead of a possible government-mandated merger that could reshape the global rail industry.

They are already the world’s largest manufacturers of rolling stock, with annual sales of about US$16 billion each.

A decade after splitting CNR and CSR off from the same state-owned parent to promote competition in the domestic rail sector, the Chinese government now thinks the strategy has been too successful.

It wants to recombine the two to prevent them from undercutting each other abroad.

“They should have merged earlier,” says Zhao Jian, a transport expert at Beijing Jiaotong University.

“We have to avoid situations in which they are at each other’s throats. Only the foreign fisherman benefits when Chinese sandpipers and oysters fight.”

CNR and CSR both invest about 2 per cent of revenue in research and development, much of it duplicated, compared with reinvestment of 5 per cent for international rivals such as Siemens, Zhao said.

CNR’s winning Boston bid came in at US$570 million against US$1 billion by Bombardier of Canada.

CSR landed the Mexican deal after being disqualified from the Boston tender over quality concerns.

However, within days, the contract was rescinded after objections from Mexican legislators who said it had been issued too hastily.

Partly because of the hurried tender process, the Chinese consortium was the only bidder.

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FL/RA

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