China eyes rail deals overseas after tie-up

China eyes rail deals overseas after tie-up

Tokyo: China is forging the country’s answer to General Electric, combining two state-owned railroad equipment makers to create the world’s second-largest industrial company. And the giant is not planning to stay at home.

The merger of CSR Corporation and China CNR Corporation is now complete, producing a nearly $130bn behemoth called CRRC Corporation, with economies of scale that will allow China to compete even more aggressively for overseas rail deals.

China is using its state-owned rail firms not just to win lucrative contracts but to project political influence abroad. CRRC will dwarf competitors such as Germany’s Siemens and France’s Alstom as it targets emerging markets in Africa, Latin America and Southeast Asia (often with sales pitches from Premier Li Keqiang) while bidding for high-profile contracts in the developed world.

“It used to be that CSR and CNR were competing against Bombardier and Alstom; now it has become China versus everybody else,” said the head of industrials research for CLSA in Hong Kong, Alexious Lee.

“China’s products may not boast high-end specifications, but they provide value for money,” he said.

CRRC comes on the scene at a time of upheaval in the global rail industry. Canada’s Bombardier is pondering the future of its rail business (CSR and CNR were said to have considered taking a controlling stake) and Italy’s Finmeccanica unloaded its rail-signalling business to Japan’s Hitachi in February.

Close to home, China’s rail push puts it in direct competition with Japan for contracts and clout in Southeast Asia. Further abroad, both countries are eyeing a proposed high-speed rail project in California, US.

European and North American competitors also will face stiffer competition as the new Chinese behemoth pursues overseas deals. Chinese companies already were known for their aggressive tactics: last year, CNR won China’s first major rail contract in North America — a $567m deal for Boston subway trains — with a proposal nearly 50% cheaper than Montreal-based Bombardier’s bid.

Siemens, Alstom and Bombardier “were big guys, and suddenly there’s a big, big guy,” Canadian economy minister Jacques Daoust said last month, when CSR and CNR were said to be weighing their bid for Bombardier’s rail unit. “It’s a concern.”

CRRC’s heft might hold some benefit for competitors, who could make money supplying components and signalling systems while the Chinese giant provides the trains. “The Chinese will make the train vehicles but they still need Japan-made parts and components,” said Iwai Cosmo Securities senior analyst Hiroyasu Nishikawa in Tokyo.

In recent years both Siemens and Alstom have grown their shares of the rail-signalling market, capturing service and replacement contracts. When Hitachi beat out CNR for Finmeccanica’s signalling unit in February, some Europeans exhaled.

Firms from China participated in 348 overseas rail projects and exported $3.74bn worth of locomotive equipment last year, commerce ministry official Zhi Luxun said in February.