Wednesday, September 27, 2017

Mergers Hit Rail Equipment Sector - What Is The Lesson? / By: Bruce Wilds

Chinese-Bullet-Trains On Display
Little noticed by many Americans currently obsessed with an emotional debate as to whether it is acceptable for an NFL football player to kneel during the national anthem an important development is taking place in the rail equipment sector. One vision of the future has people across the world zipping from place to place on high-speed trains. Of course, trains are not yet that big of a factor in America but they may become a bigger player in moving people if the sky grows overcrowded. If this is to unfold the market will most likely be controlled by a few well-entrenched big players. Many industry watchers see the writing is already on the wall, "Get Big Or Die" but that may be a simplification of what we are seeing.

According to the South Morning China Post in an article recently published, China Railway Rolling Stock Corp (CRRC), the merged new entity of China’s two largest train makers, on Thursday announced recent contracts worth 12.2 billion yuan (HK$15 billion), alongside another 4.84 billion yuan deal to supply metro trains to Hong Kong. Among the eight newly-announced deals, only one is for export worth about 440 million yuan, according to the statement on the Shanghai Stock Exchange. CRRC has 90 percent of China's domestic market for the production of railway locomotives, bullet trains, passenger trains and metro vehicles.
Whether Europe’s antitrust authorities block it may depend on their reaction to the merger that created the new Chinese rolling stock company, CRRC Corp. which dwarfs its international peers.

Again we see the power a company gains when it is supported, subsidized, or given an unfair advantage driven by its government. The bottom-line is that CRRC's internationalization projects are as ambitious as its research highlighting the goal behind the merger of CNR and CSR was to end the competition between the two Chinese companies on foreign contracts. CRRC has won rail contracts as far afield as Chicago and Kenya. China’s Belt and Road initiative will also bring yet more international business its way. Meaning that the Chinese company's size plus access to cheap finance will let it crush rivals unless they take action. Americans would be wise to pay a little more attention to these mergers and what is happening across the world.

The articles linked below are related to the subject above;

1 comment:

  1. In Canberra, Australia, a small light rail project has just been completed.
    Workers stood around day after day, and then had to get the jack hammers out, to relay the tracks due to engineering miscalculations.

    China seems able to complete massive projects like the Hong Kong / mainland rail network ,seamlessly.