As Railroads Grow In importance China Plans To Dominate

Chinese-Bullet-Trains On Full Display

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 as the sky grows crowded. 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 published about four years ago, China Railway Rolling Stock Corp (CRRC), the merged new entity of China’s two largest train makers, was on the move. It had just announced 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 deals announced at the time, only one was for export. Still, this company should not be underestimated, at that time, CRRC had 90 percent of China's domestic market for the production of railway locomotives, bullet trains, passenger trains, and metro vehicles.

CRRC Government Supported And Subsidized

Even back then, no effort was made to deny the impetus for the merger of China CNR Corp and CSR Corp was so China could push deeper into overseas markets. The company aimed to grow the proportion of exports in its revenues by pigging backing on China's ambitions to build an international infrastructure-backed trade network under its "Road and Belt" initiative. Not only has CRRC benefited from China's growing high-speed network, while keeping costs under control, it has also caught up with Western peers when it comes to technology. 

 

Proof of CRRC's ability to compete is that it has been able to win by a wide margin nine-figure contracts, such as the supply of metro cars to Boston and LA. With this in mind, is it any wonder that in 2019, the Chinese rolling stock manufacturer CRRC Corp. Ltd. dominated the world market for metro vehicles with a market share of 67 percent. According to Statistia.com, CRRC was the only manufacturer to boast a double-figure market share. None of its largest rolling stock competitors including European manufacturers, such as Alstom and Bombardier, or Asian manufacturer Hyundai Rotem could muster more than a six percent market share.

Is This Really A Win-Win for America?

  

 

Back in the 19th century, 30 pupils from China traveled to the United States as part of an educational mission. One of them was 12-year-old Zhan Tianyou, he is now known as the "Father of China's Railways." Nearly 150 years later, Springfield, the home to 154,000 people, and where Zhan Tianyou learned, is home to a factory that builds rail coaches as part of CRRC's subsidiary in Massachusetts. The $95 million factory is part of a $566.6 million deal with Boston's transit authority, signed in October 2014, to build 284 rail cars that will replace the aging fleet connecting Cambridge to downtown Boston by 2023.

Assembling Is Not Manufacturing

While some people focus on how such arrangements are good for a town such as Springfield when companies decide to open a factory there, the real winner here is CRRC. As I see it, they hire a few workers to assemble railcars from parts made and imported from China. Why wouldn't a company jump on an opportunity where for so little risk they would be massively profitable from the get-go? Consider this another example of how America's deficit spending is not making our country stronger but strengthening our rivals. Watch, and think about the YouTube clips below.

 

https://www.youtube.com/watch?v=T_Pq3QJBjLA&t=36s

 

https://www.youtube.com/watch?v=pfp5fow5_lU

 

https://www.youtube.com/watch?v=Yt6gTy71AGI

 

Do the math! The CRRC story like many others is being massively spun. The company is currently advertising for workers touting pay in the area of $17 an hour. Multiply this by 2,000 hours a year and you get an annual salary of $34,000. Considering that if an employer pays out an average of $50,000 a year they can employ 20 people for a million dollars. To employ 200 people at $50,000 a year comes out to only ten million dollars. So, I ask, where is the money from these contracts going? The answer is, straight to China. It should be pointed out that a 204,000 Sq Foot facility is no longer super large and nearly 200 employees is not a super large investment in Springfield and assembling cars is not really manufacturing.

 

  

CRRC On A Mission To Expand

All this shines a light upon just how powerful a tool China's Road and Belt initiative is. The railway line connecting Nairobi with Mombasa in East Africa is an example of this. Projects of the type it promotes are typically financed, built, and operated by Chinese firms. CRRC has even built joint ventures with Western competitors. The consortium it formed with Bombardier allowed CRRC to compete for the renewal of the New York subways where a contract of around $1.5 billion dollars was in play.

 

There is a lesson to be learned here, it has to do with the fact some strategies are so rooted in a county's culture they reveal its very soul. China's predatory way of attacking its competition is not an accident. Again we see the power a company gains when it is supported, subsidized, or given an unfair advantage by its government. The bottom-line is that CRRC's internationalization projects are very ambitious and highlight the goal behind the merger of CNR and CSR. It 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. Be warned that CRRC's size plus access to cheap finance will let it crush rivals unless action is taken. Americans would be wise to pay a little more attention to such mergers and China's predatory form of capitalism. Do not expect Biden or our current Transportation Secretary, Pete Buttigieg to bring this to our attention as they dole out more than a trillion dollars from America's recently passed infrastructure package.

 

Footnote; You may also want to see - https://brucewilds.blogspot.com/2019/03/passenger-rail-needs-huge-makeover-to.html

 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)