Impact of Siemens tie-up 'limited' for CRRC

2017-09-26 13:10Global Times Editor: Li Yan ECNS App Download

Chinese rolling stock maker excels in cost, experience

The possible merger of the rail businesses of Germany-based Siemens with either French rail equipment supplier Alstom SA or Canada's Bombardier signals that Chinese State-owned CRRC Corp Ltd faces intensifying competition in the global transport market, experts said.

But the impact on CRRC's business is likely to be "limited" over the long term, they said. For one thing, the Chinese train builder has already achieved a competitive edge in cost performance over its foreign rivals.

Siemens has been negotiating for months with Bombardier about a potential rail combination, and the German company has recently also been speaking to Alstom about the same subject, Reuters reported over the weekend, citing sources close to the matter.

Talk of such a merger shows that global companies seek to "contain costs and Western train equipment suppliers struggle with competition from China's CRRC," said the report.

CRRC had not responded to an interview request by the Global Times as of press time.

Commenting on the possible foreign link-up, Zhao Jian, a professor at Beijing Jiaotong University, told the Global Times on Monday that the deal would heighten competition in the overseas rail market, which is becoming more important to CRRC as the Chinese rail market slows.

"CRRC became the world's largest train manufacturer after China's top two train producers - China North Railway and China South Railway - merged in 2014, and CRRC has since gained much benefit from economies of scale," Zhao said, noting that the same logic would also applies to the proposed tie-up of Western companies, which would combine their strengths while reducing costs.

Specifically in the subway sector, the European rivals hold advantages over their Chinese counterparts in terms of braking systems and hauling systems, Zhao noted. "The widening advantage in the subway sector is likely to further ramp up pressure on CRRC."

In August, CRRC lost a bid for a $3.2 billion deal for a subway project in New York City, financial news website reported, without giving details on the reasons behind.

However, despite weakness in the subway sector, "As a learner, China has overtaken its teachers - European companies - in many aspects such as cost performance and construction experience," said Sun Zhang, a rail expert and professor at Shanghai Tongji University.

In the high-speed railway sector, China's bullet trains cost one-third to one-half less than those provided by traditional rail system exporters in Germany and Japan, and they take less than half the time to build compared with Japanese manufacturers, the South China Morning Post reported in June.

CRRC has also accumulated deep experience in building rolling stock thanks to the country's vast railway network, also the world's largest, which covers diverse geographic and climate conditions, Sun told the Global Times on Monday.

On Thursday, the next-generation bullet train Fuxing (Revival) developed by CRRC, with a top speed of 350 kilometers per hour, was put into service between Beijing and Shanghai. Fuxing is also the world's fastest commercial train, demonstrating CRRC's cutting-edge technologies, Sun noted.

With those combined advantages, CRRC has been on a fast track of global expansion in recent years, taking up projects in markets along the Belt and Road initiative as well as traditional markets where European train producers dominate, according to Sun.

In May, CRRC defeated Bombardier and won a contract of $53 million to supply 24 double-deck hauled coaches to Montreal area's mass transit operator, according to the Xinhua News Agency.

CRRC's overseas orders stood at $8.1 billion last year, up 40 percent year-on-year, news website reported.

How CRRC reacts to the potential Western merger also may mitigate the influence, Zhao stressed.

"Various subsidiaries of CRRC run independently without sharing technologies and knowledge, and some of them even compete with each other, creating an array of management issues," Zhao said, urging the company to rationalize its structure to prepare for intensifying global competition.

In the first half of 2017, CRRC's net profit declined by 23.41 percent year-on-year to 3.67 billion yuan, with revenue of 88.72 billion yuan, down 5.83 percent year-on-year.


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