Merger boost to high-speed trains
China CNR Corp and CSR Corp, the country’s two biggest train-makers are expected to merge into a multi-billion-dollar giant, capable of competing with global engineering behemoths, to better serve China’s “going global” policy for its high-speed railways.
The “going global” policy will not only help China find newoverseas pastures for the growth of its high-speed railway sector as the domestic market becomes saturated, but also expedite the strategic transformation of exports from “made-in-China” to “created in China”. The merger, however, should also be used to develop a more rational “going global” policy.
By the end of 2013, high-speed trains covered more than 11,000 kilometers in China— that is, about half of the total distance covered by such trains across the world. Besides, another 12,000kmof high-speed railways is under construction. China, therefore, has to develop a sound “going global” policy to maintain the development momentum of its high-speed train technology.
Of course, Premier LiKeqiang has become the top salesman for the technology. Just last week, CNRCorp beat rivals, including CSR, to win a bid to sell tubes to Boston subway. CSR is also making a pitch to sell its highspeed trains to California, and has won orders from metro operators inMalaysia.
Such good news, however, are the result of the cutthroat competition between the two Chinese enterprises, which has to a certain extent hindered the “going global” policy. In fact, CNR and CSR, despite always quoting lower costs than Germany’s Siemens, Canada’s Bombardier and Japan’s Kawasaki, have often been locked in fierce competition with each other to win orders. Examples include the 2011 locomotive project in Turkey, the electric locomotive venture in Argentina last year and some projects in other countries.
The merger of the two enterprises, each worth about $13 billion, into one will henceforth prevent intra-Chinese competition and the resultant losses.
This is indeed good news, but China needs to be rational in its decisions in regard to its “going global” policy. Take the recent initiative of a Eurasian high-speed transport corridor linking Beijing andMoscow as an example. The aim of the proposed transnational rail network is to reduce the travel time betweenMoscow and Kazan, an important city on the Volga River, from 13 hours to three-and-half hours, according to theMoscow Times.
Ideally, once it becomes operational, the project should benefit both countries as a symbol of mutual trust and strategic cooperation. But the same cannot be said about economic benefits. So, comprehensive risk assessments have to be carried out before starting the project to avoid unnecessary disputes over design, financing, construction and other aspects. Russia’s lack of experience in running high-speed trains within or beyond its borders should also be kept in mind.
The entire capital-to-capital route is unlikely to be implemented as designed. Given the awfully long distance (more than 7,000 km) between Beijing andMoscow and the very limited passenger volume at stations in between, especially on the Russian side, there is little possibility of making enough revenue to even maintain the sophisticated equipment on both sides of the border, let alone earning profits.
Moreover, given the poor financial condition that it is in now, Russia is unlikely to cover the loss in running any more railways, especially high-speed ones. Apart from the costly construction expenses, including labor costs, in the country, the graver challenges confronting Russia are related to operation: nearly all high-speed railways are a heavy financial burden on operating countries, including China.
China should only be a contractor for building railways in Russia, without getting involved in operating them. And Russia could offer its rich natural resources such as oil and gas to China in return for the technological support.
The Japanese Shinkansen, which connected Tokyo and Osaka in 1964, is presumably the only profitable high-speed railway enterprise in the world. Its success can be attributed to its early start both in construction and operation— especially the highly concentrated population on the route. Also, cheap land price and labor cost in Japan in the 1960s contributed to Shinkansen’s profits.
Hence, China’s high-speed railway cooperation projects with other countries should be carried out pragmatically and cautiously, one step at a time. This is to say that all parties involved, including governments and enterprises on both sides, should work on scientifically drafted plans to minimize potential risks at every step of a cooperation project. The author is a professor of economics at Beijing Jiaotong University. The article is an excerpt from his Interview with China Daily’s Cui Shoufeng.