Merger boost to high-speed trains

China Daily (Canada) - - COMMENT -

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.


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