Home / News / World /  With a rail merger, China is forging an industrial giant second only to GE

Beijing: China is forging the country’s answer to General Electric, combining two state-owned railroad equipment makers to create the world’s second-largest industrial company. And the giant isn’t planning to stay at home.

The merger of CSR Corp. and China CNR Corp. is now complete, producing a nearly $130-billion behemoth called CRRC Corp. with economies of scale that will allow China to compete even more aggressively for overseas rail deals. Shares of CRRC began trading Monday under CSR’s old tickers and were up 9.2% at 16.38 as of 9:43am in Hong Kong and up 10% in Shanghai at 32.40 yuan.

China is using its state-owned rail firms not just to win lucrative contracts but to project political influence abroad. CRRC will dwarf competitors like Germany’s Siemens AG and France’s Alstom SA as it targets emerging markets in Africa, Latin America and Southeast Asia—often with sales pitches from Premier Li Keqiang—while bidding for high-profile contracts in the developed world.

“It used to be that CSR and CNR were competing against Bombardier and Alstom; now it has become China versus everybody else," said Alexious Lee, head of industrials research for CLSA Ltd. in Hong Kong. “China’s products may not boast high-end specifications, but they provide value for money."

China versus Japan

CRRC comes on the scene at a time of upheaval in the global rail industry. Canada’s Bombardier Inc. is pondering the future of its rail business—CSR and CNR were said to have considered taking a controlling stake—and Italy’s Finmeccanica SpA unloaded its rail-signalling business to Japan’s Hitachi Ltd in February.

Close to home, China’s rail push puts it in direct competition with Japan for contracts and clout in Southeast Asia. Further abroad, both countries are eyeing a proposed high- speed rail project in California.

European and North American competitors also will face stiffer competition as the new Chinese behemoth pursues overseas deals. Chinese companies already were known for their aggressive tactics: Last year CNR won China’s first major rail contract in North America—a $567 million deal for Boston subway trains—with a proposal nearly 50% cheaper than Montreal-based Bombardier’s bid.

Siemens, Alstom and Bombardier “were big guys, and suddenly there’s a big, big guy," Canadian economy minister Jacques Daoust said last month, when CSR and CNR were said to be weighing their bid for Bombardier’s rail unit. “It’s a concern."

Competing in parts

CRRC’s heft might hold some benefit for competitors, who could make money supplying components and signalling systems while the Chinese giant provides the trains.

“The Chinese will make the train vehicles but they still need Japan-made parts and components," said Hiroyasu Nishikawa, a senior analyst at Iwai Cosmo Securities in Tokyo.

In recent years both Siemens and Alstom have grown their shares of the rail-signaling market, capturing service and replacement contracts. When Hitachi beat out CNR for Finmeccanica’s signalling unit in February, some Europeans exhaled.

“It’s a relief that it hasn’t fallen into the hands of a Chinese player," Kepler Cheuvreux analyst William Mackie said at the time, as potential subsidies from the Chinese government could have made it difficult for European firms to compete.

CRRC declined to comment ahead of the company’s debut.

Paradigm change

Companies from China, which has the world’s largest high-speed rail network, participated in 348 overseas rail projects and exported $3.74 billion worth of locomotive equipment last year, commerce ministry official Zhi Luxun said in February.

The country’s ambitions are loftier still. In May, rail was named as one of 10 focus industries in a blueprint to make China into one of the world’s most advanced industrialized economies.

“China is trying to change the landscape of how the rail business is conducted," CLSA’s Lee said. Bloomberg

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