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In high-speed rail, the world’s loss is China’s gain

It seems like just yesterday that foreign companies from Japan, Germany and France crammed into Chinese boardrooms to bid on high-speed rail projects. Yet, today, it’s Chinese state firms that are bidding on – and winning – similar projects abroad, such as the ones secured late last year in Central and Eastern Europe.

The development doesn’t just epitomize the Chinese government’s vigorous “going out” policy, which has pushed state-backed companies and private enterprises alike onto the international stage. The quick turnaround time demonstrates China’s vast exploits after more than 10 years of mandatory technology transfers for many foreign companies wishing to manufacture on the mainland.

At the time, companies scrambled to get into China, giving up decades worth of technological secrets for the promise of future access to the market. Now, the same companies are competing against their own technology and a rival that can greatly undercut prices for major international projects.

Nowhere is this more evident than in the global market for high-speed rail.

Siemens and ThyssenKrupp began building the Shanghai Maglev train in 2001. The line, which levitates on magnets and has always operated at a loss, was China’s first attempt to get its hands on high-speed rail technology. Both companies were required to transfer to a Chinese partner some of the techniques used on the line if they were to secure the contract.

In 2004, Japan’s Kawasaki, Germany’s Bombardier Transportation and France’s Alstom bid on high-speed rail projects in China. The companies were required to partner with Chinese firms. Fast forward a decade and China has laid more than 12,000 kilometers of rail using the technology it’s learned from these partners. Lucrative are now kept inside the country. In December, China’s two biggest train makers, CSR and China CNR, won bids for 258 bullet trains, which could be worth as much as US$7.3 billion.

The ownership of the rail technology China has acquired and re-engineered during the past decade is centralized squarely in the hands of China Railway Corporation, helping the country streamline projects at home and, more recently, abroad.

“In other countries it is difficult to export all the technologies since they are controlled by different companies,” Ji Jialun, a professor at the School of Traffic and Transportation at Beijing Jiaotong University, said. But in China, given the central nature of technology ownership, the state can act as a negotiator for projects such as these.

That’s exactly what Premier Li Keqiang did in November during a visit to Eastern Europe. China will partner with Serbia and Hungary to construct a high-speed rail line between the capitals of the two countries. During the same trip, Li also sold a Chinese partnership to construct rail lines in Romania.

China’s first international high-speed rail deal, a line in Saudi Arabia agreed to in 2009, is set to launch this year, state media has reported. Chinese rail engineers are at work in countries such as Thailand, Russia, Laos and the US. The deals are attractive to foreign countries because China not only builds them for a low price, it finances the projects too.

“They [European countries] can get more low-cost, competitive products and their financial pressure is alleviated,” said Li Hongchang, associate professor at the School of Economics and Management of Beijing Jiaotong University. “For China, we get more shares in the international high-technology products market, which will help to drive national industrial development.”

Of course, high-speed rail is just one of several industries where China learned the ropes quickly from foreign firms and turned that technology back on the world. When Chinese government officials go abroad, they advertise nuclear power, telecommunications and satellite technology among a growing repertoire of marketable skills. And always at rockbottom prices.

Foreign companies are sure to reflect deeply on the past decade, where they gave up their secrets for market access, only to get out-priced on the same products just a few years later.

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