China’s High Speed Rail Coming to US?

Tuesday, March 16, 2010 2:35

One of the more common “China” questions asked over the last years has been “When would China begin exporting brands?”. There have of course been the anecdotal exceptions like Haier and TsingTao that people hold up as successful cases, and there was some talk that Chinese firms would leverage their cash positions to scoop up cheap Western assets during the recession. Transactions, which did not really materialize as some had planned. Sure there was the attempt by Tongcheng to take Hummer, but outside of that, there seemed to be little noticeable movements in Chinese firms taking down Western brands.

But, if one were to look at the infrastructure sector, one would find plenty of activity, as the article China to bid on US high-speed rail projects recently highlighted:

China plans to bid for contracts to build U.S. high-speed train lines and is stepping up exports of rail technology to Europe and Latin America, a government official said Saturday. […] Wang gave no details of where China’s railway builders might seek contracts, but systems are planned in California, Florida and Illinois. He said state-owned Chinese companies already are building high-speed lines in Turkey and Venezuela.

An expansion whose roots lie in China:

So far, China’s government has completed 2,295 miles (3,676 kilometers) of rail lines with top speeds of up to 220 mph (350 kph) and 1,795 miles (2,876 kilometers) with speeds up to 155 mph (250 kph), according to Wang. […] Another 6,000 miles (10,000 kilometers) of lines are under construction, he said.

to some, this will not be new news.  Afterall, China has been aggressively going after the cleantech markets, and been willing to commit to building facilities in Arizona and Minnesota to get around those who see Chinese imports of cleantech as a political hot button.  but, this is something that goes back further, and a conversation with one of my employees from Yichang a few months back highlighted that…. Asking her about the economic development/ job market for her hometown, she mentioned that at one point the market was absolutely booming with activity and jobs, and a lot of it had been tied to the three gorges dam.  That, after the dam had been completed, what ended up happening was that many of the engineering firms and contractors were unable to find much domestically, but often found work overseas in countries who were in need of foreign expertise.

Circling back to the original story, and in some way my original question, when looking for Chinese “brands” that are successfully expanding, perhaps it is time to readjust the lens by which one looks at the market.  That if China were looking to successfully expand beyond its borders, it would do so in a capacity in which it is confident it could succeed, and anyone who has been in China and seen the work in infrastructure, urban planning, and energy, it would be easy to begin seeing where there are firms whom are confident, competent, and getting ready to bust a move.

In doing so though, what will be interesting to see (particularly in the U.S… say vs. South America/ SE Asia/ Africa), is how China will fare when overcoming several hurdles:

1) Politics – China’s history of overcoming the wrath of politicians in the U.S. has been spotty, and I have little doubt that were China to succeed in grabbing an “unfair” amount of contracts that someone would stand up and try to impede access.  Perhaps it would be supported by “jobs” defense, or a “good paying” jobs claim, but one can be sure that the words “communist China” would be used in an effort to inflame.

2) Economics – China’s successful expansion of rail has been supported by not only political will, but also easy access to money.  Considered a national priority opened a lot of doors that would ordinarily have been shut, and for me, I think this will be the big one.  That, regardless of whether or not a political roadblock is erected, Chinese firms will have to make this venture profitable on their own.

3) Execution  – Successfully bidding is one thing, but delivering is another, and as San Francisco residents have found in their recent experiences with the new Chinese made Bay Bridge, delivering on promises on large programs can be quite difficult.  Chinese firms will need to maintain large engineering and tech. support staffs in the U.S., which means either training up U.S. staffers in China, or sending Chinese overseas.

4) Service – When that bullet train breaks down half way between St. Louis and Kansas City, someone is going to have to get to site, identify the problem, and make fixes.  Which, if the Chinese firms want to build a long term brand around these projects, will require that they have the capacity to manage these issues.  for allowing an external firm “USA bullet train service firm X” to do it would remove the Chinese firms from that coveted top ring where the entire profit cycle could be captured.

Where this ultimately makes so much sense to me though, is China simply has developed one of the best networks there is, at a speed that few others could manage, and in doing so has learned a great deal.  the question is whether or not transferring this wealth of information and ability to execute at speeds/ scale no one else has before, will be something valued by others outside China.

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6 Responses to “China’s High Speed Rail Coming to US?”

  1. Renaud says:

    March 16th, 2010 at 3:58 am

    If the bids take place this year, point 1 (politics) will probably be the main obstacle. See how European firm EADS was forced to withdraw from the tanker contract last week, after winning it on economic terms last year. And they were allied with a US firm!
    Now imagine if it’s a Chinese company…

  2. Jesse Covner says:

    March 16th, 2010 at 4:38 am

    I have been reading on several blogs… here …. China Law Blog … Silk Road … about the importance of involving the Government early in the project. This is a skill, which takes a long time to develop. Often foreign companies get help from local consultants and partners to help establish those relationships… to help the company develop this “government skill”. And often the foreign company gets tricked by the Chinese facilitator. But I think the same thing applies in America. There would be a tremendous amount of regulatory hurdles for the Chinese company to overcome. Furthermore, I do not believe that the US system is significantly “cleaner” than in China. Its really just that American’s don’t “go dirty” unless there is significantly more money on the table. Now, as subcontractors, Chinese engineering companies would have a little less to worry about than if they won project lead roles.… The question is, do the Chinese infrastructure companies have the USA Government “skill”?

  3. G.E. Anderson says:

    March 16th, 2010 at 8:11 am

    Politics will definitely stand in the way here. As long as Congress is unhappy about the RMB, Chinese SOEs should not expect to be welcome in the US.

    Currency issues aside, this may also be an opportunity for the US to get a little reciprocity. Chinese companies should be allowed to bid on US contracts only to the degree that US companies can do the same in China. China wants to behave like a developed country yet be treated as developing. That was fine as long as China remained within its borders. Time to grow up; you can’t have it both ways.

    Finally, before Chinese rail companies are allowed to bid on US HSR projects, allegations that Chinese companies have stolen Japanese and German rail technology need to be thoroughly investigated. The US needs to ensure it is not a party to IP theft.

  4. Rich says:

    March 16th, 2010 at 8:56 am

    @ Renaud.

    Good point. I did not see that. I guess that is what they deserved for being European!

    @ Jesse.

    You call it a kickback, I call it a commission. One comes in a red envelope, the other hits the UBS account in Switzerland.

    Regulations would be a hurdle for any company.. I just wonder if they will be any higher for a Chinese firm

    @ GE

    Agreed on many counts – but what about if this is the no-brainer? Shouldn’t we start stealing IP from the German’s and just build a cheap rail system for the common good?

    Counter question – if Chinese firms are denied access… who is going to pay for it?

    R

  5. ian channing says:

    March 16th, 2010 at 11:43 pm

    Actually Chinese HSR firms do have proprietary technologies. The tech they license from Japan, France and Germany is for midsized countries. In China distances between major population centres are much greater, which means higher speeds can be attained between them as there is less stopping–hence China’s ability to raise the speed bar so dramatically. But this difference of scale has also necessitated a whole range of new technology, in which at present China is the leader, if not sole owner. Any country needing HSR on a continental scale, such as the USA, is likely to need Chinese help now.

  6. Hoo says:

    August 28th, 2010 at 6:37 am

    The idea is great, but hard to land. China high speed rail needs to prove many technical things by years first.