LIKE MANY towns with an industrial heritage, the transformation of a factory that had stood derelict for decades into a shiny modern manufacturing site might seem a welcome development. But in Springfield, Massachusetts, famous for the rifles produced at its National Armoury, the arrival of a Chinese trainmaker has hit the buffers.
It is not that Springfield has no history of trainmaking; two centuries ago it built some of the first American-made railway carriages to replace British imports. The need for a local manufacturing base is what led CRRC, the world’s biggest producer of locomotives and rolling stock, to set up shop there in 2017. Since then it has been attacked by the press as a threat to American jobs and national security. The firm was subsequently clobbered with tariffs on imported parts, and recently denied an exemption. Lawmakers in Washington, DC, are now trying to prevent federal funds from being spent on its trains.
Some of the hostility is down to CRRC’s sheer size. Founded in 2015 from the merger of China’s two biggest train manufacturers, CRRC controls over 90% of the Chinese railway market—which also happens to be the world’s biggest. With its domestic business cornered, the company set its sights on expansion abroad. Liu Hualong, CRRC’s chairman, went about this by setting up overseas subsidiaries to handle some of the support and assembly operations. First he took aim at Asia and Africa, then Europe and America.
CRRC now employs 180,000 people worldwide and posts annual revenues of $30.6bn, around a tenth of which comes from outside China. Between 2013 and 2017 CRRC made 44% of the world’s electric trains and a whopping 71% of its high-speed ones, estimates Maria Leenen of SCI Verkehr, a railways consultancy in Hamburg. Its earnings from railway equipment alone are far bigger than the railway earnings of its big European competitors, Siemens of Germany, Alstom of France and Bombardier of Canada.
America is an especially attractive market, owing to its preference for customised trains, which fetch a premium over the off-the-yard variety favoured elsewhere in the world. Thanks to a renewed interest in rail travel, particularly among America’s carless young, it is also fast-growing, says Jia Bo, president of CRRC’s Springfield subsidiary. Since 2014 the company has won four big contracts in America for subway carriages. It delivered its first American-built train in December.
CRRC’s manoeuvres have spooked its Western rivals. Siemens and Alstom have cited the threat posed by the Chinese firm’s overseas expansion in defence of the attempted merger of their rail divisions, which the European Commission last month vetoed because it feared it would hurt competition. Erik Olson of the Rail Security Alliance, a campaign group made up of American freight-wagon builders and their suppliers, claims that CRRC threatens to wipe out his members’ businesses through predatory pricing, just as he reckons the company did in Australia after it set up shop there. Add labour shortages and protectionist “Buy America” rules, which will soon force trainmakers to source 70% of their components from American suppliers, and the market suddenly looks far less appealing. Kawasaki, CRRC’s Japanese rival, has said it is considering leaving America altogether.
CRRC’s provenance is making things worse. The trade war with China simmers on. Controversy surrounding Huawei, a huge Chinese maker of telecoms gear which has been accused (without any evidence being made public) of being a vehicle for Chinese spying, has infected other Chinese companies, CRRC among them. Mr Olson believes that carriages made by the firm and fitted with CCTV could be combined with facial-recognition technology to help the Chinese government track individuals. A fantasy, perhaps, but a real enough fear for CRRC to insist that it complies with all of America’s rules about cyber-security.
All of this means that CRRC’s overseas expansion is nowhere near on track. It recently lost a contract in New York and has made virtually no headway in Europe. In Africa CRRC has done better, although rail firms there would prefer to buy Western trains if only they could obtain financing on the same generous terms as that provided by the Chinese, says Howard Rosen of the Rail Working Group, an international trade body. But Western firms cannot do this owing to rules imposed by the OECD, a club of rich countries that excludes China.
This rough ride is causing CRRC to turn its attentions back to China. It says it may soon quit the American market for freight cars. To help manage the integration of the vast merger and deal with limits placed by the Chinese government on how much money it can invest abroad, CRRC has started to temper its overseas expansion, says Karen Li of JPMorgan Chase, a bank. The firm has quietly dropped a target to double its share of orders from abroad to 20% by 2021, she says. Better, it seems, to concentrate on winning orders for a coming glut of new high-speed lines in China.