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High-speed rail battle in Asia

Srinivas Mazumdaru
February 14, 2018

Europe's rail giants have joined forces with a Malaysian firm to bid for a train project connecting Malaysia and Singapore. Together, they want to take on Asian rivals like China's state-owned CRRC.

Bildergalerie Hochgeschwindigkeitszüge China CRH380
Image: Reuters

High-speed trains have epitomized China's ascent of the technology value chain over the past couple of decades. Today, the country dominates the global railway market, particularly for high-speed train systems. It currently boasts over 20,000 kilometers (12,500 miles) of high-speed rail tracks, more than the rest of the world combined.  

China has also been aggressively marketing its high-speed rail expertise and busily exporting its trains to countries in Asia, Europe and even North America over the past several years. As part of Beijing's "high-speed rail diplomacy," Chinese firms have sold technology to Thailand, Hungary, Romania and Serbia, among other places.

The Chinese government also pushed for the merger of the nation's two railway firms, resulting in the creation in 2015 of the rolling-stock behemoth CRRC, the world's biggest rail conglomerate in terms of sales with an annual revenue of around €30 billion ($35.2 billion).

The emergence of CRRC meant intensified competition in a sector that had hitherto been the domain of a limited number of companies from Europe, Japan and North America. To combat CRRC, German industrial giant Siemens and its French rival Alstom decided last year to merge their railway operations.

A united front

It remains to be seen how effective this "European champion" will be in taking on China's state-owned CRRC. A major high-speed train project connecting Malaysia and Singapore, however, may demonstrate who has the upper hand in the sector. To bid for the project, Alstom and Siemens - together with a couple of other European firms - have formed a powerful consortium and partnered with the Malaysian engineering firm George Kent.

"This partnership shall result in a powerful team combining European technology and project experience with the best local experience," AFP news agency reported quoting a joint statement filed with the Malaysian stock exchange.

The 350-kilometer (217-mile) link that will connect Singapore with the Malaysian capital Kuala Lumpur is targeted to be completed by 2026. Bids must be submitted by the middle of this year and the contract is expected to be awarded by year-end.

The Europeans hope that by forming a consortium and joining forces with a local entity they will be able to outmaneuver Asian competitors from China and Japan.

"While much of the talk until now revolved around the fact that competition would mostly be about China vs. Japan, this new consortium really changes the situation, and creates a competitive triangle for this very big and high-profile contract," said Agatha Kratz, an adviser at Rhodium Group focusing on EU-China relations and China's global FDI and infrastructure diplomacy.

At this point of time, however, it is hard to predict who will ultimately manage to secure the contract.

Experts like Kratz say it can sometimes be tough for European train makers to find their competitive spot in Asia, particularly in Southeast Asia, where governments have much more intense and long-lasting ties with Japan and China, and their companies.

China corners new train market

"In these large high-speed rail contracts, political and diplomatic factors can sometimes play a part, and European governments are less important diplomatic actors in the region," Kratz told DW.

"But this situation might also represent an opportunity for the European consortium," she pointed out. "It can play the 'neither China nor Japan' card, by presenting itself as a non-politicized choice and spare the regional governments the trouble of having to pick between the region's two prominent players."

Money matters

Still, huge high-speed train projects require commensurately significant government support, and one of the major weaknesses of the European side might be their inability, compared to Japan or China, to bring with them large financing for the projects.

Beijing regards the sector as strategically important, and China's state-run railway firms receive strong support in the form of low-cost credit for any projects they target. Meanwhile, Japanese Prime Minister Shinzo Abe has been pushing hard to sell his country's famed Shinkansen bullet trains, by dangling billions of dollars in soft loans to make them an attractive proposition to potential customers.

Even though financing poses a challenge for European companies, Kratz said, their chances are almost equal to that of their competitors when it comes to projects like the Malaysia-Singapore one, which are based on an open and competitive tender.

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The analyst also underlined that even though the Chinese behemoth CRRC is capable of producing high-speed trains to the same quality levels as its European or Japanese competitors, there are a couple of factors playing against it. 

"China's relatively short history of high-speed rail usage means it is still unclear how resistant CRRC trains are to usual wear and usage, and how much maintenance they might require over their lifetime," noted Kratz, stressing that maintenance can have a high cost, which can upset the overall lower CRRC sale price tag.

"Furthermore, CRRC's international quality image is still somewhere behind Alstom's or Siemens', who both benefit from an impeccable reputation and track record."

Regardless of who ultimately wins the Malaysia-Singapore project, it is clear that demand for high-speed trains in Asia is on the rise as the region modernizes its railway infrastructure. That is likely to present an array of opportunities for European manufacturers, if they are able to better understand and adjust to the technological and financing needs of their customers.