A car passes by an old passenger railway line in Azcapotzalco borough, Mexico City. Mexico has revoked a $3.75 billion high-speed rail contract from a China-led consortium after its uncontested bid prompted an outcry from lawmakers. Photo taken on November 7. — Reuters Brenda Goh
SHANGHAI — It will take more than the abrupt cancellation of a high-speed train deal with Mexico to derail China Railway Construction Corp's ambitions to become a global force in transport projects and take on the likes of Siemens, Alstom and Bombardier. State-owned CRCC and its partners will bid again for the $3.75 billion project, despite saying it was “exceptionally shocked” by Mexico's reversal following objections from opposition lawmakers angered the bid was uncontested. About two weeks after the cancellation, CRCC announced it had signed a $12 billion contract to build a railway along the coast of Nigeria, part of a concerted effort to secure business abroad and push China's so-called “railroad diplomacy”. It was the largest single overseas construction deal won by a Chinese firm. Executives at established players including Germany's Siemens see CRCC as a powerful new competitor. A company insider at Siemens also said he believed the Chinese firm received state aid. His comments reflect concerns that companies will struggle to compete with CRCC on costs and because Beijing will use its diplomatic clout and deep pockets to spread commercial and technological prowess around the world. “Now China, in railway construction and equipment, has become globally competitive in terms of the pricing and the technology,” said Citi analyst Eric Lau. “So far, according to opening tenders, China's price point is about half of its global rivals,” he added. The World Bank estimates China builds its fastest trains and rail at a cost of $17-21 million per kilometer, compared with Europe where it costs about $25-39 million per km or in California, estimated to cost up to $52 million per km. Once the railway division of the People's Liberation Army, CRCC and domestic rival China Railway Group have historically fought for work at home. China's railway network, which will reach 120,000 kilometers by the end of 2015, has turned both into corporate giants, but in terms of international earnings they lag behind construction companies like Germany's Hochtief and Bechtel of the US. That is changing as CRCC aims to increase the foreign share of its total revenues, which were 587 billion yuan ($95 billion) in 2013, to 30 percent from four percent now. In the first nine months of 2014, CRCC has inked 115 billion yuan in overseas contracts, accounting for one fifth of new deals over that period. The equivalent proportion in 2013 was six percent. In May, the company set up a unit to manage and coordinate foreign operations, according to a notice from the government's supervisory body for state-owned firms issued in September. “(The reorganization) enhances our competitiveness overseas ... and will help China's ‘high-speed diplomacy',” the notice quoted CRCC as saying. An official at CRCC's board secretary office directed Reuters to its publicity department, which did not answer repeated calls for comment. China has stepped up its focus on railways this year, spending 590 billion yuan from January-October on new domestic lines and heavily promoting technology, especially high-speed rail, on diplomatic visits to Malaysia, Thailand and Britain. Many of its projects abroad are already supported by big loans from the likes of China's Export-Import Bank, and China launched a $40 billion “Silk Road” fund last month for infrastructure projects in countries linking Europe with Asia. In addition to the Nigerian and disputed Mexican deals, CRCC may benefit from a China-funded study for a high-speed railway in India, analysts said. China's state media have also reported that the government is merging the country's top two trainmakers, China CNR and CSR Corp , to support its overseas high-speed rail campaign. Despite its global ambitions, some of CRCC's foreign forays have ended unhappily. CRCC was forced to suspend $12 billion in projects in Libya during the 2011 conflict, and local media reports said it had to ask its parent for a bailout earlier that year after losing 4.15 billion yuan on a light-rail contract in Saudi Arabia. Analysts also warn that CRCC's aggressive overseas push may only be achievable through squeezed margins. The $12 billion Nigerian contract, for example, was 8.8 percent lower than when the parties first entered a framework agreement in May, CIMB analyst Kevin You said in a Nov. 21 note. — Reuters
