Chinese
high-speed train makers are increasingly selling their products to Western
countries. Experts say the established European firms in the sector urgently
need to develop strategies to counter the competition.
Deutsche Welle, 3 July 2014
Previously
known as a manufacturing hub for low-technology and labor-intensive products,
China has been increasingly moving up the technology ladder to become an
exporter of hi-tech goods.
No other
sector symbolizes this shift better than the train market. When China decided
over a decade ago to build a high-speed rail network connecting the length and
breadth of the vast nation, the country had no domestic production base that
could handle such a mammoth project. It had to import trains from foreign
companies such as the German conglomerate Siemens, the Japanese corporation
Kawasaki and the French firm Alstom.
Fast
forward to today and Chinese rail companies have mastered the technology to
build the trains and are now actively seeking markets overseas to sell their
trains, thus competing with the established players in this segment.
For
instance, it is reported that China South Locomotive & Rolling Stock
Corporation (CSR), the Asian nation's largest train manufacturer, recently
signed a contract with Macedonia's national railway company to sell six bullet
trains. The agreement follows deals made by China with several other Eastern
European countries such as Romania and Hungary to build high-speed rail lines.
Beijing is
also promoting its high speed rail infrastructure and technology in other
regions such as Asia and Africa.
From buyer
to maker
China's
sales pitch is supported by massive amounts of investment. The country has
poured some 500 billion USD into building its domestic high-speed rail
infrastructure so far. Although graft allegations and a fatal crash in 2011,
which killed 40 people, jolted public confidence and resulted in a brief
slowdown of network expansion, the pace has since picked up.
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| Chinese rail companies have mastered the technology to build high-speed trains and are actively seeking markets overseas |
The country
currently has more than 11,000 kilometers of dedicated high-speed train tracks,
reflecting Beijing's desire to boost economic activity in the country through
the allocation of resources towards massive infrastructure projects.
China
initially bought trains and related equipment from foreign manufacturers, but
its engineers later re-designed the machinery and succeeded in building their own
trains capable of reaching top speeds between 350 and 400 kilometers per hour.
This has caused headaches for the likes of Siemens and Alstom, which had hoped
to profit from the boom.
While some
have accused Beijing of copying foreign technologies, China has called it a
path of "introduction, digestion, absorption and re-innovation."
Gaining
access to technologies by entering joint ventures and sharing agreements is a
"globally widely followed - albeit frowned-upon – practice, and I doubt
that this is a singularly Chinese approach," says Thomas König, China
expert at the European Council on Foreign Relations.
An unfair
advantage?
Furthermore,
the scale of domestic high-speed rail network construction has led to a decline
in production costs for Chinese manufacturers, which has made them more
competitive than their counterparts in places like Germany and France.
The issue
of competitiveness, however, is not limited to this market. According to Nicola
Casarini, Asia expert at the European Union Institute for Security Studies
(EUISS), "Europe is losing competitiveness vis-à-vis China, as more and
more Chinese products compete with European ones."
Analysts
also argue that, unlike firms such as Siemens, China's rail companies - which
are state-owned-enterprises - have an unfair advantage of a guaranteed
state-led infusion of capital in order to increase output.
König says
China has "identified the potential of the market early on and is now
making the most of it."
In an bid
to increase its impact on European markets, China has been "successfully
closing deals with countries that have been hit hardest by the eurocrisis or
are generally looking for ways to encourage growth spurts in their
economies," explained König, adding that China is widely perceived as a
"relatively hassle-free alternative to the often unappealing bureaucratic
processes the EU represents."
The expert,
however, pointed out that there should be no reason for European companies to
be left behind on this, given that the industry is just at the beginning of a
significant upswing.
'Plenty of
opportunities'
Rapid
population growth and migration in emerging markets are expected to drive
demand for high speed trains over the next two decades. Indeed many countries
such as Russia, India and Brazil are already debating their own high-speed rail
projects. For instance, it is reported that the Indian government is keen on
setting up the infrastructure in the South Asian nation and is working on
proposals.
In
developed economies, where technology and proven safety track records are
important considerations, European firms will continue to enjoy a large share
of the market.
 |
| European companies are facing growing competition in the segment |
However,
Chinese high-speed train manufacturers "will become more significant
competitors in developing countries, especially as Beijing can use its
competitive advantage in costs most effectively and boost its competitiveness
in bids by offering finance through its development banks," says Rajiv
Biswas, chief Asia economist of the analytics firm IHS.
König
stressed that in order to overcome Chinese competition, it is far more
important for the Europeans to better understand and adjust to the needs of
their customers.
Biswas told
DW that "there will be plenty of opportunities for European firms to
compete with China, as long as they are able to develop their strategies to
compete effectively across a wide range of key areas, including production
costs, technology and finance." The Europeans need to develop strategies,
such as setting up joint ventures with local partners in developing countries,
something that will reduce costs, the analyst added.
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