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China

'Made in China' high-speed trains going global

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.

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.

Bildergalerie Hochgeschwindigkeitszüge China CRH3

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.

Siemens AG Gebäude Außenansicht Perlach München Bayern

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.