Railway suppliers on fast track to world market

Looking to slower domestic conditions in the future, equipment manufacturers strike out on their own, reports Lyu Chang.

It is no secret that China wants to leverage its experience in building the world's largest network of high-speed rail lines into a new export industry.

But with growth in the domestic market stabilizing and the world market for high-speed rail lines yet to really open up, some Chinese companies that are part of the rail construction supply chain are seeking to enter foreign markets on their own.

CSR Zhuzhou Electric Motor Co Ltd, a subsidiary of China South Locomotive and Rolling Stock Co, is one example.

The Hunan-based company, which provides core elements such as traction motors and transformers to domestic train producers, said it is accelerating its own overseas expansion.

"The Chinese railway market is booming now, and there is still huge investment in fixed assets, but what about 10 years from now? China's manufacturing sector is crying out for consolidation due to severe overcapacity," said Richard Ouyang, deputy chief economist in CSR ZEM.

"The development of the rail sector will not be sustained forever, so naturally, we are taking the initiative to diversify our revenue streams."

CSR ZEM, the main production base of electric traction motors and transformers in China, has already made a huge breakthrough in the European market, albeit not in the rail sector. It signed a contract with a German company to provide a prototype model of a wind power generator with an installed capacity of 5,000 kilowatts.

"It looks like nothing, considering the value of the contract, but it marks our first concrete attempt to establish ourselves as an independent supplier and a strong competitor in a developed wind market," said Ouyang, who declined to give details on the German company.

"All I can say is that it is among the world's top 500 companies, and we will try to keep winning orders from it," said Ouyang, who is in charge of the company's overseas business department.

Germany's wind power industry has been growing steadily, and the market looks even more promising if the repowering of old systems is included.

"We are looking at a billion-dollar market with huge potential for growth, and we expect to raise our export value 10-fold every year," he said.

The Chinese company, which started its wind power business in 2004, generated about 6 billion yuan ($960 million) in sales last year, with revenue from the wind power industry accounting for 30 percent to 40 percent of the total.

Unlike CSR Zhuzhou Electric Locomotive Co, another CSR unit that has been selling rolling stock to the global market for nearly 20 years, CSR ZEM started exports only in the past few years.

Apart from the wind sector, the company plans to make the most of its major products, which are electric traction motors and transformers, as it drives into the export market. Countries such as India, South Africa and Russia are among its targets for initial orders in the rail sector.

"We are likely to break new ground this year, making inroads into these countries, but it will be no easy task. As a newcomer, we have to compete with the international sector leaders," Ouyang said.

Zhao Jian, a professor of rail transportation at Beijing Jiaotong University, said that the countries being targeted have well-developed transport systems and most of them are open to foreign investment, which makes them easier targets for exports than other countries.

South Africa's air and rail networks are the largest on the continent, and India's railway system also ranks among the world's largest.

"They are very good markets for rail development, offering a solid base for rail construction," he said. "But it also means that Chinese companies have to face fierce competition with very strong domestic rivals as well as international bidders."

The global bidders include Germany's Siemens AG, Canada's Bombardier Inc and Japan's Kawasaki Heavy Industries Rolling Stock Co.

Chinese companies also have to cope with a stronger yuan, which will have "a certain negative impact" on exports, he said. But Chinese companies do have one advantage: they can provide a fair price while offering high quality.

Ouyang said that if the company can get its first foreign order, it will be just a matter of time until other contracts roll in.

He said that although export revenues are basically nothing now, they will grow fast, accounting for at least 30 percent of the total in the next five years.

"Compared with the international giants, we are very flexible, so we can turn orders around quickly," he said, adding that maintenance will represent yet another big market once the company is shipping electric motors and wind power generators.

The future looks bright. Premier Li Keqiang has been promoting high-speed rail technology in Thailand, the United Kingdom, Russia and India. And to reduce competition among Chinese companies in the global market, State-owned train manufacturing companies CNR Corp Ltd and CSR Corp Ltd have decided to merge into a $26 billion company. China Railway Construction and China Railway Group will focus on tracks.

Contact the writer at lvchang@chinadaily.com.cn

Wen Xinzheng contributed to this story.