Bullet trains manufactured by CNR and CSR are displayed at the 12th Modern Railways, an exhibition of railway technology and equipment in Beijing on October 28

As a Chinese proverb goes, if two brothers are of the same mind, their sharpness can cut through metal. China CNR Corp. (CNR) and China CSR Corp. (CSR), the world's two largest railway transportation equipment manufacturers, have decided to merge to compete in the global arena.

In recent years, with great progress in China's high-speed railway and subway equipment industry, CNR and CSR have entered a period of explosive growth.

In China, the two giants preside over the entire bullet train market, 80 percent of the freight train market and the bulk of the metro vehicle market. They are also gaining ground in the overseas market by virtue of reliable technologies, their rich domestic operation experience and low prices.

According to the Worldwide Market for Railway Technology report released by the German railway transportation authority, the top seven manufacturers are CNR, CSR, Canada's Bombardier, Germany's Siemens, France's Alston, America's General Electric and Japan's Kawasaki. CNR and CSR's sales revenue equals that of the other five's combined.

Both companies are capable of producing CRH380 high-speed trains, which have safely run more than 400 million km and been dubbed the champion of the top 10 high-speed trains in the world.

After the merger, the new conglomerate, with an estimated annual revenue of $33.6 billion and net profit of $1.44 billion, will pose a great challenge to Western rivals like Alston and Siemens.

China has developed sophisticated high-speed rail and train technologies and is prepared to promote the Chinese standard worldwide.

Ahead of rivals

CNR exports its products to more than 90 countries and regions. In the first half of this year, it won overseas orders worth $1.54 billion, a year-on-year increase of 178.18 percent.

According to statistics from SCI Verkehr, a leading German strategic consultancy, CNR accounted for 22.4 percent of the global subway vehicle market in the past five years, maintaining first place in the field of global railway transportation equipment in 2011, 2012 and 2013.

On October 22, CNR MA, a joint venture between China Changchun Railway Vehicles Co. and CNR, won a $567-million contract to supply 284 rail cars for Boston's subway system.

Although many global railway transportation equipment manufacturers, such as Bombardier and Kawasaki, competed for the order, CNR MA offered the lowest quotation among six bidders, little more than half of Bombardier's price, according to the Massachusetts Department of Transportation.

In terms of manufacturing experience, product performance, quality and price, CNR's products, which can run 129,000 km per year with a service life of 30 years, are far ahead of other competitors.

As early as 2008, CNR's Shenyang Locomotive & Rolling Stock Co. had established a joint venture with Wabtec Corp., focusing on the research and development (R&D) of world-class railway braking products. Last year, CNR set up a welding structure R&D center with University of Michigan.

CSR has also fixed its eyes on the American market. Following CNR's feats in the United States, CSR announced it would bid to construct the California High-Speed Rail Authority's rail network. By the end of August, the value of overseas contracts signed by CSR had surpassed $3.5 billion, with its products exported to 84 countries and regions such as Australia, Singapore, India and South Africa.

Wang Mengshu, a tunnel and railway expert at the Chinese Academy of Engineering, said the merger will eliminate infighting between the two in the exploration of the global market, improve the image of Chinese enterprises, facilitate technological innovation and boost international competition.

"Fourteen years ago, the Ministry of Railways split China National Railway Locomotive and Rolling Stock Industry Corp. into two separate companies to stimulate market competition. Now China is competing with international railway transportation manufacturers, and the challenge is to give full play to its overall strength, promote the brand image of China's high-speed trains, and export the Chinese standard," said Sun Zhang, a railway expert at Tongji University.

The merger

Since last October, Chinese Premier Li Keqiang has been promoting Chinese-made high-speed trains in a number of countries such as Australia, Britain and the United States. However, the overlap of CNR and CSR's businesses fueled cutthroat competition between the two.

Li Jin, Vice President of China Enterprise Reform and Development Society, told The Beijing News daily that in mergers of state-owned enterprises, usually a high-performing company acquires a moribund firm. But the case of CNR and CSR was different with the two running neck and neck.

The move aims to stop infighting and reduce resource wastage so that Chinese bullet train manufacturers have a louder say in the overseas market and imprint the Chinese brand and standard on a larger canvas. For this reason, the merger will quickly weld the two into a community of shared interests, according to the Chinese Listed Companies Public Opinion Center.

In addition to eliminating price competition, the move will also develop management and technological progress. Wang said CNR and CSR factories may undergo restructuring to focus on the R&D of different high-speed trains, such as those running in highland and severely cold regions. If the two continue vying for projects, stagnant technological progress and low prices will breed corruption.

"If the two train giants team up, their bargaining power will be significantly enhanced," said Sun, noting that since CNR and CSR are skilled in manufacturing locomotives and motor train units respectively, the two will complement each other's advantages after joining hands.

As Wang Zhigang, Assistant Director of the Research Center of the State-owned Assets Supervision and Administration Commission of the State Council, has argued, the merger is not just a corporate reorganization but an attempt to promote the "Chinese high-speed train" on the international stage.

"The competitiveness of Chinese-made high-speed trains lies in their standard and brand as well as their speed," said Wang.

CNR

Incorporated on June 26, 2008, CNR has been listed on the Shanghai Stock Exchange since December 2009 and on the Hong Kong Stock Exchange since May 2014.

» A leader in China's rolling stock industry and an important member of the worldwide rail transportation equipment manufacturing industry, it directly holds 26 subsidiaries on the mainland and three subsidiaries incorporated in Hong Kong, South Africa and the United States.

» CNR focuses primarily on the manufacturing and refurbishment of rolling stock, including high-speed multiple units, locomotives, passenger coaches, freight wagons, rapid transit vehicles and railway engineering machinery. It also manufactures mechanical and electric products, clean energy and environmental protection equipment. Its business also encompasses trading in raw materials, finance leasing of rolling stock, machines and equipment, and a project management contracting service for urban rail and related projects.

CSR

Incorporated on December 28, 2007, CSR went public in Shanghai and Hong Kong in August 2008, and has established 17 wholly owned and shareholding subsidiaries in 10 provinces and cities.

» CSR boasts a complete system of independent development, massive manufacturing and standard service of railway locomotives, passenger trains, freight wagons, bullet trains, metro vehicles and relevant parts.

» As China's largest metro vehicle manufacturer, it owns China's largest electric locomotive R&D and manufacturing base, a globally leading bullet train R&D and manufacturing base, an industrially leading large-power diesel locomotive and diesel engine R&D and manufacturing base, a domestically leading high-grade bus enterprise, a globally leading rail wagon R&D and manufacturing base, and three designated mass transit vehicle localization enterprises.

» CSR uses proprietary rail transit equipment technologies to develop and expand the market for extended products, including electric vehicles, wind generation equipment, automotive parts, marine crankshafts and diesel engines, large-power semiconductor devices and construction machinery.

(Source: CNR & CSR)