Overseas Rails:More than Being Cheap

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TAV， the high-speed rail project in Brazil， was considered to be an important goal of Chinese president Xi Jinping’s visit in Brazil in July. Brazilian president Dilma Rouseff says that Brazil is hoping to cooperate with China on local high-speed rail projects.

The high-speed rail of China adds a lot of charm to this country in the diplomatic situation as many countries’leaders have shown interest in it. From last October， Chinese premier Li Keqiang formed the intention of cooperating with Thailand， Romania and UK on the high-speed rail. In the conference of African Union this May， Li Keqiang announced the plan of setting up R&D center of high-speed rail in Africa.

However， the high-speed rail technologies of China did not have any substantial progress in the overseas markets. The Chinese enterprises are anxiously waiting for their first overseas order of high-speed rail.

“Globally， the Chinese enterprises have taken many overseas rail projects in recent years， but none of them was the high-speed rail. Most of them are conventional rail projects， such as ordinary railways， light rail， subway， diesel locomotive and electric locomotive. According to the 200-km/h international speed standard of high-speed rail， only the rail project from Ankara to Istanbul in Turkey， whose speed is 158 km/h， could be barely considered a high-speed rail project，” says Wang Lan， director of R&D Department at the Chinese Acad- emy of Railway Sciences.

Wang Mengshu， an academician with the Chinese Academy of Social Sciences， is quite optimistic about the overseas outlook of China’s high-speed rail. He says that there are about 20-30 countries negotiating with China on the cooperation in high-speed rail. China could swap local strategic resources with the assistance in building high-speed rail.

Actually， the export of rail equipment of China increased dramatically in these years. Take CSR Corporation Limited （CSR） for example： in 2013 the company’s overseas orders valued US$2.23 billion in total. Its products have been exported to 83 countries and regions and the products range from bullet train， underground tube， high-power electric locomotive， diesel locomotive to railroads. However， the CRH380A high-speed bullet train， of which the company is quite pride， has had no overseas buyers by now.

Even though China’s high-speed rail has great advantages in the construction cost， operation experiences， operation speed and technological integration， it still has to face great challenges in the original technologies， manufacturing techniques， image promotion and intellectual property before really going to the world.

Unsustainable Low-cost Project

The huge rail network and the low construction and operation cost are the advantages China’s high-speed rail could boast. Most of the foreigners also agree with， and are attracted to， these points.

World Bank’s representative office in China published a report in July， saying that the weighted average cost per unit of China’s high-speed rail is 129 million yuan per kilometer for the 350 km/h project while the 250 km/h project only costs 87 million yuan per kilometer. In comparison， the highest cost in the construction of high-speed rail is above 300 million yuan per kilometer.

The more use of viaducts is one of the most apparent features of China’s high-speed rail. The Beijing-Shanghai high-speed railway has 86.5% of its length covered by the bridges， which is unique in the world. The intensive use of viaducts is costlier than ordinary roadbed， but it could reduce the risk of roadbed sediment， and could maximally save the cost in land occupation and resident migration， which could pull down the total construction cost.

However， this advantage can not be fully exerted in the overseas bidding of high-speed rail.

“Our cost is indeed quite low in China， but in the overseas markets， we have no advantages in the cost while competing with foreign companies，”says Wang Lan. He had on-the-spot experiences of this point when he led a team of experts from the Chinese Academy of Rail Sciences to Saudi Arab to debug and test urban rail transit for the pilgrims towards Mecca， which was built by China Railway Construction Corporation Limited.

Even though it is an 18.25-km urban rail transit with normal speed， but the investment budget amounted to US$1.773 billion. In addition to the 4-billion-yuan loss-warning announcement of China Railway， the total construction cost of this project reached 830 million yuan per kilometer， much higher than the cost of high-speed rail in China.

“The bad geological and climatic conditions are one of the reasons， but the commodity price deserves the most blames. The materials in Saudi Arab are much more expensive than that in China. Therefore， most parts of this project are transported to Saudi Arab via freighters after being cast in China and assembled there， thusly increasing the cost，” Wang Lan recalls. “The HR cost is also a problem. The constructors were from India and Pakistan as required by the employer. They lack discipline and skills， causing us great troubles.”

As Wang Lan remembers， the team of experts did not find until they arrived in Saudi Arab that the constructors could not even flatten the earth. Without any choices， the Chinese company has to find a team of skilled workers from China to solve the problem.

The test of the urban transit rail in Mecca is the only overseas project the Chinese Academy of Rail Sciences has ever done by now.

“Chinese created the unique way of testing all units and systems of railway at the same time. Foreigners conventionally tested the railroads， overhead line system， communication system， audio and video system one by one. It could take two or three years to finish the test of a railroad that is 500-600 kilometers long，” Wang Lan says. “But in China， there is a huge burden of highspeed rail construction， leaving us a little time for the testing. So we work out the integrated test to cover all systems simultaneously. It only takes half a year to finish the test of a 500-km railroad.”

The project of urban transit rail in Mecca has the similar demand with the Chinese high-speed railway： it should be finished and put into work in a short while. As the chief contractor of this project， the Chinese company strongly hopes to reduce the construction period with the Chinese way.

In February 2009， former Chinese president Hu Jintao signed the formal construction agreement with Saudi Arabian king Abdullah. The project took the EPC+O/M pattern， a short for the engineering， purchasing， construction and operation/management （for three years）. China Railway Construction was appointed chief constructor. The company was given 22 months to finish the project as the Saudi Arabians hoped to open the railroad in October 2010.

The various problems delayed the construction very much. The project was put into use in November 2010 with the 4.153-billion-yuan loss for China Railway Construction.

The company said that there was only the concept about engineering when the agreement was signed. Later， the proprietor put forward the new functions， leading to the increase of the project size. During the construction， the problems of raw materials and human resources unexpectedly increased the total cost as well.

The Chinese Academy of Rail Sciences， which was invited to take charge of the test， also felt the difficulty of this project. The 18-km project took more than half a year to finish the test， which was beyond the expectation of Wang Lan.

For the team from the academy， coordinating the relations among all contractors is the biggest problem. In this project， China Rail Construction was the chief contractor， but the Saudi Arabians assigned many other companies to take part in the project， such as Britainbased Atkins Group， Lloyd’s Register of Shipping and others to provide the consultancy for the project design and safety review. Siemens， Westinghouse Electric Corp.， Groupe Thales were appointed to take charge of the manufacturing， installation and testing of electric devices， shielding gates， communication signalers and locomotives.

When the team from Chinese Academy of Rail Sciences is doing the test， there must be a consultancy company designated by the Saudi Arabians as the witness on the spot. However， when problems were found， it was China Rail Construction that received the report first， then the Chinese company needed to communicate with the unit with problems and asked them to modify them. The massive communication takes a large portion of the time of the project.

Overseas Marches

The urban transit rail in Mecca is a part of Chinese companies’ contending for the overseas projects. As the domestic rail network is close to being fullfledged， people are more focused on the overseas market. The railway projects in the northern part of Venezula， the South of Saudi Arab， the Ankara-Istanbul railway in Turkey… the projects with the value of more than US$1 billion were placed under the spotlight.

The second part of the AnkaraIstanbul railway project is even considered to be the “maiden achievement” of China’s high-speed rail in the overseas market.

This project has been contracted to China Civil Engineering Construction Corporation （CCECC）. It starts from Inonu in the east and ends in Kosekoy in the west， with the total length of 158 kilometers and the maximal speed of 250 km per hour.

Zheng Jianbing， assistant to the general manager and senior engineer of CCECC， says that CCECC has been ready to accept the “zero profits” for this project.

“The significance of the project is to improve the management level of the company， and an access to the European market，” says Zheng. “To build a railway in Turkey， we will follow the European standard. The management in Turkey is very close to the one in Germany. Therefore it is very good for our own management level and our global strategy.”

The bidding for this project started in 2005. At that time， more than 30 firms from Turkey， Japan and Germany formed eight groups to attend the bidding. CCECC founded an agglomeration with China National Machinery IMP & EXP Corp which was responsible for raising funds， as well as two Turkish companies. Eventually， they won the bidding with the price of US$1.27 billion.

An important reason for the Chinese companies’ victory was their promise to provide the loans of US$720 million.

“This is very common in the bid- ding for overseas railway project. The Chinese companies’ major markets are none other than the developing countries， but these countries have no requirements for the high speed like China. They only want railways with the normal speed and ask for the loans from the contractors. Frankly speaking， there are some projects with the conditions as if they were freely built by the Chinese，” says Wang Lan.

The Ankara-Istanbul Rail is actually not a high-speed rail. It takes four hours to finish this 450-km project with the speed of 110 km per hour. Therefore， the Chinese companies are mainly distributing their forces of overseas rail construction in Africa.

In comparison， the locomotives and other devices from Chinese companies are much more competitive in the overseas market. CSR had received the orders valuing 93.38 billion yuan by the end of 2013， with the overseas orders valuing 24.1 billion yuan or 26% of the total value. The overseas market has become an indispensable part of CSR.

Among the overseas orders， the two orders for underground tubes from Argentina were worth US$1 billion， with the average cost of a single unit at US$1.27 million.

“There will be no huge profits with that price. At the beginning of 2012， we joined in the bidding for the H-Line of Argentine metro system. Alstom and Rotem were our rivals then. At that time， Alstom offered US$1.3 million per unit. Our price was a bit lower than Alstom’s， but the volume is big and therefore， the price is internationally reasonable，” says Ni Shengyi， vice general manger of CSR in charge of this project.

China North Railway （CNR） also reaped a lot from the overseas markets. By the end of this July， the company had already received the orders of 100 electric locomotives and 34 metro tubes from Rio de Janeiro.

Even the banquet of sports events could spare a part for the Chinese railway companies. Reportedly， the Brazilian government， driven by the World Cup and the Olympic Games， is going to invest billions of euros into its railway network to increase the total length to 30 thousand kilometers. In addition， Brazil， Argentina， Ecuador， Columbia， Peru and Venezuela all have the plans to develop the urban rail transit， multiply growing the urban rail transit system in South America， which is less than 600 km long in total.

According to the Brazilian government’s plan， the Rio de Janeiro’s metro and urban rail transit system will have 80% of the locomotives made by the Chinese companies by the 2016 Rio Olympic Games.

The Troubles of High-Speed Rail

In May， when Premier Li Keqiang visited Africa， an exhibition for Chinese railway and aviation was held in the Conference Center of African Alliance. The CRH380A high-speed locomotive developed by CSR was displayed in the exhibition hall as the representative of high-speed rail technologies of China. This was the third time that Li Keqiang marketed this type of locomotive in the overseas market： when he visited Thailand and East Europe before that， he sent the model of CRH380A as a gift.

However， there are always questions about this type of locomotive after its debut. Most of the criticism is focused on the intellectual property in that product.

Japanese have the most and loudest complaints as they say that the CRH380A is an imitation of the Japanese product.

Wang Yongping， former spokesman for China’s Ministry of Railway， once said that the CRH380A was based on the CRH2 series. The CRH2 was a result of the technologies from and cooperation with Kawasaki Heavy Industry. Chinese people insist on the saying that there is great improvement from CRH2 to CRH380A and China owns the complete intellectual property of this locomotive.

“Many people do not accept the CRH380A and question Chinese people’s ownership of the patent. Later CSR recruited a U.S. institution as the third-party organization to have a comprehensive and overall review of the intellectual property of CRH380A. The team from this institution spent 7 months looking into laws and files in the world and then submitted the review result to the U.S. Department of Justice， acknowledging the Chinese right ownership of the patents and placing it under the protection of the U.S. justice system，” says Cao Gangcai， second chief economist of CSR.

“The CRH-serial products are based on the innovation to the imported foreign technologies. But strictly， it is not the importation that single-handedly leads to the current level of China’s high-speed rail，” Cao Gangcai says.

But the Japanese attack against the high-speed rail technologies of China still has caused a lot of troubles in the overseas market. Huang Xiantao， general manager of Beijing Haizhong Intellectual Property Consultancy Corp.， says that the Japanese resort to the propaganda， lobbyism， bidding and so on， which are more effective than the patent infringement case.

“In 2011， for example， Chinese companies won the bidding for the high-speed rail between London and Scotland. However， after the bidding the Japanese enterprises started a propaganda campaign about the intellectual property. Soon the British government abandoned the Chinese high-speed rail technologies and gave the 4.5-billionpound order to the Japanese consortium led by Hitachi，” Huang Xiantao says.

In recent years， the Chinese companies have already registered many patents of high-speed rail technologies， but this could save them from trouble either.

“The biggest problem is that Chinese companies have not registered enough patents in the overseas markets. Take the application in the PCT for example， most of the descriptions of patents are poorly written and not touching the core technologies of high-speed rail. The patents have limited value. Even though those technologies are recognized internationally， their market outlook is still very bleak as they are hard to form the core technologies. Confronted with the massive patents of high-speed rail， the Chinese companies would have few chips to turn around the situation were three the lawsuits about intellectual property. They are usually forced to pay a large amount of patent allowance，”says Huang Xiantao.

Some Chinese people choose to import technologies from foreign companies， but Huang Xiantao warns that the technology transfer agreement between China and foreign countries.

“We’ve seen many agreements of that kind before， in which the foreign companies usually had the requirements of sharing the backdrop intellectual properties. Sometimes they could have the exclusive ownership of the intellectual properties. This puts us at a great disadvantage，” Huang says. “With the in-process intellectual property and the prospective intellectual property， foreign companies can add many limitations in the exportation of Chinese products， thusly stopping our overseas development.”

“Many state-owned enterprises and even governmental departments of China have fallen into that trap，” adds Huang Xiantao. “They spent a lot buying foreigners’ technologies， but later they had to transfer them back to their original owners without any gains.”