A Complete Turnaround: Fifteen Years of High-Speed Rail Battles

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Introduction: From learning skills abroad to forging a path overseas – the 15 years of China’s high-speed rail revolution. Late at night on July 27, 2004, the heat of the day gradually dissipated and the weather cooled down. That night was the eve of the bidding process for China’s 200-kilometer high-speed train sets; it was an extremely tense night for the negotiation delegations from China and Germany. The person who met with Siemens’ negotiators was Zhang Shuguang, then the deputy head of the Equipment Department of the Ministry of Railways. His goal was to persuade them to reduce the price per train to below 250 million yuan, and the technology transfer fee to below 150 million euros. The Germans quoted an arrogant price: 350 million yuan per prototype train, with a total of 390 million euros for technology transfer. In addition, they have also created many obstacles in terms of technology transfer. Based on previous extensive investigations, Siemens believes it has the leverage to demand high prices – their Velaro platform, developed on the basis of the ICE3, is the solution that best meets the Railway Ministry’s requirements. The negotiations did not yield the desired results. Faced with the Germans’ excessive demands, Zhang Shuguang extinguished the cigarette he had just lit in the ashtray and, with a smile, said, \"Everyone can book their return tickets now.\" At 7 a.m. the next day, just two hours before the Ministry of Railways held the bid opening. Changchun Bus Factory announced that it has decided to choose the French company Alstom as its partner – “the two parties reached an agreement in a spirit of sincerity and constructiveness.” The Germans, just waking from their dream, were stunned speechless. At the breakfast table, the proud Frenchman sipped his sweet coffee, not forgetting to tease his German friend: \"Thinking back to the Battle of Waterloo, we can say we’re even today.\" ”“The Germans came out of the revolving door in China again.” When the news spread, Siemens’ stock price plummeted—abandoning China’s largest and fastest-growing high-speed rail market was clearly a strategic mistake. The relevant senior executive at Siemens submitted his resignation, and the entire negotiation team was dismissed. Times have changed; by 2017, the landscape of high-speed railways around the world had undergone a dramatic transformation. Alstom of France and Siemens of Germany, which competed fiercely in bids 15 years ago, have now seen their fates intertwined. Starting from that year, the two companies made every effort to advance the plan to merge their train manufacturing departments. They said, “We really need this deal to cope with the increasing competition from China.” On February 6, 2019, European antitrust authorities rejected the merger, killing off the deal. This further aggravating decision sparked opposition from the political leaders of Germany and France, who argued that the European Commission’s decision was wrong and stated that they would push for changes to the anti-monopoly laws. Miko Hortari, deputy director of the German Mercator China Research Center, said, “Previously, the circumstances allowed us to underestimate China’s ability to offer high-speed railways and other services on the international stage at highly competitive prices and quality, but it is obvious that that era has come to an end.” ” The reversal of the times began in 2004. 1. Changing techniques for \"straight-hook fishing\". In 2003, Liu Zhijun, the newly appointed Minister of Railways, was ambitious and proposed a roadmap for the rapid development of the railways – to achieve the same goals as those attained by developed countries, but in less time, with fewer steps and at lower cost. The \"introduce → digest → absorb → re-innovate\" model proposed at this time was also the key factor that enabled China’s high-speed rail technology to overtake its competitors later on and take advantage of its late entry into this field. In January 2004, the State Council, in its \"Medium- and Long-Term Railway Network Plan,\" proposed an ambitious rail transit plan – a network of \"four vertical and four horizontal lines\" plus three intercity passenger service lines – with a total construction length of 12,000 kilometers, a figure unmatched in history. “The “Four Vertical Lines” Beijing-Shanghai passenger dedicated line connects Beijing and Tianjin with the economically developed areas along the eastern coast of the Yangtze River Delta ； The Beijing-Wuhan-Guangzhou-Shenzhen passenger dedicated line connects North China and South China ； Beijing-Shenyang-Harbin (Dalian) Passenger Dedicated Line, connecting the Northeast region with the areas within the Great Wall ； The Hangzhou-Ningbo-Fuzhou-Shenzhen passenger dedicated line connects the Yangtze River region, the Pearl River Delta, and the southeastern coastal areas. “The “Four Horizontal” Xuzhou-Zhengzhou-Lanzhou passenger dedicated line connects the northwest and east China regions ； The Hangzhou-Nanchang-Changsha passenger dedicated line connects Central and East China ； The Qingdao-Shijiazhuang-Taiyuan passenger dedicated line connects North China and East China ； The Nanjing-Wuhan-Chongqing-Chengdu passenger dedicated line connects the southwest and east China regions. Inter-city passenger transport systems include those in the Bohai Rim, Yangtze River Delta, and Pearl River Delta regions. The introduction of this ambitious plan made manufacturers around the world realize that establishing a railway network with four horizontal and four vertical lines across China’s vast 9.6 million square kilometers of land would be an epic undertaking. In 2004, China was on the verge of giving birth to an unprecedentedly large market, so large that no high-speed rail company could ignore it. On June 17, 2004, on the eve of the sixth major speed increase for China’s railways, the Ministry of Railways launched a tender for high-speed train sets capable of reaching speeds of 200 kilometers per hour. This is a special tender, and the astute manufacturers are well aware that it serves as a preview of future market competition. It was the Ministry of Railways that handled this bidding process. As the rules of the game were announced, everyone was shocked. The tender notice specifies that bidding enterprises must be \"Chinese manufacturing enterprises (including Sino-foreign joint ventures) that are legally registered within the People’s Republic of China, possess the capability to manufacture railway EMUs, and receive technical support from foreign partners with advanced skills in the design and manufacture of railway EMUs capable of operating at 200 kilometers per hour.\" This means that the bidder must be a Chinese company. Siemens, Bombardier, Alstom, and Japanese companies were kept out. For Chinese companies as well, they cannot bid casually; the companies participating must have the support of foreign firms with mature technologies. This tender clearly stipulates three principles: 1. Key technologies must be transferred ； 2. The price must be the lowest ； 3. Chinese brands must be used. The intention is all too clear: the real goal of the Ministry of Railways is to introduce advanced foreign technologies. On the Ministry of Railways’ list, only two Chinese companies were designated as eligible for technology introduction: CSR Corporation’s Sifang Locomotive & Car Co., Ltd., and CRRC Corporation’s Changchun Railway Vehicles Co., Ltd. For companies such as Siemens, Alstom, Bombardier, and Japanese firms that are eager to seize the huge opportunity represented by the Chinese market, if they want to enter the Chinese high-speed rail sector, they must find local partners, and the only options available are CRRC Sifang and CRRC Changchun Railway Vehicles. Two against four: two domestic Chinese companies hold absolute dominance. The Ministry of Railways also requires that foreign manufacturers must sign comprehensive technology transfer contracts with domestic Chinese locomotive and vehicle manufacturers prior to bidding; otherwise, their bidding eligibility will be revoked. What’s even more remarkable is that the Ministry of Railways has specifically established an evaluation mechanism for \"technology transfer implementation,\" with Chinese bidding companies being the subjects of this evaluation, and the entity responsible for making the judgments being the High-Speed Train Joint Office established by the Ministry of Railways (abbreviated as \"HSR JO\"). This means that although you have won the bid, the Ministry of Railways will not pay right away. As instructors, foreign companies are responsible for teaching skills to domestic companies; Donglianban does not assess how well the instructors teach, but only evaluates how well the students learn. As long as the students do not learn well, the Ministry of Railways will not pay. Although there is a super-large market as a lure, it is by no means easy to obtain the cutting-edge technologies held back by the industry leaders. In \"High-Speed Rail Insights\" book titled \"The Rise and Fall of High-Speed Rail\", such details are recorded: in May 2004, six Japanese companies formed a large alliance in order to negotiate with CRRC Sifang and compete for the Chinese high-speed rail market. Regarding Japanese Shinkansen technology, the Ministry of Railways initially favored Nippon Sharyo and Hitachi, the Japanese vehicle manufacturers that possessed the technology for the Shinkansen 700 and 800 series, but both Nippon Sharyo and Hitachi declined to transfer Shinkansen technology to China. Thereafter, the Chinese side turned to Kawasaki Heavy Industries, which had many years of experience in cooperation with CSR Sifang; at that time Kawasaki Heavy Industries was facing operational difficulties, so it began negotiations with CSR Sifang in order to take part in this unprecedented large-scale high-speed rail tender in China. CRRC Sifang also prefers to cooperate with Kawasaki Heavy Industries, as the two parties established a relationship as friendly factories back in 1985; they know each other well and are quite familiar with one another. Initially, JR East, Hitachi, and Nippon Sharyo were all firmly opposed to Kawasaki Heavy Industries transferring Shinkansen technology to China. However, after negotiations, Kawasaki Heavy Industries formed a \"Japanese enterprise consortium\" with Mitsubishi Corporation, Mitsubishi Electric, Hitachi, Itochu Corporation, and Marubeni. With the other Japanese companies showing neither approval nor opposition, it proceeded to negotiate with the Chinese side. The preferred partner for Sifang is Japan’s JR Central; Bombardier established a joint venture with CRRC Sifang back in the 1990s, so it isn’t concerned about its bidding qualifications. The only concern is Alstom, as they are playing both sides by negotiating with several parties at the same time, as well as with CRRC. Sifang Company’s first choice is Kawasaki Heavy Industries; the talks with Alstom are aimed at putting pressure on Japanese companies. CRRC Changchun Railway Vehicles gives priority to Siemens, with Alstom being a secondary option; the ongoing negotiations are largely aimed at putting pressure on Siemens. However, Siemens did not budge on its pricing. With only half a month left before the bidding deadline, CRRC and Alstom accelerated their negotiations and ultimately completed all discussions before the deadline. Siemens’ setbacks in China led to a sharp drop in its stock price, as the company truly experienced the fear of losing access to the Chinese market. The Ministry of Railways is making every effort to develop high-speed railways capable of operating at speeds of 350 kilometers per hour, which requires the introduction of multiple-unit trains designed for speeds of 300 kilometers per hour or higher. Japanese companies have publicly stated that they will not transfer this technology, making Siemens the best choice. The Ministry of Railways’ second tender did not use open bidding, but instead opted for competitive negotiation, with the aim of obtaining Siemens’ advanced technology. In the end, the Tangshan factory and Siemens jointly won the order; this time, Siemens reduced the cost per prototype train to 250 million RMB, while the technology transfer fee was lowered to 80 million euros. Through two rounds of bidding, under the strategic guidance of the Ministry of Railways, Chinese companies successfully acquired the advanced high-speed rail technologies from the Japanese, French, and Germans. This unprecedented introduction of technology has led to a rapid advancement in China’s high-speed rail technology. The Ministry of Railways’ ingenious strategy of using the market to acquire technology was humorously referred to by netizens as \"fishing with a straight hook,\" and it was even included as an example in textbooks at Stanford University in the United States. As for how the Chinese managed, in just a few years, to go from learning skills under mentors to acquiring the ability to develop technologies on their own and compete with those mentors for orders in the international market, that is another story. What we want to say is that behind any rapid technological advancement, there are three decisive factors: talent, systems, and funding. 2 talents, still talents! In the two tenders held in 2004, Siemens offered its Velaro CN platform technology, which was developed based on the ICE3 standard; this represented the highest level of distributed-power multiple units available worldwide at that time. Alstom of France presented a combination of the not particularly advanced Pendolino train set and the SM3 high-speed train set. What Japan’s Daikyo Union offered was a scaled-down version of the \"Zephyr\" E2-1000. At that time, Tadaharu Ohashi, president of Japan’s Kawasaki Heavy Industries, advised Chinese technicians: \"Don’t rush things; first spend eight years mastering the technology for speeds of 200 kilometers per hour, and then another eight years to master the technology for speeds of 350 kilometers per hour.\" ”To Ohashi Tadayuki’s surprise, it took the Chinese only three years to master the technology he had estimated would take eight years to acquire. What surprised him even more was that, in less than eight years, the Chinese had entered the international market to compete with their former \"mentors\" for overseas orders. On April 18, 2007, China’s first high-speed train set was launched in Shanghai, marking the sixth major speed increase for Chinese railways. At that time, the term “high-speed rail” had not yet become widely used; people referred to them as “high-speed train sets”. With this significant speed increase, existing mainline railways such as the Beijing-Harbin, Beijing-Shanghai, Beijing-Guangzhou, Longhai, Zhejiang-Jiangxi, Jiaoji, Wuhan-Kowloon, and Guangzhou-Shenzhen railways will see their operating speeds rise to 200 kilometers per hour. On certain sections of these mainlines, including those of the Beijing-Harbin, Beijing-Shanghai, Beijing-Guangzhou, and Jiaoji railways, the operating speed will reach 250 kilometers per hour. The total length of railway lines whose speeds have been increased is 22,000 kilometers – this represents high-speed railways that truly meet international standards. http://5b0988e595225.cdn.sohucs.com/images/20190415/2bb251251196404baebbd020ea2f8a6a.jpeg Six major speed increases for China’s railways over a decade: Looking at the history of these six major speed increases in China’s railways from 1997 to 2007, it is clear that the sixth increase would not have been possible without the foundations laid by the first five. Behind the three years of working to incorporate foreign technologies and delivering satisfactory results lies a foundation of talent and technological capabilities built up over the previous decade. 1995 was the seventh year of the country’s policy of \"reform at home and opening up to the outside world,\" and marketization finally reached the Ministry of Railways. The “Regulations on Expanding the Decision-Making Authority of Railway Bureaus Regarding Investment in Upgrades and Renovations” [Tie Ji (1995) No. 173] – this famous “Document No. 173” in the history of Chinese railways – stipulates that the Ministry of Railways shall delegate procurement powers in order to strengthen the role of railway bureaus as market entities, and introduce competitive mechanisms to stimulate the vitality of these bureaus. ”Once the policy was introduced, enthusiasm was fully ignited, and various railway bureaus joined forces with locomotive and vehicle manufacturers to develop new products. The development of high-speed train sets has entered a golden age – the \"Lushan\" series developed by the Nanchang Railway Bureau, the \"Jinlong\" series by the Taiyuan Railway Bureau, the \"Beihai\" series by the Liuzhou Railway Bureau, the \"Beiya\" series by the Harbin Railway Bureau, the \"Shenzhou\" series by the Beijing Railway Bureau, the \"Jinlun\" series by the Lanzhou Railway Bureau, and the \"Zhongyuan Star\" series by the Zhengzhou Railway Bureau have all been introduced. http://5b0988e595225.cdn.sohucs.com/images/20190415/9de22c749a0f4e7ba643854114a64626.jpeg The “Zhongyuan Star” distributed-power EMU. In the year 2000, the former CRRC split from the Ministry of Railways; as a result, China South Railway Group and China North Railway Group were established, both under the supervision of the State-owned Assets Supervision and Administration Commission of the State Council. This artificially created competitive environment further unleashed internal vitality. In April 2001, the Ministry of Railways officially issued the \"Design Specification for 270 km/h High-Speed Trains,\" initiating the \"China Star\" EMU project. The entities involved in the development include four major locomotive and vehicle factories (Zhuzhou Electric Locomotive Factory, Datong Locomotive Factory, Changchun Coach Factory, Sifang Locomotive and Vehicle Factory), four major research institutes (China Academy of Railway Sciences, Zhuzhou Research Institute, Sifang Research Institute, Qishuyan Research Institute), and two major universities (Southwest Jiaotong University, Central South University). Design engineers from leading locomotive manufacturing companies, research institutions, and university research teams each took on their own tasks, working together to meet the technical specifications set by the Ministry of Railways; hence, this project was named the “442 Project”. http://5b0988e595225.cdn.sohucs.com/images/20190415/bb60fa32c2a648dc89cb193f3526daf0.jpeg The once-famous \"China Star\" high-speed train: For its power system, the traction transformer, traction converter, and AC asynchronous traction motors were all developed and produced in China. The high-speed braking system – from the control logic unit to the primary brakes and to the anti-skid devices – sees the integration of all its subsystems carried out by China itself. The through-type digital brake that combines regenerative braking with the train’s electro-pneumatic braking, as well as the powered and non-powered bogies, are all independently developed. “The “China Star” never became a real star. However, the team of talents developed through this R&D process has become a key factor in rapidly learning and absorbing advanced foreign technologies, as well as achieving further innovation. Those who are unaware of the history of China’s high-speed rail prior to 2004 may mistake the technology introduced in that year for the starting point of China’s high-speed rail development, leading to the conclusion that China lacks the ability for independent innovation in this field. This is actually a huge misunderstanding. Professor Lu Feng published an article titled “Tracing the Origins of China’s High-Speed Rail Technology” in Issue 48 of Outlook in 2013, in which he revealed such details: a technical manager from CRRC said, “All we received were Siemens’ manufacturing drawings; there weren’t even any 3D model files – only the final design results, without any information on the production process.” What we have are the on-site construction drawings, so we only know the manufacturing process and how to assemble the pre-made components, but we don’t know how they were designed. ”A technical leader from one of the four parties described it this way: “Kawasaki is a good teacher; the Japanese side doesn’t teach you design methods, but rather how to read drawings.” They won’t tell you why the circuit is designed with this logical structure; instead, they will explain the function of this actuator and the subsequent steps that need to be understood. The Japanese training is very detailed; they will explain what each element on the diagram does, but not why. ”In other words, what China obtains is production capacity, rather than technical capability. Under such circumstances, if imports were the only source of technology, then the subsequent development path of China’s railway equipment industry would have been to manufacture products based on foreign design patterns, and to upgrade these products by introducing new models. But the actual situation does not correspond to this logical prospect. Taking Sifang Co., Ltd., the manufacturer of the \"Series 2 trains\", as an example, in fact, China’s railway equipment industry began to pursue \"re-innovation\" even while still in the process of \"digesting and absorbing\" the technology of the original trains. Two facts illustrate this: First, the pace of technological progress is far exceeding everyone’s expectations. Second, the CRH380A developed by the four parties has passed U.S. intellectual property evaluation. In 2010, at the 7th World High-Speed Rail Conference held in Beijing, the American company GE proposed to establish a joint venture with China South Railway in the United States in order to bid for high-speed rail projects there. To ensure the smooth progress of this cooperation, the American side invited a third-party agency to assess the intellectual property issues related to the CRH380A high-speed train set. This evaluation, which lasted over half a year, was exceptionally complex. The evaluator first searched for patents related to railway locomotives and vehicles in the United States, resulting in a list of 934 patents. From this list, 254 patents were selected as being highly or moderately relevant. A U.S.-based law firm then assessed the patent risks using American methods and prepared a report on those assessments. The conclusion of the final report was that the patents filed in the United States by various countries regarding high-speed trains are not closely related to the CRH380A high-speed trains that CSR Sifang Co., Ltd. intends to export to the United States; no situations that could lead to ownership disputes were identified. ”Technical drawings can be purchased, but manufacturing and R&D capabilities must be developed on one’s own. The technology of the CRH380A is entirely of independent ownership, and it has surpassed the technology of Japan’s Shinkansen. The CRH380B high-cold-speed train developed by the Changchun Railway Vehicles team can operate at temperatures as low as minus 40 degrees Celsius. This outstanding record proves that the Chinese do indeed possess the capability to develop high-speed railways independently. http://5b0988e595225.cdn.sohucs.com/images/20190415/144bf857dc1340fcafd1fcefccff599e.jpeg The CRH380B high-temperature-resistant EMUs operating on the Harbin-Dalian High-Speed Railway: private investment is involved, policy support is available, and there is an abundance of talent. The next question is, how to solve the funding issue? Relying on initial capital investment, the \"four vertical and four horizontal\" networks have gradually moved from concept to reality; high-speed railways, acting like major arteries, are showing an increasingly significant impact on local economies. China has a large population and vast territory, with uneven economic development across different regions as well as between urban and rural areas. The per capita income level is relatively low, and a large volume of medium- and long-distance passenger transport relies on railways. High-speed railways free up the freight capacity of the existing lines running alongside them, and the separation of passenger and freight services helps to alleviate the chronic shortage of freight capacity. http://5b0988e595225.cdn.sohucs.com/images/20190415/b45a54b55fdd44e092db8d4d9151ba02.jpeg A comparison of railway network maps from 1978 and 2017 (photo taken from the China Railway Museum). Where high-speed railways are available, the flow of people and goods accelerates significantly, logistics costs decrease, and business operations become more efficient. High-speed railways provide strong logistical support for the accelerated development of industrialization and urbanization. Furthermore, high-speed railways have created new drivers of urban development, promoting a rational layout between central cities and satellite towns, enhancing the leading role of central cities over surrounding cities, and strengthening the \"city-as-one\" effect among adjacent cities. The mechanism by which high-speed railways influence industrial layout, urbanization patterns, and population movement is complex and multifaceted. http://5b0988e595225.cdn.sohucs.com/images/20190415/2dd6752a6adf41178fc02e989698af72.jpeg The mechanisms by which high-speed railways influence population movement, industrial layout, and urban planning; calls from people across different regions are growing louder and louder, with “building high-speed railways in my hometown” becoming an urgent desire shared by local authorities and ordinary citizens. Many railways that are not included in the Medium- and Long-Term Railway Network Plan have also been proposed by local authorities; at this point, the Ministry of Railways became nothing short of a \"temple of wealth\", with leaders from various cities traveling to Beijing to meet with the ministry in hopes of having high-speed railways built in their respective areas. http://5b0988e595225.cdn.sohucs.com/images/20190415/a3cf99427b6b4fa4a04f59b8d5473df0.jpeg“Why is there such frequent competition for high-speed railways in different places?” ” In order to bring railways and stations to their areas, many cities engaged in various kinds of \"struggles for routes\". Government and civilians work together in unity, coordinating internally and externally while each brings their own strengths to bear. The people of cities that achieve success are proud that their hometowns have high-speed railways, while those in cities that lose out in competition blame local officials for their incompetence and even demand that they step down. In 2009, when the plan for the Shanghai-Kunming high-speed rail was being formulated, Shaoyang and Loudi in Hunan Province showed unprecedented unity among officials and the public as they campaigned for access to this high-speed rail line. According to Xinhua News Agency, 100,000 people in Shaoyang chanted, “If we can’t get high-speed trains, the secretary and mayor must step down!” ” On May 7, 2015, the official feedback channel of Guang’an City in Sichuan responded to netizens regarding the change in the route of the Dazhou-Chongqing intercity railway. The original plan, announced in October 2014, proposed a route that passed through Dazhou, Dazhu, Linshui, and Chongqing (i.e., the eastern route); however, it was changed to a route that went through Dazhou, Quxian, Guang’an District, and Chongqing (i.e., the western route). This change triggered strong protests from the people of Linshui and Dazhu, who organized mass signing campaigns in Wanxing Square and Linzhou Square in their respective cities. http://5b0988e595225.cdn.sohucs.com/images/20190415/578da9c3a5784b0a9d87e4b3d5dfe8fe.jpeg Over the past decade or so, wherever high-speed railways have been built, the economy there has prospered. The local demand for high-speed railways is constantly increasing; **the investment burden is too heavy, so other solutions must be found. At the beginning of the reform and opening-up period, the investment and financing system began to explore new possibilities. From 1979 to 1983, infrastructure investment shifted from being funded through gratuitous government allocations to being provided as loans via the China Construction Bank. This partial adjustment from allocations to loans helped break the dominance of purely fiscal funding, and a more diversified pattern of investment began to take shape ； From 1984 to 1989, reforms to the investment system were carried out on a comprehensive scale. Starting in May 1987, the scope of enterprises eligible to contribute to the **Transportation Key Development Fund was expanded to include urban and rural collective-owned enterprises as well as individual business owners; a levy of 7% was imposed on their profits after income tax, with no contribution required if the profit was less than 5,000. Since then, a diversified pattern of sources for investment and financing funds has emerged ； From 1989 to 1992, there was a stagnation in the reform of the investment system, with only partial efforts continuing ； From 1992 to 1996, the focus of reforms shifted to cities, with efforts to advance market-oriented reforms. To curb inflation, a moderately tight monetary policy was implemented; the policy-oriented and commercial operations of banks were separated, giving rise to a mechanism for restricting credit expansion within a commercial financial system ； From 1996 to 2003, the mode of economic growth had to shift from an extensive to an intensive type, with the market playing a greater role in allocating resources in the area of investment. Starting with the introduction of the \"Tax on the Direction of Fixed Asset Investment\" to regulate the investment structure, pilot reforms were carried out on several large and medium-sized state-owned projects. Since 2004, the \"Decision of the State Council on Reforming the Investment System\" issued in July 2004 with the approval of the State Council represents the most comprehensive and systematic reform plan in the field of investment since the launch of reform and opening up. It includes five aspects: the guiding principles and objectives for deepening reforms of the investment system, transforming **management functions to establish enterprises as the main entities in investment activities, improving the **investment system and regulating **investment practices, strengthening and improving macro-control over investment, and enhancing supervision and management of investment. “The \"provincial-ministerial cooperation\" mechanism was launched; the Ministry of Railways signed strategic agreements with provinces, autonomous regions, and municipalities to accelerate railway construction, and joint venture railway companies were established. The local authorities **not only bear the primary responsibility for land acquisition and demolition, but also make equity investments in railway construction.** In 2005, the market-based reform of municipal utilities once again became a focus of urbanization efforts. The concession agreement for Beijing Subway Line 4 PPP project, the first successful PPP project in China’s rail transit sector, was officially signed. The term PPP (public-private partnership, **partnership with private sector entities**) came into the public’s awareness for the first time at this time. Under the PPP partnership model, **the role undergoes a significant change**, shifting from that of a mere administrative manager to one of the parties to the contract. The relationship with enterprises has shifted from management and being managed to cooperation and oversight, resulting in **increased commitments and obligations** that need to be fulfilled. Social capital is finally getting the chance to get involved. On September 11, 2017, a private consortium led by Fosun Group signed an investment agreement for the \"Hangzhou-Shaoxing-Taizhou High-Speed Railway PPP Project\" with Zhejiang Province, giving rise to China’s first high-speed railway controlled by private capital – the Hangzhou-Shaoxing-Taizhou High-Speed Railway PPP Project. Fosun Group took the lead in forming a private consortium that holds 51% of the shares, marking the first time that private capital has achieved absolute control in the field of railway investment. http://5b0988e595225.cdn.sohucs.com/images/20190415/662e9f0730154ad285b06669935c617c.jpeg The first high-speed railway controlled by private capital – the Hangzhou-Shaoxing-Taizhou High-Speed Railway – starts at Hangzhou East Station, passes through Hangzhou South Station, Shaoxing North Station, Xinshaoxing North Station, Dongguan Station, Sanjie Station, Shengzhou-Xinchang Station, Tiantai Station, and Linhai Station, and ends at Taizhou Central Station. Its total length is 269 kilometers, with a designed speed of 350 kilometers per hour; the total investment amount is 44.89 billion yuan. The project company is fully responsible for investment, financing, construction, operation, and maintenance, and shall transfer the facility to Zhejiang Province ** or an institution designated by the province ** free of charge upon the expiration of the operation period. Just as suddenly as a spring breeze arrives in one night, high-speed railways, which were once considered to be \"capital-intensive, difficult to make profits in, and monopolistic entities,\" have become highly sought after by private capital. Huaxia Happiness took the lead in investing in the Langzhu-Gubao intercity railway, while Hengdian Group invested in the Hangzhou-Wenzhou high-speed rail. Dongguan follows closely behind; the procurement of social capital for the PPP project of Rail Transit Line 1 has been largely completed, and it is now in the stage of public announcement of the winning social capital partner. The involvement of private capital has **alleviated** the pressure and also helped to address part of the funding issues related to high-speed rail construction. The conditions for policy, talent, and funding aspects are all in place. By now, China’s high-speed railways are fully developed, and it’s time for them to go global. 4 brothers team up to explore the world. In 2013, high-speed rail models were upgraded to national gifts. In October of that year, China and Thailand signed an agreement known as the \"rice for high-speed trains\" deal, and the signing of this agreement was regarded as a landmark event marking the official inception of China’s \"high-speed rail diplomacy\". **The prime minister became China’s chief promoter of high-speed railways, enthusiastically introducing China’s high-speed rail technology to the world. Apart from Thailand, Australia, 16 countries in Central and Eastern Europe, Africa, the United Kingdom, the United States, Germany, Russia… have all expressed interest in China’s high-speed railways. That year, CRRC South and CRRC North found themselves at the center of public criticism over what was seen as a fierce competition abroad. The climax of this destructive struggle took place in Argentina during the second half of 2012. As China North Railway’s existing \"sphere of influence,\" the CNR team was initially very confident in the urban rail transit bidding process in Argentina in 2012. The initial bid of $2.39 million per vehicle is also quite cost-effective when compared to foreign competitors. Suddenly, a player entered the scene: none other than CRRC, a Chinese company that had never been involved in the Argentine market before. This fellow soldier offered a low bid of $1.27 million per vehicle for the first bid package, cutting Beijing Railway’s bid in half. Caught off guard by its own brother company, CRRC North had no choice but to offer a low price of $1.26 million per vehicle for the second bid package, while CRRC South offered an even lower price of $1.21 million per vehicle. In the end, CRRC South won both bid packages thanks to its lower pricing. Similar brutal infighting has also occurred in other overseas tenders. In January 2011, a tender was issued for locomotive projects in Turkey; CRRC and CSR competed by bidding lower prices, with CRRC submitting a bid at almost no profit margin. In the end, it was the South Koreans who reaped the benefits and won the order. CRRC and CSR bid for high-speed rail, urban rail, and subway projects around the world; although there have been many successes, there are suspicions of \"fierce competition\" in some of these projects. Fights abroad: brothers fighting against each other, causing harm to themselves and giving an advantage to foreigners, which also poses a problem for **. The merger of CNR and CRRC has been officially put on the agenda. Wang Mengshu, an academician of the Chinese Academy of Engineering, said in an interview with China Economic Weekly: “I support the merger of CNR and CRRC; it was long overdue.” The two companies engage in fierce competition abroad; for example, one company wins a bid abroad at $2 million per vehicle, while another company offers $1.4 million, a price that is below cost. This leads the other party to wonder why there is such a large difference in prices for similar products, to doubt China’s technical capabilities, and ultimately to reject Chinese products. Therefore, the integration of CRRC South and CRRC North is conducive to high-speed railways going global. High-speed rail is an industry with heavy capital requirements and high technical barriers; CRRC and CSR compete with each other, as well as against strong foreign competitors. Amid the fierce competition between CRRC and CSR, looking at foreign equipment giants, as China’s railway technology becomes increasingly sophisticated and enters the international market on a large scale, competition in the rail transit equipment industry intensifies, prompting the industry’s giants to pursue further mergers. In 2012, Siemens acquired Invensya Rail, the railway technology company owned by the British firm Invensys plc, for £1.74 billion (approximately $2.8 billion). In 2014, Alstom acquired GE’s rail signaling business, further enhancing its signaling technology capabilities and strengthening its presence in the North American market. International high-speed rail giants continue to merge, leading to an increasing level of concentration. Changes in the international competitive landscape have also forced Chinese high-speed rail manufacturers to take action. On the evening of December 30, 2014, China South Railway and China North Railway both issued announcements. With the approval of the State Council and the State-owned Assets Supervision and Administration Commission of the State Council, China South Railway Corporation and China North Railway Corporation merged. The merger was carried out in the manner of CNR acquiring CRRC, with a specific share exchange ratio of 1:1.10. On June 1, 2015, the two companies were merged to form CRRC Corporation Limited, which went public for trading on both the Shanghai and Hong Kong stock exchanges on June 8. The merged CRRC has quickly become the world’s largest, most diversified, and technologically advanced supplier of rail transit equipment, ranking first in the global sales volume of such equipment for several consecutive years. The competitors were not idle either; mergers among industry giants were frequently reported in the Sankei Shimbun. In 2015, Hitachi acquired the Italian rail equipment company Ansaldo Breda as well as the railway signaling company Ansaldo STS, thereby gaining access to a large number of clients in Europe and the United States. In September 2017, Alstom signed a memorandum of understanding with Siemens, one of the top five global suppliers of rail transportation equipment, with the aim of integrating Siemens’ transportation business into Alstom in exchange for 50% of Alstom’s shares; this proposal was rejected by the European Union. In February 2019, General Electric sold part of its GE Transportation business to Westinghouse Brake, completing the transfer of that business unit from General Electric’s shareholders; thereafter, this division was merged with a wholly-owned subsidiary of Westinghouse Brake. http://5b0988e595225.cdn.sohucs.com/images/20190415/5932d2c2ada9432a9074299402dbadbd.jpeg Major mergers and acquisitions in the global rail transit equipment industry in recent years. Kawasaki Heavy Industries, once a role model for China’s high-speed rail sector, has struggled to carry out any successful mergers in recent years; it not only has to compete with domestic rivals such as Hitachi but also faces pressure from international giants. On October 30, 2018, Kawasaki Heavy Industries of Japan held a press conference to release its interim financial results for the 2018 fiscal year. Financial reports show that Kawasaki Heavy Industries’ sales declined by 3%; it posted a profit of 10.8 billion yen in the same period of 2017, but incurred a loss of 3.5 billion yen in 2018. The once flagship business of railway vehicles is in a pitiful state. The president of Kawasaki Heavy Industries said, “If it cannot be saved, we will consider withdrawing from the railway vehicle business.” In terms of scale, joining forces to compete in overseas markets offers a significant advantage. Academician Wang Mengshu once said outright: “The merger of CNR and CRRC was aimed at creating a monopoly, especially in terms of technology.” China’s high-speed rail technology is now at the world’s leading level, and after the merger, there will be no further loss of technological expertise. ”http://5b0988e595225.cdn.sohucs.com/images/20190415/df346e14234b455d8654830f93fb7eb4.jpeg Monopolies lead to enhanced competitiveness and greater influence, but they also place demands on the integration capabilities and operational efficiency of these two large companies. As for the results of the merger, no matter how much is said, it’s still the performance records that speak for themselves. 5. Sugarcane isn’t sweet at both ends; it’s not easy to achieve excellent results. CRRC’s financial results for the first half of 2017 showed that its business situation remained challenging: it achieved operating revenue of 88.717 billion yuan, a decrease of 5.83% on a year-on-year basis ； The net profit attributable to the shareholders of the listed company was 3.673 billion yuan, a decrease of 23.41% on a year-on-year basis ； The net profit attributable to the shareholders of the listed company, after deducting non-recurring gains and losses, was 3.13 billion yuan, a decrease of 28.7% on a year-on-year basis ； The net assets attributable to the shareholders of the listed company amounted to 114.458 billion yuan, representing a year-on-year increase of 9.16%. CRRC and its subsidiaries have a total debt of 226.751 billion yuan, of which current liabilities amount to 199.544 billion yuan; thus, their debt-to-asset ratio is 62.87%. The news that CRRC’s net profit dropped by over 20% sparked significant controversy. By comparing the data from the three years before and after the merger: http://5b0988e595225.cdn.sohucs.com/images/20190415/564e8f191e674ced8c23bcb8f224fcb5.jpeg, doubts about the merger arose once again. However, behind this report lie very complex objective factors. During Liu Zhijun’s tenure, there was a rapid expansion in high-speed rail construction; most of the lines planned as part of the \"four vertical and four horizontal\" network were completed by 2015, and the number of lines that had not yet been completed was less compared to earlier periods. Vehicle and equipment requirements depend on the trends in passenger/freight traffic. A report by Tianfeng Research Institute stated: \"By using railway freight volume, non-high-speed rail passenger volume, high-speed rail passenger volume, and the converted turnover volume as benchmarks for freight cars, passenger cars, high-speed trains, and locomotives respectively, it can be seen that in 2017, railway freight and passenger volumes as well as the total converted turnover volume reached a plateau; railway freight cars, passenger cars, and locomotives will primarily require replacement and maintenance.\" The bidding process for locomotives came to a halt in 2016, and demand for new EMUs is likely to reach a temporary low point in 2017 due to the timeline involved in railway construction. ”The data show that, when comparing CRRC’s size with that of CNR and CSR before the merger, its operating revenue increased only slightly in the year following the merger; thereafter, it began to decline over the next two years ； Net profit also increased slightly in that year before declining, with no change before or after the consolidation. In July 2016, the Reform Commission, the Ministry of Transport, and China Railway jointly issued the \"Medium- and Long-Term Railway Network Plan,\" outlining a framework of \"eight vertical and eight horizontal lines.\" This new plan also meant new orders. Of the market share that CRRC currently holds, most of its orders still come from the Chinese market. Although China’s urbanization trend remains strong, demand for rail transportation will eventually reach saturation. If CRRC is to achieve further growth, it must expand its operations to other parts of the world. In overseas markets, the situation faced by CRRC is even more complex. http://5b0988e595225.cdn.sohucs.com/images/20190415/581e9c6a706745268c8eb4eacacef93f.jpeg There is a detail in this report that deserves attention. In 2015, a portion of CRRC’s revenue came from orders placed before the completion of the merger; as a result of the settlement timelines, this led to an increase in CRRC’s overseas revenue for that year of nearly 10 billion. However, after the merger, overseas revenue declined in both the second and third years, with no significant improvement. The original intention of merging the two companies was to reduce fierce competition overseas and increase orders from foreign markets. The scale and capabilities of the newly merged CRRC are by no means comparable to those of the original CNR and CSR. However, there is another issue that requires our attention: for major national projects like high-speed railways, competition abroad often involves more than just economic factors; it also includes political struggles between various parties. With high-speed trains making their debut, it’s inevitable that they arouse envy. In 2015, the Thai high-speed rail project that had originally been planned to be carried out in cooperation with China ended up going to Japan. While offering low-interest soft loans, the Japanese side also proposed an astonishingly low-cost plan: using Japanese Shinkansen technology, with a design speed of 250 kilometers per hour, and the cost per kilometer of construction at only around 75 million RMB. Such a plan is naturally hard for Thais to resist. It should be noted that the cost per kilometer for high-speed rail operations internationally is usually over 300 million RMB. Chinese high-speed rail is renowned for its cost-effectiveness; even projects with a speed of 250 kilometers per hour have a cost of around 87 million RMB. http://5b0988e595225.cdn.sohucs.com/images/20190415/a82e96efa9c84d10ad8b5c2b498569d4.jpeg Thailand has finally decided to adopt Japanese Shinkansen technology. Sun Zhang, a professor at Tongji University in Shanghai, believes that the China-Thailand railway project is of decisive importance in competing with European and Japanese standards and in promoting the use of Chinese railway standards. The opponents also understand that China is competitive. In addition, Malaysia and Singapore are also studying Chinese standards, and for Japan, Thailand is the last battleground to contain the expansion of Chinese standards. Mikhail Beryaev, an expert at the Russian Institute of Fund Markets and Management, said in an interview with Sputnik: “China is expanding its trade and transportation routes in all possible directions.” Accordingly, Beijing aims to extend the railway from its southern border to Thailand and other countries in Southeast Asia. China’s ‘railway diplomacy’ directly conflicts with the United States and Japan. These two **do not need competitors to enter their traditional spheres of influence at all. In this regard, geopolitical interests take precedence over political interests. ”A Japanese official also stated directly in a media interview that Japan’s purpose in doing this is \"purely to compete with China or to create chaos, and Southeast Asian countries should see this very clearly.\" ”Something similar happened in India as well, with the Japanese seizing the Indian high-speed rail market at almost a loss. The merged giant CRRC also has European competitors on edge. Today, Siemens, the world’s second-largest company in this field, and Alstom, the third-largest, are seeking to merge in order to protect the European market from the threat posed by China’s CRRC. The merger between Siemens and Alstom was originally scheduled to be completed in the first half of 2019. However, the EU antitrust authorities believe that the merger of the two companies’ railway operations would create a market leader, reduce competition in the industry, and lead to higher ticket prices for passengers; as a result, they launched a thorough investigation into this merger starting in 2018. EU Competition Commissioner Vestager believes that the market share of the new company resulting from the merger will be three times that of its European competitors. She rejected the main arguments for merging the two groups, stating that Chinese suppliers are unlikely to enter the European rail vehicles and signaling markets on a large scale in the foreseeable future. Although CRRC’s sales amount to $31 billion, roughly twice that of Siemens and Alstom combined, over 90% of its business is carried out in China. Supporters, on the other hand, are disappointed by the EU’s attitude; they believe that the EU has underestimated China, and that Siemens’ acquisition of Alstom is a way to maintain Europe’s competitive advantage in the high-speed train sector. French President Macron also strongly urged the two companies to merge in order to enhance their competitiveness. The concerns of the EU antitrust authorities are not unfounded. Just as the critics within China raised concerns about the merger of CNR and CRRC, those concerns also centered on the potential drawbacks of monopoly. If the coexistence of CNR and CRRC is maintained, with a strong competitive environment in place, it might be more conducive to accelerating the development of core technologies and the use of domestic alternatives; as a result, the competitiveness of both CNR and CRRC could improve more rapidly. After the merger of the two companies, it becomes a giant on the market and the only player in its sector; it has sufficient power to squeeze profits from upstream suppliers, while also having more influence over its customers. These nationals’ concerns regarding the merger of South Korea’s railway companies are similar to those of the EU antitrust authorities regarding the merger between Siemens and Alstom. The emergence of CRRC has created a super enterprise in Asia, altering the landscape of the global high-speed rail market. Sugarcane isn’t sweet at both ends; the advantages and disadvantages of integration will inevitably appear simultaneously in the middle section. How to leverage strengths and mitigate weaknesses, break through external pressures, and address internal problems is a test of the wisdom of CRRC’s people. It’s still the performance records that speak for themselves: On March 23, 2019, Sun Yongcai, General Manager of CRRC Group, revealed the company’s achievements over the past few years at the China Development Forum. To date, CRRC has established 83 overseas subsidiaries and 15 overseas R&D centers in 26 countries and regions around the world, thus forming a business network that spans the globe. Overseas assets increased from 3 billion yuan in 2013 to over 34 billion yuan in 2018, while orders from overseas markets surged nearly twice, rising from 3.5 billion US dollars in 2013 to 6.3 billion US dollars in 2018. On March 29, CRRC released its financial results for 2018, showing revenue of 219.083 billion yuan, a year-on-year increase of 3.82% ； The net profit attributable to the owners of the parent company was 11.305 billion yuan, representing a year-on-year increase of 4.76%. Throughout the history of human development, changes in modes of transportation have directly shaped the dynamics of the world order. Since the emergence of the \"Age of Sea Power\" at the end of the 15th century, those who possessed advanced navigation techniques and control over sea routes have gained maritime dominance, profoundly transforming the international, political, and economic landscapes. For centuries, naval power has been a key target in the struggles between great powers. “In the Belt and Road Initiative, the “Belt” represents land power, while the “Road” represents maritime power. In modern China, both land power and sea power are given equal importance. The extensive high-speed rail network enables China, with its vast interior areas, to seize new opportunities for a \"rise in land power.\" CRRC’s expansion overseas is nothing short of a war without gunpowder. Chinese high-speed railways have forged a path in the international market and expanded their presence there. Behind their technical prowess lies the industrial capacity and international influence of the entire **. As for what the future will hold, only time can tell. References: Jiang Wei, “A Career Filled with Tears – The High-Speed Train: The Acceleration of ‘Chinese Innovation’”, 2012; Gao Tie Jian Wen, “The Rise and Fall of High-Speed Trains”, 2015; Lian Wang, Lu Feng, “Tracing the Origins of China’s High-Speed Train Technology”, 2013; Zhao Xiaogang, “Moving Forward with Speed”, 2014; Huang Suping, Zhu Yong, “High-Speed Trains Reshaping China’s Economic Geography”, 2016; Zuo Dajie, “Research on the Railway Investment and Financing System”, 2017; Xinhua News Agency, Zhao Cheng, Zhang Xudong, Qi Zhongxi, Lin Hongmei, “Traveling Through a Dreamlike Time and Space – A Record of China’s High-Speed Rail Development”, 2010; Chen Min/Chen Feichi, “Uncovering the Secrets Behind PPP Models in Rail Transit”, 2016; Yicai.com, “The ‘Destructive Competition’ Behind the Rumors of CRRC’s Merger”, 2014; Rail World, “Russian Experts: The Main Obstacles to China’s Railway Diplomacy Are Political”, 2017; China Times, Zhang Zhi, “Japan’s Shinkansen Attempts to Disrupt the Situation and Gain the Lead in Thailand’s High-Speed Rail Project”, 2015. Author: Zhang Jingye; Data support: Taifangwu Industry Research Institute; Source: Taifangwu Industry Observation (ID: Taifangwu)