Why China’s two largest trainmakers merged

29 Jan

China’s two biggest trainmakers CSR Corporation Limited and CNR Corporation Limited said in a joint statement on December 30 that they plan to combine through a share swap, a move intended to increase exports of the country’s high-speed rail technology. As part of the agreement, CNR will withdraw from the HK Stock Exchange. The new name for the company after the merger is CRRC Corporation Limited.

HCSR and CNR are the top two high spend rail way companies in terms of technology established in the past 10 years when the China high speed railway developed rapidly. The high speed railway technology was born in 1903. German, France and Japan are the strong big companies with the rail way car productions and the track construction in terms of technology and operations.

China’s high-speed rail industry has developed rapidly since 2004, when Beijing decided to make development of the sector a national policy objective. At the time, since China was the only country with large-scale plans for high-speed rail, the top four manufacturers in the industry – Siemens (Germany), Alstom (France), Kawasaki Heavy Industries (Japan) and Bombardier (Canada) – competed fiercely with each other during the bidding process. That resulted in a price war. Eventually, the Chinese Ministry of Railways purchased locomotives from all four companies for below the market price and whole-body train manufacturing from Siemens for a rumored 80 million euros. By playing off the different trainmaking giants against each other, Beijing exploited their eagerness for a share of the China high-speed rail pie and acquired core high-speed rail technology quickly.


CSR and CNR used the technology of the foreign trainmakers to develop trains of their own, with locomotives from Siemens, Alstom, Kawasaki Heavy Industries and Bombardier serving as the prototypes. During that process, the Chinese Ministry of Railways mandated that all parts for the cars must be manufactured in China. Foreign firms that sought to access the China market were required to enter into a joint venture with a Chinese partner.

Within 3 years, CSR and CNR were designing and manufacturing locomotives in China. They were able to indigenize the core technology used in whole car body manufacturing, traction power supply and car operating systems. But while CSR and CNR had caught up to their foreign competitors in terms of technology, they had not yet learned to deploy that technology into all high-speed rail systems. As it was a result, not all components of high-speed rail systems can be manufactured domestically in the short run.


Since 2004, China has implemented a large-scale nationwide development of high-speed rail, resulting in the largest such network in the world. The network is divided into “The 4 Verticals” and “The 4 Horizontals.” The construction of these lines was completed within 3-4 years. The lines include Beijing-Shanghai, Beijing-Guangzhou, Wuhan-Guangzhou and Shanghai-Chengdu. The network now also extends south to Nanning in Guangxi province, north to Harbin in Hailongjiang province, east to Shanghai and west to Wulumuqi in Xinjiang province.


After developing its domestic high-speed rail system, Beijing decided to begin work as a trainmaking exporter, backing CSR and CNR financially to compete in the global market. Because of that financial backing and their workers’ long hours, the Chinese manufacturers are able to work faster and for less money than their foreign competitors. They also are experienced in building rail networks in challenging geographical conditions, such as mountains and other areas where temperatures are frequently low. Currently, CNR and CSR are the world’s top two trainmakers, with a global market share of 10% and 9%, respectively. Bombardier is third with 6%.


Beijing authorized the merger of CNR and CSR to increase China’s competitiveness as a global trainmaker. The Chinese authorities sought to prevent any competition between Chinese firms in the industry that could lead to China losing out on opportunities to foreign competitors. With the merger complete, CRRC is set to tap burgeoning opportunities throughout South America and Asia.
CRC’s main competitor is Kawasaki Heavy Industries, which built Japan’s famous bullet train, the Shinkansen. Prior to CSR and CNR’s merger, Kawasaki consistently lost out on bids to CSR and CNR, despite the Japanese government’s push to help Kawasaki secure new projects. In the first half of 2014, CSR and CNR together won bids valued at 4.5 billion US dollars for high-speed rail projects in Argentina, New Zealand and Thailand. By contrast, the Taiwan high-speed rail was the only major project that Japanese trainmakers won.

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