China announced this morning plans to merge its two largest state-controlled railcar makers, China CNR Corp and CSR Corp. These two major companies sell train and subway cars to China and several developing nations, but they have begun focusing on Western nations. In attempts to win overseas contracts, CNR and CSR have increasingly found themselves competing over the same high-profile contracts. Additionally, they face competition from a Wide array of Western companies including “Canada’s Bombardier Inc, France’s Alstom SA and Germany’s Siemens AG” (Wall Street Journal).
CNR and CSR were previously a single entity, but were split off ten years ago to promote more competition in the Chinese railcar sector. However, Chinese officials have decided the most optimal way for their top state-controlled railcar makers to penetrate Western markets and compete with established Western firms was to merge these 2 companies back together. It appears that Beijing is aiming to shake up its sluggish state-owned enterprises, which economists have said are slowing China’s long-term growth (Wall Street Journal).
In recent years, Beijing has stated their efforts to reduce monopolies in several facets of the market. This merger seems like China is backtracking on these efforts in an attempt to give CNR and CSR a better chance of securing foreign contracts. Currently, both CNR and CSR are competing with other firms for a $68 Billion contract in California. (Financial Times). It will be interesting to observe in recent months if this merger allows them to secure this contract.
Works Cited:
http://online.wsj.com/articles/china-to-merge-two-rail-car-makers-1414503536
http://www.ft.com/cms/s/0/d577e772-5e50-11e4-b7a2-00144feabdc0.html#axzz3HTQcS4dM
http://rt.com/business/199971-china-rail-merger-26-billion/
Yes, this does indeed seem to represent backtracking on competition policy. If however profits are higher outside than inside China, the impact may be to prevent the firms from needlessly underbidding each other — at the expense of railways elsewhere. But are they making generic rail cars, or are they focused on passenger cars for high-speed rail?
From what I understand they are now primarily focused on passenger cars for high- speed rail. This is highlighted by the fact they are competing for the contract to produce “bullet trains” for California’s proposed high speed rail.
I am excited to see how this government sponsored merger ends up. It is clearly decreasing competition in China, but also helping to increase China’s international presence in the railroad industry. As both firms are state owned, I cannot imagine that there will be a distinct impact on prices in China, but profits should increase if these two companies can come back together smoothly and seriously compete with the companies of western countries. The Chinese government appears to be putting its international economic presence over having competition in China’s domestic economy.
This is an example of the tradeoffs with a state-controlled economy. It’s like playing whack-a-mole with economic and business issues: promote competition by splitting the company into two entities and end up under bidding each other, merge them into one company and raise domestic prices and potentially deal with higher levels of corruption