Chinese State-Owned Rail Car Manufacturer Set to Buy German Factory

Fairgoers take a look on a displayed Eurolight train by Vossloh during the opening day of the Innotrans International Trade Fair for Transport and Mobility in Berlin on Sept. 23, 2014. (Tobias Schwarz/AFP/Getty Images)

The state-owned China Railway Rolling Stock Corp. (CRRC), the world’s biggest railcar-maker by revenue, is set to gain a foothold in the European rail market, after a proposed deal to acquire a German factory.

CRRC has so far relied heavily on the domestic market for the majority of its business. According to China’s state-run daily China Business Journal, the company in 2018 generated profit of 11.3 billion yuan (about $1.5 billion) on revenue of 219.08 billion yuan (about $30.6 billion), with more than 91 percent of the revenue coming from China.

But in recent years, it has pushed hard into the U.S. market, winning contracts to provide rail cars to public transport systems in Los Angeles, Boston, Chicago, and Philadelphia.

Deal

Germany-based rail technology company Vossloh, in a press release posted on its website Aug. 26, said it has signed a contract to sell its locomotive business unit to CRRC Zhuzhou, a CRRC subsidiary.

While the total value of the deal is subject to adjustment, Vossloh is expected to receive an amount in the “low single-digit million figure,” in addition to 10 million euros (about $11 billion) over the next few years as part of the agreement.

The company’s supervisory board has approved the sale, but it still must seek approval from authorities in both Europe and China, the press release said.

Vossloh said it’s selling its locomotive unit to “strategically focus on rail infrastructure.”

The significance of the deal isn’t so much about how CRRC could benefit from the German company’s existing product lines or technologies, but how the acquisition has opened the door for CRRC to other relevant sectors of the European market, Dr. Christian Böttger, professor at Berlin’s University of Applied Sciences (Hochschule für Technik und Wirtschaft Berlin) and an expert in German railways, said in an email interview with The Epoch Times.

Böttger said the unit, known as Vossloh Locomotives, serves a declining niche market with its manufactured diesel locomotives. It has fewer than 500 employees, and annual revenue of about 200 million euros ($221.4 million)—indicating the unit is “hardly a direct competitor to the big European railway suppliers,” he said.

“The concern of the European industry is not relating to the currently served market, but rather that CRRC may acquire general knowledge on the technical approval processes in Europe. This knowledge could be used by CRRC for other, more relevant market segments,” Böttger said.

While Böttger said “it is far from sure” that the deal will be cleared by German and EU authorities, he believes it will eventually be approved, since the transaction won’t “[en]danger competition,” and the European Commission “wants to enhance open competition.”

Böttger raised the concern that while Chinese firms can compete in the European market, European companies aren’t given reciprocal treatment in China.

“There are concerns in Europe about the uneven trade practices from China. Many markets in China are not open to foreign competition. The feeling is that China is currently getting even more restrictive [for foreign companies],” he said.

Security Concerns

Böttger said he’s “not too concerned” about potential security risks associated with the deal.

But numerous U.S. officials have raised concerns about CRRC’s railcars in the United States, noting that Wi-Fi systems in the cars could be exploited, while surveillance cameras could be used to monitor the movements of passengers.

Retired U.S. Army Brig. Gen. John Adams said in a May congressional hearing that the nation’s 140,000 miles of rail lines run through every major U.S. city and every military base. Thus, the Chinese-made trains could pose a major national security risk.

Local legislation has been introduced to halt future procurement of rail cars from Chinese state-affiliated companies.

On the national level, Rep. Harley Rouda (R-Calif.) introduced in May the Transit Infrastructure Vehicle Security Act (H.R. 2739), which would prevent federal transit money from being granted to local transit agencies for acquiring passenger rail cars or transit buses manufactured by Chinese state-owned, controlled, or subsidized companies.

In Europe, authorities have also toughened their scrutiny of foreign investment deals amid growing concerns of takeovers by Chinese firms.

In April, the European Parliament and the European Council adopted a regulation to screen foreign investment into the European Union, allowing the European Commission to give opinions on investments that are deemed a security threat. However, it is ultimately the individual member state that has the final say on whether to restrict a specific investment.

In December last year, the German government toughened its rules for foreign investment in strategically important sectors such as defense, utilities, and telecom providers by lowering the threshold for triggering a national-security review of non-EU investment to a 10 percent stake in a German company, from 25 percent.

Germany reacted with concern to Chinese home-appliance-maker Midea’s purchase of German robotics and engineering firm Kuka in 2016, for 4.5 billion euros ($5 billion). Kuka has collaborated with U.S. defense contractor Northrop Grumman on the latter’s construction of F-35 stealth fighter jets.

In July 2018, security concerns prompted Germany’s government-owned development bank KfW to purchase a 20 percent stake in the German electricity transmission firm 50Hertz, thwarting a bid by China’s State Grid Corp., a state-owned electric utility supplier.