US Congress Set to Ban $10 Billion China Railcar Sales

By Chriss Street
Chriss Street
Chriss Street
July 26, 2019 Updated: July 26, 2019

China’s CRRC railcar manufacturer finished its best year in 2018, but Congress may ban $10 billion of U.S. sales over state-sponsored subsidy and national security issues.

On July 12, the U.S. House of Representatives voted to pass H.R. 2500, the 2020 National Defense Authorization Act, with a provision blocking federal transit dollars for procurement of electric railcars from Chinese State Owned Enterprises (SOEs), and other state-supported companies. The provision has bipartisan support led by Rep. Harley Rouda (D-CA) and Senator John Cornyn (R-TX) as part of the Transit Infrastructure Vehicle Security Act.

Both sponsors stated: “China’s ‘Made in China 2025’ initiative is an unmistakable effort to harm American manufacturers by subsidizing Chinese rail and bus industries. Chinese companies misrepresent themselves as benevolent actors, but let’s be clear: this is an attack on our economy and national security.”

The 20 percent of the 18.4 cent per gallon federal gas tax passed in 1993 has been key to building 20 commuter and 29 new light rail systems. The 32 states and the District of Columbia planning 5-G enabled “smart cities,” expect to spend $10 billion to purchase modern subway, commuter, and high-speed passenger railcars and locomotives.

U.S. Federal Transit Authority ‘Buy America’ provisions require a 60 percent “statutory minimum for domestic content, new approaches reward and facilitate efforts that grow domestic manufacturing, boost jobs and enhance other economic benefits from transit investments.” Rolling stock final assembly “must occur in the United States,” but domestic material content can be waived if it increases overall cost by 25 percent.

Chicago Transit Authority kicked off the upgrade cycle in 2014 by cutting a deal with China Railway Rolling Stock Corp (CRRC) to build 846 “smart city” enabled railcars at a 15 percent discount, or $226 million, below the $1.535 billion bid by Bombardier.

It appears that elements of the CRCC bid may have qualified under the 25 percent discount rule to avoid Federal Transit Authority Buy America content percentages.

CRRC had just been formed by the merger of two large Chinese state-owned rolling stock manufacturers and funding from state-owned lenders to open three U.S. assembly plants in Chicago, Illinois; Springfield, Massachusetts; and City of Industry, California.

With bids up to 21 percent cheaper than the nearest competitor, CRRC soon won new contracts for 45 bilevel cars for the Southeastern Pennsylvania Transportation Authority, up to 282 subway cars for LA Metro, 404 cars for the Massachusetts Bay Transportation Authority and 44 double-decker coaches for Montreal’s Exporail commuter.

CRRC with foreign sales booming became a Fortune Global 500 company last year with $30 billion in revenues and 180,000 employees. The company seemed to win a $500 million Washington Metropolitan Transportation Authority contract to open another local factory to build 256 railcars at another factory near the District of Columbia. CRRC was also gearing up for a $3 billion New York City deal to build 1,500 new subway cars.

But the U.S. Congress voiced concerns in 2018 that CRRC had an unfair advantage because China state-owned lenders were supporting its bids with below market financing. Despite Moody’s downgrading the credit solvency of Chicago’s CTA twice, CRRC was able to form a partnership with Tianjin Trust to “finance overseas business.”

The Trump administration has expressed concerns that “smart city” Chinese railcars feature 5G wireless capability that is advertised to “supply large-capacity data transmission and storage system leveraging 5G technology has started recording and analyzing data aboard some locomotives operated by China Railway Corp.” But CRRC entertainment features allow duel audio, visual and facial recognition surveillance.

But a June 13 Oxford Economics study, which highlighted the economic impact on American jobs from Chinese state-owned enterprises (SOEs) being awarded U.S. taxpayer-funded contracts to build U.S. transit systems, set off a tidal wave of Congressional support to take action against China’s unfair trade practices.

Oxford Economics analysis revealed that Chinese manufacturers have the capacity to outbid U.S. domestic competitors through “direct ties to China’s government” under “Made in China 2025.” China is strategically willing to lose money off individual projects to achieve its goal of monopolizing the entire global transit system.

Oxford calculated: “For every $1 billion awarded to a Chinese SOE to build passenger railcars leads to the loss of 3,250 to 5,100 jobs.” To put it into different terms, each U.S. job created by a Chinese SOE costs between 3.5 and 5.4 jobs, when “factoring the direct, indirect, and induced economic impact.”

The Alliance for American Manufacturing started a letter campaign to “stop tax dollars being used to support Chinese SOEs that undermine market competition, cost jobs, and jeopardize supply chains.”

The Transit Infrastructure Vehicle Security Act bill has picked up dozens of bipartisan sponsors as it moved through the joint reconciliation including Reps. Rick Crawford (R-AR), Scott Perry (R-PA), Kay Granger (R-TX), Tim Ryan (D-OH), Eleanor Holmes Norton (D-DC), Randy Weber (R-TX), and John Garamendi (D-CA). In the Senate, the original bill was led by Senators John Cornyn (R-TX), Tammy Baldwin (D-WI), Mike Crapo (R-ID), and Sherrod Brown (D-OH).

The final bill is expected to be approved by both Houses of Congress and delivered to President Trump in the next two weeks for his signature and to be chaptered into law.