Beijing has completed the merger of two of its state-owned railroad equipment manufacturers to create China’s version of General Electric, and establish the world’s second biggest industrial firm.
The new entity is thought to be worth a staggering $140 billion and involves the combination of China CNR Corp. and CSR Corp. into a new entity to be named CRRC Corp.
The tie-up will give the communist nation a platform to compete on equal footing with some of the biggest players in the rail equipment sector, and effectively challenge for large-scale foreign contracts.
Shares in the new company have already gained 5 percent after a frantic opening in Hong Kong on Monday and rose by the maximum 10 percent on the Shanghai stock exchange.
China also has political motives to up-scale their manufacturing, as they look to project their influence into emerging nations by becoming intimately involved with their infrastructure projects. Construction in regions such as South East Asia, Africa and South America have traditionally been dominated by established European companies like France’s Alstom SA and Germany’s Siemens AG but CRRC will now dwarf its closest competitors, and with public relations being handled by Premier Li Keqiang himself there will be plenty of interesting bidding battles to come.
“The rail equipment sector used to be a competition between a fairly wide variety of mid-sized companies from Asia, Europe and the States, from now on its going to be China versus the world,” said HSBS Asia head of strategies Alexious Lee. “China’s main advantage is its low costs. It can pass these savings onto the buyers. They will need to improve their quality however. Another major bonus for potential buyers is that the equipment will come as part of a package which includes corporate financing and maintenance”.
Most analysts agree its great timing for a major move into the rail business. Canada’s Bombardier Inc. recently announced they were in talks to offload their rail manufacturing operations, with rumours circulating of a Chinese buyer, and Italy’s FinmeccanicaSpA are considering whether to persist with a signalling business that has been running at a loss for 2-years. According to investment firm CITIC Tokyo International, Japan’s Hitachi Ltd. are interested in buying the business for around $400 million.
After Monday’s action on the stock market, trading in CNR and CSR was suspended pending completion of the tie-up, as the Shanghai Composite Index jumped a total of 19 percent.
