China has “crossed the Rubicon” in terms of the global power of its rail and transport businesses.
The clearest sign of its ability to disrupt incumbents – many of whom have been playing a leading role in the sector for generations – was the September signing of a memorandum of understanding for a merger of France’s Alstom with the transportation unit of Germany’s Siemens. The deal is significant for a couple of reasons.
First, both the French high-speed train manufacturer and the German engineering giant have been looking to build partnerships to face down growing competition from Chinese competitors, who have been snapping up contracts and forging joint-ventures from Boston to Melbourne, India and Russia. Siemens had reportedly been exploring possibilities with other companies, including the Canadian powerhouse Bombardier, before striking the agreement with Alstom.The merger, which is being billed as creating a new European champion, will be on almost equal terms. Siemens will own 50.5 per cent of the shares and the controlling interest, while the business will be headquartered in France and led by Alstom’s French CEO. Nevertheless, the deal will still have political ramifications in France, where news of selling off a key business to Germany is poorly received in certain quarters.
That said, Siemens and Alstom see the merger as the only way they can credibly compete against the rising strength of Chinese rail companies such as CRCC, one of China’s biggest players. This state-supported business was formed from the merger of two other Chinese companies in 2015 and, since then, it has won contracts for supplying rolling stock in major Western cities and set up partnerships across Asia. Last year CRCC enjoyed sales of US$33 billion (Bt1.1 trillion) – double that of the planned French-German venture.
The merger is expected to take place around the end of next year. When that happens, the new company, Siemen Alstom, will need to race to catch up with its Chinese competitors, which are energetically pitching for contracts in other countries through the nation’s Belt and Road regional infrastructure initiative. This includes Thailand, where China looks likely to be the key partner in developing the Nong Khai-Rayong rail link.
Japan, which is keen to play a role in the development of Thailand’s rail network, as well as new railway networks in other parts of Southeast Asia, is a strong competitor for China.
The entry of the planned new “European champion” will spur competition even further and this should be good for the region.