The Chinese firms hot on the heels of Europe’s rail infrastructure giants

According to a study of railway infrastructure suppliers, Chinese manufacturers are catching up with their European counterparts. Siemens and Voestalpine remain the market leaders, but can they maintain such a position in the face of fierce competition?


China, rail, infrastructure

The gap is closing. European infrastructure suppliers are looking over their shoulders at the ever-closing juggernaut that is draped in the colours of the Chinese flag. That is the verdict of consultancy firm SCI Verkehr.

“The market for products used in rail infrastructure is ever-changing,” says Maria Leenen, CEO SCI Verkehr. “Even for insiders, it is sometimes hard to put market-related developments into a global perspective. We want to give an overview of both – the developments of the market and the manufacturers that are active.”

And so we come to SCI’s latest research on railway infrastructure suppliers. The headline finding is unambiguous: Siemens and Voestalpine are the market leaders, but Chinese manufacturers are not far behind. The rise is led by three companies in particular, China Railway Construction Corporation (CRCC), China Railway Group (CRECG), and China Railway Signalling & Communication (CRSC).

Does this signal a changing of the guard, or can European firms respond and maintain their dominance?

The global rail market in transition?

SCI’s study – Worldwide Manufacturers of Rail Infrastructure – was released earlier this year and looked at the revenue, development and profit of 55 of the largest manufacturers of infrastructure products, covering things such as track systems, electrification, and control, command and signalling equipment.

The top ten was headed by Siemens, followed by Voestalpine, but the following three spots were filled by CRCC, CRECG and CRSC respectively. “There were no major surprises once we looked at the numbers,” explains Leenen. “However, to see the changes in the market shares, the development of Chinese suppliers…is impressive, even to us.”

But why is this happening? China has, of course, a much-celebrated high-speed network that is the biggest in the world. In the early days, the country relied on technology transfer deals with foreign companies, taking key pieces of expertise and adapting them for what was then a malleable Chinese market. Since then, it has built an indigenous base of knowledge, and is now keen to switch from importer to exporter. Nevertheless, the size of the Chinese rail network also ensures that the likes of CRCC have plenty to play with at home. In fact, SCI states that CRSC is the sole supplier of signalling for large swathes of the domestic network.

"The market for products used in rail infrastructure is ever-changing."

For Europeans, it’s a double whammy.

Angela Pauly from UNIFE, the association that represents the European rail manufacturing industry, says that exposure to worldwide markets has undoubtedly been a boon for Chinese firms – they have “scaled up” – as has the opportunities from China’s ‘One Belt One Road’ Initiative – a huge undertaking to boost trade across the region and beyond.

“Chinese infrastructure companies can [also] benefit from financing tools [such as loan facilities and project financing] in the framework of China’s economic diplomacy,” explains Pauly. “This key aspect in the competitiveness of Chinese infrastructure companies results in an increasing pressure on price.”

Taken as written, it appears to be a worrying time for European companies. Siemens, as mentioned, still the global leader, was unable to provide comment before deadline, but Pauly does see positives. “Competition is a positive driver for the industry as a whole,” she says.

That does, to some extent, dampen fears, as does Leenen’s answer when asked if it’s inevitable that Chinese firms will soon top the league table: “Not in Western European countries in medium-term,” she says. However, note the caveat: “But in other world market regions, such as Africa, Chinese infrastructure companies are already leading in some countries.”

Responding to the Chinese march

This blossoming of China’s railway sector poses one pertinent question: how should Europe respond?

“What European companies should focus on is continuing to develop the best and most innovative technology, as they have been doing for decades,” says Pauly. “European institutions also have an opportunity to support our industry by helping them become competitive through funding for research and innovation, as well as through efforts to create a more level playing field in the world market.”

Research and development is a recurring theme; Leenen believes the competition from China will fuel greater innovation, but that’s not a criticism of what European firms have been doing until now. “Chinese suppliers are able to develop their businesses in their home markets with much less competition,” she adds. “Now these companies are pushing to the world markets, bringing in a long track record of experience and high-tech solutions.”

There are opportunities, however, for Europeans to claim a stake in the domestic Chinese market. Dominic Richardson, director at Gowling WLG, an international law firm, is optimistic and references the technology transfer policy of the past. “The Chinese have been happy to buy signalling systems from European contractors,” he says. “Many of the high-speed trains in operation in China were developed in conjunction with companies such as Siemens.”

"Competition is a positive driver for the industry as a whole."

Richardson adds that “to the extent a European manufacturer has a market-leading product” there will be opportunities within the framework of China’s “huge ambitions” for its railway network.

As expected, Pauly and UNIFE are fighting hard to sell the European way. She says that on energy consumption, corporate and social responsibility, and product quality, “European assets stand out”. For Pauly, infrastructure managers should consider more than just the “price you pay when buying the product”.

In addition, Pauly references the ongoing negotiations for an investment agreement between the EU and China, which could, she says, “address some of the barriers hampering access to the Chinese rail market”. The European Commission website itself states that strong Chinese Government intervention in the economy has resulted in a “dominant position of state-owned firms, unequal access to subsidies and cheap financing”, and highlights the “industrial policies and non-tariff measures that discriminate against foreign companies”.

As for the future, a sustained period of change is likely. “The ever-growing demand for infrastructure maintenance and the ongoing digitalisation [of rail networks] will drive the market in the upcoming years,” explains Leenen. “Suppliers from China will enlarge their reach in the world market. This doesn’t mean that such companies are going to take the lead in the European markets, but they are gaining importance.”

Only time will tell. SCI’s next study of railway infrastructure suppliers is sure to make for interesting reading.