China Invests in a New Age of Rail

11 February 2008 (Last Updated February 11th, 2008 18:30)

China is undergoing radical change in the development of its railway network, locomotives and rolling stock. David Mackay looks into the new opportunities that could exist as the country wakes up to western ways.

China Invests in a New Age of Rail

China is a vast country with an enormous growing population. It is modernising in a hurry; part of this change includes a comprehensive transportation system, which also takes into account the nation's railway system.

Previous limitations within the economy have resulted in limitations in rail, which still lags behind in investment and technological advances. As a result, railway construction cannot meet the requirements of the fast-moving economy. With such an aggressive desire to grow, it is predicated there will be a high demand for services in China and, in many cases, this demand will exceed supply.

The Chinese Government is being supportive, however, and has focused resources on rail. Such an increase in supply will greatly alleviate the incessant current problems of lack of capacity. The railway industry is a 'sunrise' industry and is only now coming into the modern world.

The railway system is the main artery of economic development and is the principal part of the Chinese transport system. Its efficiency has been improving since 2003, with rail revenue increasing by 20.9% in 2004.

INVESTMENT AND GOVERNMENT INVOLVEMENT

Investment and growth will come from both the investment sector and the Chinese Government. The major task is mass railway network construction. The attraction for investors was shown when shares in the China Railway Group, Asia's largest construction contractor, surged on their debut in Shanghai recently, signalling renewed confidence in listings by Chinese firms.

Fortunately, there is available capacity and China has its own expertise in the construction and engineering sectors. All that is required is additional investment and this is now taking place. A super-large multidisciplinary group under the patronage of SASAC (State-Owned Assets Supervision and Administration Commission) of the State Council, China Railway Engineering Group (CREC) runs a spectrum of businesses covering surveying and designing, construction and installation, manufacturing
and R&D.

"Beijing has budgeted ¥1.5tr for its rail network over the next four years, the most in its history"

CREC consists of 31 member enterprises, including 14 super-large construction enterprises, three large surveying and designing enterprises, three large R&D enterprises and four large manufacturing enterprises. CREC's construction teams are found in more than 1,000 towns and cities throughout China, except for the province of Taiwan. The country has all of the technical ability needed to develop its rail infrastructure.

This is the principal tool that will be used in the upgrading of the railway network, locomotives and rolling stock. Beijing has budgeted ¥1.5tr for its rail network over the next four years, the most in its history, to upgrade the system. There is even a plan to build a bullet train from Shanghai to Beijing.

China's rapidly growing economy and brisk trade have created an additional demand for faster and more sophisticated means of transportation. This is good news for China's large engineering and construction companies. It is a direct result of the excellent economic growth achieved by the country. China's gross domestic product expanded more than 11% in the last two quarters of 2007. The International Monetary Fund is forecasting growth of 11.5% for the full year, up from 11% in 2006.

CREC has constructed more than 100 railway lines, including the Chengdu-Chongqing Line, the Beijing-Kowloon Line and the Qinghai-Tibet Line. It has also completed the design and construction of thousands of key state projects as diverse as airports, wharfs, water and electricity facilities, power plants, communication and signalling projects. CREC is one of the world's top 500 construction organisations and in 2006 was listed as a Fortune Global 500 company, as well as being the world's
fourth-largest global construction firm and the largest in Asia.

OTHER CHINESE COMPANIES

There are many other large railway manufacturing companies in China. The Ningbo Sun-Max Industry Company is a professional manufacturer and exporter of all kinds of railway parts. It is a fully modern organisation and has highly efficient production facilities, as well as ISO9002 registration.

"CREC has constructed more than 100 railway lines, including the Chengdu-Chongqing Line, the Beijing-Kowloon Line and the Qinghai-Tibet Line."

The Beijing YT Advanced Product A&D Company provides solutions to modern railway construction problems. Its main products include: railway and transit equipment, measurement devices, track maintenance machines and various other electronic, mechanical and network-related products. QSY ChangZhou Leadrun Piston Company is a designated research institution and specialises in researching materials and manufacturing technologies for railway locomotives and rolling stock in China.

There are other sizeable organisations, including the Jiangsu Haixun Industry & Commerce Company, which specialises in manufacturing railway fasteners, bolts, nuts, high-speed railway screw spikes, rail spring clips and brake shoes. Fabrications for the railcar and railroad industry are also provided by Smirk Rail Inc; this company has been developing successfully in North America over the past 20 years.

The Chinese railway manufacturing industry is in good shape and has good products. The arrival of significant investment and state focus over the next few years will lift the output of these companies.

FUTURE DEVELOPMENTS FOR CHINA RAIL

The current situation emphasises the simple fact that there is a growing demand for railway outsourcing and manufacturing in China. This is essential in providing support to the nation's competitive manufacturing plants who are consistently securing international contracts. In turn, this has opened up opportunities for the railway industry.

According to the 11th Five-Year Plan, the Chinese railway industry will enter a rapid development period. Network construction will be the first area to benefit and this will include track laying, engineering and machine construction, and bridge building. Similarly, the railway equipment manufacturing industry is set to boom in 2008.

"Investment in railway infrastructure is planned to be more than four times higher in 2008 than in recent years."

There has been widespread growth in the railway industry. The economic index for railway equipment manufacturing in 2006 showed an improved profit compared to the previous year. By the end of 2006, the industry had achieved a year-on-year increase of 19.6%. In overall terms, profitability had improved for railway manufacturers and this is forecast to continue.

The backward railway industry had become one of the main bottlenecks that restricted China's economic development. Great importance is therefore attached to the improvement of railways and rolling stock. Investment in railway infrastructure is planned to be more than four times higher in 2008 than in recent years.

In addition, railway operating mileage will accelerate its growth speed and this will grow threefold from the past few years. More than 7,000km of passenger-dedicated lines (PDL) will be constructed. Rapidly increasing investment has become the biggest driving force of the development of railway industry.

This state-driven expansion of railway manufacturing and construction will require a great increase in locomotive auto parts, passenger stock and other rolling stock manufacturing. More engineering machinery will also be produced. All of this activity will produce a huge upsurge in all sectors of the Chinese railway manufacturing industry. This is an industry sector that is definitely undergoing a huge modernisation. China has the need to expand and it now has the means.