41. Off Track – The role of China’s CRRC in the Global Railcar Market
- Author:
- Oxford Economics
- Publication Date:
- 07-2022
- Content Type:
- Working Paper
- Institution:
- Oxford Economics
- Abstract:
- With $35 billion in total revenue in 2021, CRRC, the Chinese state-owned railroad rolling stock manufacturer, is the largest player in the $71 billion global railroad rolling stock industry. Like other Chinese state-owned enterprises (SOEs), CRRC is the beneficiary of both implicit and explicit government subsidies. According to its annual reports, CRRC received $271 million in explicit Chinese government subsidies in 2020, and nearly $1.3 billion total between 2015 and 2020. Implicit government subsidies to SOEs like CRRC are harder to quantify and come in a variety of forms. For example, an SOE may obtain production inputs, such as financing or land, at below market-rate prices. It may also sell its outputs at above market-rate prices, a possibility that is particularly relevant to rail manufacturing, where much of the output is sold to government entities. Estimates by other researchers show that explicit government subsidies represent only about a quarter of the total government subsidies that Chinese SOEs receive. Since the 1990s, China has pursued a policy towards SOEs of “grasping the large, letting go of the small,” investing in national champions to dominate their respective industries. Under the management of the State-owned Assets Supervision and Administration Commission (SASAC) since 2003, SOEs have been encouraged to “go big and go global” through domestic consolidation and expansion, as well as through foreign mergers and acquisitions. The effect of these policies, which are fundamentally mercantilist in nature, has been for these national champion SOEs like CRRC to capture their domestic markets, using the economic rents so generated to finance global expansion. Between 2006 and 2018, SOEs’ share of the assets of the largest global firms has increased from approximately 6% to 20%, with Chinese SOEs accounting for essentially all of this increase. While SASAC has targeted specific industries for its national champion, the overall trend in recent years has been towards continued government divestment from legacy SOEs. SOEs’ share of national industrial employment fell from 60% in 1998 to 38% in 2003 to 20% in 2010. Thus, as reflected in planning documents, the selection of industries for the fostering of national champions is anything but random and reflects the strategic interests of the Chinese government. In the case of rail, the government’s strategic interest is transparent and is laid out in the Belt and Road Initiative (BRI)—China seeks to dominate an integrated global rail transportation network based on Chinese technical standards. China expects to obtain significant financial and geopolitical benefits from this outcome and may be willing to absorb losses on individual foreign rail projects in order to break into foreign markets.
- Topic:
- Infrastructure, Hegemony, Railways, and Air Travel
- Political Geography:
- China and Asia