Growth Story of Chinese High Speed Rail

Let me tell you an observation deep-rooted in Chinese history which spans quite a few century. Buddhism was founded in India around sixth century BC and it made its way to many countries in Asia and Eastern Europe. It is believed that, Buddhism was introduced in China through the silk route in around 1st century CE. The form of Chinese Buddhism what we know of today is called ‘Mahayana sect’ is most well-known, highly practiced and most literature/scripture enriched Buddhism we have. While this may not be a direct analogy, but it gives us the sense of the capability of ‘reverse engineering’ in the DNA of Chinese population.

Come 2015, today China is the High-speed railway (HSR) leader around the globe, both in technology and operation. China has the world’s longest HSR network with over 19,369.8 km (12,035.8 mi) of track in service as of December 2014, which is more than the rest of the world’s HSR tracks combined. This is not due to an overnight planning but a result of meticulous and shrewd planning over the years. Meteoritic rise of Chinese HSR industry was due to the culmination of many social, demographic, economic, industrial and technical reasons. I will try to list out some of them which majorly influenced HSR industry in China. Also, the reasons are ordered in such a way that it will help in understanding China’s journey from HSR development to a dominant player.

1. Geographical Need: China with vast land area, mid-level GDP ($4500 per capita in 2010), substantial population density in central and eastern provinces, and large number of well-spaced cities with more than 0.5 million population is an optimum candidate for high speed rail.

2. Rebalancing growth: Much of celebrated Chinese development was limited to its eastern and southern coast provinces which produced a skewed growth geographically. So, Chinese policy makers are focusing on balancing the growth and HSR is one way to bring the mobility to undeveloped part of the nation. High-speed rail link to connect China’s provincial capitals|Markets|Business|

3. Market dynamics: China’s integration in global market by its accession to WTO in 2001 after its own two century long self-imposed closed door development required rapid development of its rail transportation system. To maintain the competitiveness in trade, it required faster transportation of raw material as well as human resource throughout the country.

4. Social and cultural events: Two major international events, Olympics in 2008 and World Expo in 2010 sped up the HSR construction needs in China. Historically, HSRs of Japan, France, Germany and Spain were all developed under similar opportunities.

5. Decisive leadership: China was once the hub of innovation marked with inventions such compass, printing, gunpowder etc. However, bureaucratic feudalism robbed the innovative capability of China until Deng Xiaoping took charge. With a re-focus on science and technology coupled with batteries of universities and labs, China was ready to understand, digest and produce new technologies in-house. Under MOR’s policy of promoting privatization and competition, rolling stock factories and research centres were given independent status and split into two large corporations, CNR and CSR. These two later became the forefront of Chinese HSR technology.

6. Availability of public fund: In the period when HSR network was starting to take shape in China, there was no shortage of money for such large scale infrastructure project. While, other countries shied away from investment in HSR, China pumped billions of dollar every year in HSR construction. In 2008, china had around $2000 billion of foreign reserve.

7. Technology transfer: Chinese government had clarified three principles of transferring technology from foreign ventures investing in Chinese HSR construction. A. Import state-of-the-art technology; 2. Joint design and production; 3. Establish local brands. As, Henry Lu pointed out, foreign companies agreed to such demands in the promise of huge untapped market. However, little to their knowledge, they were digging their own grave. China Merging Trainmakers Adds to Pressure on Siemens
‘Made in China’ high-speed trains going global | Asia | DW.DE | 03.07.2014

8. Technologyacquisition’- In 2005, the German conglomerate Siemens formed JV with China National Railway Corporation (CNR) on a contract to supply 60 passenger trains for the Beijing-Tianjin high-speed railway. The first three trains were built in Siemens’ German plant. The remaining 57 trains were made in China at CNR’s plant in Tangshan. Siemens also brought 1,000 CNR technicians to Germany for training. However, in March 2009, Siemens announced a follow-on project to provide 100 trains for the Beijing-Shanghai high-speed railway. The Ministry of Railways denied the deal’s existence, saying that the project would use Chinese technology. In the end, CNR was awarded a US $5.7 billion contract and Siemens was contracted to supply US $1 billion in components. Here, we see the shrewd acquisition of technology. Also, it was reported that with reverse engineering, Chinese companies were able to increase the running speed of trains, thus adding another attribute to Chinese HSR industry.

9. Technology Diversification: Unlike South Korea and Spain that have imported technology from a single foreign country, China has imported equipment from many countries and companies, and thus have multiple technology providers. It gave Chinese HSR industry a breath of knowledge of technicalities and selected the best from multiple sources. Additionally, having a state-owned company with all possible know-how helps in new international bids for HSR construction.

10. Low cost, high tech: China’s centralized technology ownership, cheap labour and abundant raw material has allowed it to become the cheapest HSR provider. The construction cost of Chinese HSR is roughly $17m to $21m per kilometer, compared to $25m to $39m of Europe companies. The Chinese state negotiates attractive export terms for its fully-owned HSR tech unlike their rival where different technologies are owned by different companies.

11. Customer Acquisition: China’s deep financial pocket ensures that it is able to provide financial help for construction to prospective customer of HSR. This is a brilliant strategy to knock out competitors. China part financed Ankara-Istanbul HSR by $750m in loans from China, including $500m in loans with favorable terms. Also, China is offering free HSR study to India, its arch-nemesis. China to offer aid for India high-speed rail study

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