Rail exports still on track - for now

PUBLISHED : Saturday, 30 July, 2011, 12:00am
UPDATED : Saturday, 30 July, 2011, 12:00am

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Last weekend's deadly high-speed train crash has not yet derailed China's rail exports, with a British operator eyeing an order for Chinese trains valued at more than GBP200 million (HK$2.6 billion) and Thailand considering teaming up with mainland firms to build a network.

'It has not made us think any differently of the purchase of trains from China,' said Ian Yeowart, managing director of private British rail operator Alliance Rail Holdings.

Alliance has been holding talks with CSR Corporation, a Chinese state-owned rolling-stock manufacturer listed in Hong Kong and Shanghai, said Yeowart, who added that his company was also talking to potential train suppliers from other countries. CSR manufactured one of the trains involved in the July 23 collision that killed 40 people, while a joint venture between CSR and Bombardier of Canada made the other train.

However, analysts say the nation's worst-ever high-speed train disaster would still hurt exports of China's much-touted high-speed rail products and delay rail contracts on the mainland.

'Some European clients are concerned that the reputational fallout [from the accident] will affect their ability to sell Chinese technology in their own markets,' an international construction executive said.

A Thai railway official said the Thai government was likely to approve a high-speed rail line between Bangkok and the Laotian border in northeast Thailand, the political base of the newly elected ruling party, Puea Thai.

Puea Thai had included a proposed high-speed rail system in its election campaign, the official said. 'Relations between Thailand and China are very crucial at least for the Thai side,' the official said. 'We will treat this matter very carefully.'

Earlier this week, a Japanese government delegation proposed using Japanese firms to build at least two high-speed rail lines, although they involved different routes, the Thai official said.

'The accident isn't a great advertisement for China's high-speed trains,' said Ben Simpfendorfer, managing director of Silk Road Associates, a Hong Kong economic and political consultancy. 'There's a risk that wealthier developing countries, such as those in the Gulf, will now look to European and Japanese competitors. But China is still the lowest-cost provider and able to build over difficult terrain, so its railway companies will continue to find a market in much of the developing world.'

China has expressed interest in selling high-speed rail systems to countries including Britain, the US, Brazil, South Africa and Turkey.

The advanced economies would be more reluctant to buy Chinese rail products in the wake of this accident, a Hong Kong transport professor said. 'I was assuming safety was guaranteed, but it has shattered my assumption,' the professor said.

Within China, rail orders might be delayed for a few months after the accident, as the Ministry of Railways focused on quelling safety concerns, JP Morgan said in a report. Rail spending for the next five years should be basically unchanged, given that most planned capital expenditure was for the completion of rail networks already under construction, the report said.

The official People's Daily said 849.1 billion yuan (HK$1.03 trillion) of investment was needed to complete high-speed rail projects under construction, and 589.8 billion yuan had been invested in operational high-speed rail lines.

The accident may prompt the ministry to slow down rail construction, James Chung wrote in a Masterlink Securities report. China's investment in rail construction plunged 16.85 per cent year on year in May and 29.96 per cent in June, in contrast to the 20 per cent year-on-year growth notched up early this year, Chung wrote.

It would be difficult for the Ministry of Railways to avoid a loss for the whole of this year after a 376 million yuan loss in the first quarter, due to increasing interest payments on growing debt, he said.

In 2010, the ministry's interest bill soared 105 per cent to 150.1 billion yuan. That compared with 24.17 per cent revenue growth to 685.7 billion yuan, and a 99.45 per cent plunge in post-tax profit to 15 million yuan, according to Chung's report.

Liabilities rose 45.14 per cent to 189 billion yuan in 2010, faster than the 34 per cent growth of gross assets to 329 billion yuan, he said.