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China Crash May Give ‘Zero’ Chance for Bullet-Train Exports

Chinese rail suppliers, who helped build the world’s largest bullet-train network in less than a decade, may struggle to sell equipment overseas after two locomotives collided, killing at least 39 people.

Trainmakers CSR Corp. and China CNR Corp., builders including China Railway Construction Corp. and parts makers such as Zhuzhou CSR Times Electric Co., have challenged European and Japanese suppliers overseas, touting experience gained from construction of the nation’s domestic network. The fatal crash, near Wenzhou on July 23, may undermine their sales pitches.

“Their chances of selling high-speed trains are zero,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages about $3 billion in assets. “I don’t think they can ever get confidence back.”

CSR, the builder of the trains in the crash, and China CNR both fell in Shanghai for a second day after the accident on concerns the incident may damp China’s export push and slow domestic construction. Beijing-based CSR and partner General Electric Co. (GE) may bid to supply trains for a planned California high-speed line, possibly competing against Siemens AG (SIE), Alstom SA (ALO) and Bombardier Inc. (BBD/B)

“There’s probably little chance of China winning a high- speed train order in the U.S.,” said Ryota Himeno, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. “There’ll be much more importance placed on safety now.”

Safety Review

China has ordered a two-month review following the crash and fired three officials. The accident happened after a train stopped because of a lightning strike and a second one crashed into the back of it. Six train cars derailed following the collision, including four that fell off a viaduct.

CSR dropped 3.6 percent at the 3 p.m. close in Shanghai, after declining 8.9 percent yesterday, while China CNR fell 4.1 percent. In Hong Kong, CSR fell 1.3 percent at the 4 p.m. close after dropping 14 percent, the most in about three years, yesterday. China Rail Construction, builder of more than half of the nation’s rail links since 1949, tumbled 5 percent in Hong Kong.

The ministry is investigating the cause of the crash, which was likely the result of equipment failure following the lightning strike, state-run Xinhua News Agency said on July 24, citing Wang Yongping, a ministry spokesman. Questions faxed to the ministry by Bloomberg News yesterday were unanswered.

Two Americans

It’s “too early” to assess what impact the crash will have on CSR’s orders, an investor relations official, who only gave his surname, Zhang, said yesterday by phone. The company, China’s biggest trainmaker, had 13 billion yuan ($2 billion) of overseas orders at the end of last year, including a high-speed train contract from Malaysia, according to its annual report.

The 39 dead include two Americans, Xinhua said late yesterday, citing unidentified Wenzhou city government officials.

The crash could also be a “turning point” for China’s wider economy, as the government may slow growth “gradually but firmly” to about 7 percent or 8 percent as it works on fixing problems created by more rapid expansion, Minggao Shen, a Citigroup Inc. analyst, said in a report yesterday. The accident will also likely slow investment in high-speed rail, as well as subways, bridges and roads in the near term at least, he said.

China will likely delay issuing tenders for domestic rail projects following the crash, Shenyin & Wanguo Securities Co. analysts Huang Kui and Li Xiaoguang said in a report. The brokerage downgraded CSR and China CNR to “neutral.”

The crash may also reduce domestic travelers’ trust in high-speed railroads and prompt passengers to revert to flights instead, Chu Hai, an analyst with Pingan Securities Co., said in a note yesterday.

Schwarzenegger’s Rides

California has said it may open bids for building a 432- mile (695 kilometers) line linking San Francisco and Los Angeles as early as this year. Arnold Schwarzenegger, the state’s then- governor, tried a Chinese high-speed train in September as part of an Asian tour that also included rides in Japan and South Korea.

China plans to have 16,000 kilometers of high-speed rail by 2015, Wang Zhiguo, vice minister of railways, said in January. The nation opened its first high-speed line in 2007. It had 4,576 kilometers of track in operation as of March, according to the International Union of Railways.

A 1,318-kilometer kilometer line linking Beijing and Shanghai opened on June 30. The $34 billion railroad suffered delays yesterday because of storm-related electrical breakdowns, according to China Daily. That was at least the fourth time this has happened since operations began.

“China has been investing to build up its rail network, but the problem is they’ve been doing it too fast,” said Byun Sung Jin, an analyst at Mirae Asset Securities Co. in Seoul. “Like a balloon, if you expand too much, it’s bound to explode.”

To contact the reporter on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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