Multinationals Ride a Chinese Railroad Boom

China has surpassed the U.S. by a number of measures, from steel production to beer consumption, thanks to its huge population and fast-growing economy. Now its transportation infrastructure may leapfrog the U.S., too—with the help of American multinationals such as IBM (IBM) and General Electric (GE).

China's government plans to spend $87.9 billion on its railroad network this year and a total of $730 billion through 2020, according to state sources. Among other things, 25,480 miles of track will be laid. As a result, China could soon claim the world title in rail volume and sophistication.IBM is China's latest big-name partner. The software and technology giant opened what it calls a Rail Innovation Center in Beijing on June 11. The facility is part of IBM's China Business Innovation Center and China Development Lab and is aimed at applying technologies to tackle problems that slow the flow of goods and people over outmoded rails. The labs employ a few dozen people today, but IBM says staffing will grow to 1,000 eventually.

"I believe there is much the world can learn from China in terms of rails," says Keith Dierkx, director of the new center. "If we can address [demands] for China, we can address them for the world."

far outspending Uncle Sam on rail

Like the U.S. in the 1950s and '60s, China is constructing a national superhighway system. But to avert congestion and pollution, China is giving railroads a central role. "China's goal is to have the most efficient railroad it can," and to do this fast, says Robert Goodwin, vice-president of Gartner Consulting in San Francisco.

China's rail outlays dwarf spending in the U.S. A fifth of China's $586 billion stimulus package is earmarked for the railway sector, according to a GE report. By comparison, the top four freight lines in the U.S.—Union Pacific (UNP), Burlington Northern Santa Fe (BNI), Norfolk Southern (NSC), and CSX (CSX)—spent a combined $7 billion on capital projects in 2008, while the federal government has dedicated $1.3 billion for Amtrak and $8 billion for high-speed rail.

"The productivity that one can get from rail transportation is something they recognize," said Joseph Sussman, a member of the IBM Rail Innovation Center's advisory board and professor of civil and environmental engineering and engineering systems at MIT. He adds that the government can access the "brightest and the best" local talent.

Other multinationals, too, are working on China's railroads. Siemens (SI) signed a $1 billion deal in May to supply China with 100 high-speed locomotives. GE is assembling 298 of its most advanced and fuel-efficient freight locomotives in China with local partner Qishuyan Locomotive, after shipping two train engines from Erie, Pa., last year.

China's leaders, in return, hope the multinationals will bring top technology to China, then develop and produce world-class services and goods there for domestic use and export.

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