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Ministry of Commerce’s News Briefing on China’s Export of Railway Equipment

Hu Suojin: Good morning, dear friends from the media. Welcome to today’s special news briefing. As you've learned, a plane Taiwan TransAsia Airways crashed yesterday and led to deaths of people from both the Mainland and Taiwan. Therefore, before the briefing, I’d first like to extend our deep condolences and sympathy for family members of those who have died in the air crash.

Today's briefing is themed on Chinese railway equipment export. On January 28, Premier Li Keqiang chaired an executive meeting of the State Council which aimed to accelerate the strategy of exporting Chinese equipment including production lines of railway, nuclear power and building materials, promote international capacity cooperation and enhance level of cooperation. On February 4, the General Administration of Customs published statistics data on rapid export growth of Chinese railway equipment in 2014. In order to inform you of China’s railway equipment export and the implantation of “going global” strategy, we invite Mr. Zhi Luxun, Deputy Director of the Foreign Trade Development Department of MOFCOM and Mr. Zhou Zhencheng, Commercial Counselor of the Cooperation Department of MOFCOM to introduce Chinese export of railway equipment and “going global” of relevant enterprises at this morning’s special news briefing.

First, let’s welcome Mr. Zhi to give us an introduction to relevant matters.

Zhi Luxun: Good morning, dear friends from the media. Today, I'm very glad to give you a brief introduction to China’s railway equipment export. Railway equipment is very important in China’s equipment industry because it is related to many other industries like raw materials, metallurgy, machinery and electronics. Thus, it plays a crucial role in China’s national economy. In recent years especially, Chinese railway industry has, on the basis of introduction, digestion and absorption of advanced technologies from abroad, formed its proprietary R&D system for design and manufacturing and mastered the complete technologies encompassing high-speed railway, highland railway, heavy-haul transportation and others via independent innovation, paving out a modernization way for railway technology & equipment of Chinese characteristics.

By virtue of comprehensive comparative advantages featuring technologies, qualities, prices and construction periods, the internationalization process of China’s railway equipment has witnessed rapid growth and meanwhile made great contributions to China’s economic development and improvement of people's livelihood. It can be said that the industry has realized mutual benefits and a win-win result, receiving extensive commends from the international community.

Today, I’d like to introduce three aspects of the railway equipment industry: 1. the overall export of China’s railway equipment; 2. internationalization progress achieved by China’s railway equipment in recent years; 3. future market opportunities for China's railway equipment in international competitions.

First, I’d like to brief on the export of railway equipment. In order to let you have a historical, correct and systematic understanding of our railway equipment export, we have analyzed relevant data from 2001 since China’s entry into WTO to 2014. This is reflected in two aspects: quantity and quality.

The quantity of Chinese railway equipment export has achieved fast development since China’s entry into WTO IN 2001. The export value of electric locomotives has soared from less than USD 80 million in 2011 to USD 3.74 billion in 2014 with an average annual growth rate of 34.7%, 16.5 percentage points higher than the overall foreign trade export in the same period. In 2014, the export value of electric locomotives witnessed a year-on-year growth of 19.3%, with a growth rate three times of that of the overall foreign trade export in the same period.

The quality improvement involves various aspects. The first is the transformation from low-end to high-end. China’s railway equipment export can be traced back to the export to the construction of Tanzania-Zambia Railway, which only consists of export of simple electric locomotives. Recent export of locomotive equipment is mainly composed of products of high added value such as electric and internal combustion engine-powered locomotives, which take up around 60% of the whole-locomotive export. In addition, export of high-tech contented and high value-added bullet trains with a speed of 160 km/h and double-deckers has also increased and export of high-end whole-locomotive has made breakthroughs, including narrow-gauge internal combustion engine-powered locomotives exported to New Zealand, high-power internal combustion engine-powered locomotives to Russia, new type electric locomotives to South Africa, meter-gauge bullet trains to Malaysia and unmanned metro vehicles to Singapore.

The second quality improvement of China’s railway equipment export relates to the market expansion from Asia to Europe and Americas, realizing a full geographic coverage of six continents, including over 80 countries and regions in 2014. Main export markets are ASEAN, Argentina, Australia and America, which account for more than 50 % of China’s total export of railway equipment. Export to other markets has also multiplied, Brazil, South Africa and Ethiopia for example.

The third is the shift of export mode from single goods trade & export to comprehensive export of product, engineering and technical standards. China’s overseas contracted projects relating to railway construction has made big progress in recent years. In 2014, Chinese enterprises participated in 348 overseas railway construction projects (113 more than that of 2013) with an accumulative contract amount signed adding up to USD 24.7 billion, an increase over three times year on year. The turnover stood at USD 7.6 billion, up 31% year on year. To name a few examples, Abuja-Kaduna Railway in Nigeria undertaken by Chinese enterprises is the first modern railway in Africa that is constructed in accordance with Chinese railway technical standards; Ethiopia-Djibouti Railway, Nairobi-Mombasa Railway of Kenya constructed by Chinese enterprises and locomotives, equipment as well as rails exported are also benchmarked against Chinese standards. The “going global” strategy of Chinese railway export is changing from the initial equipment supply mode to the whole industry-chain output mode encompassing design & technical guidance, project construction and operation & maintenance.

Secondly, let me give you a brief introduction to internationalization of China's railway equipment, especially its increasing international competitiveness, mainly from four aspects:

I. Through introduction, digestion, absorption and re-innovation, China has mastered technologies of different types of railway locomotives well and has been equipped with production capacity for various standard systems. For example, in the field of high-speed electromagnetic unit, now China is able to make volume production of CRH series electromagnetic units with speeds of 250km/h and 350km/h. In the field of railway locomotive, Chinese enterprises have independently researched and developed the world’s best electric locomotive and internal combustion engine-powered locomotive in terms of power and towing capacity. In the field of urban rail transit, Chinese enterprises have been capable of producing subway trains or light-rail trains made of different materials with various modes of traction and in different bodies which show good performance and earn widespread acclaim from customers in the course of their operation in Hong Kong, Saudi Arabia and Brazil.

II. Chinese enterprises have accumulated rich experience in railway operation, can deal with different geological conditions and climate conditions and have a high level of safety reliability. In 2014, China’s railway running milestone has exceeded 112,000 kilometers, of which high-speed rail running milestone exceeds 16,000 kilometers and ranks the first in the world. As for adaption to diversified complex situations, I would like to introduce it to you in several dimensions: China’s railway now is able to adapt to four different scenarios: extremely cold area, plateau, extremely hot area, and high-humidity area. The first high-speed rail (Harbin- Dalian) in extremely cold area has successively run for more than 2 years; the first railway in plateau (Lanzhou- Urumqi) went into operation successfully in 2014; light-rail vehicle researched and developed by us for Saudi Arabia is competent in high temperature proofing and sandstorm resistance and has repeatedly refreshed the record since its operation; subway vehicle researched and developed for Thailand adapted to high-humility weather in Bangkok and was tested by all previous storms and floods in Bangkok.

III. China’s railway industry has had stronger system integration capacity, is able to provide services such as exploration & design, engineering construction, equipment manufacturing, operation management, safety protection, etc. throughout the industry chain and has various comprehensive advantages such as quality, cost and construction duration, which reflects improvement of China’s internationalization competence. There is a data. In July 2014, the World Bank issued a report, in which cost of China’s high-speed railway (including equipment and civil work) is about USD87-129 million per kilometer and approximately 2/3 of that of developed countries in Europe and America. China’s overall project progressing rate is about 3/4 of that of other countries.

IV. Chinese enterprises have begun to implement international business strategy at a higher level. In recent years, CSR Corporation Limited realized local production in major markets like Malaysia and Turkey to drive further market expansion and overseas industry layout, established joint research and development centers in Thailand, Germany, etc., and took the lead to set up International Railway Vehicle Design Union. China CNR Corporation Limited successively established Australia Company, U.S.A. Company and India Pioneer Company and founded joint research and development center for electric traction and control and other centers. In 2010, its revenue from international business accounted for 7.2% of its gross revenue in the current year. It is estimated that this proportion will increase to 20% in 2015.

Thirdly, it is opportunity for China’s exports of railway equipment. The first of the three aspects is external demand, followed by our own comparative advantage and other external policy environment. International market maintains steady growth. According to survey report of German authorities, capacity of the global railway market now reaches EUR 162 billion and is possible to increase to EUR 190 billion in 2018 with an expected annual growth rate of 3.4%. Currently, rail transit equipment in South America, Central and Eastern Europe and Russian-speaking areas have entered a peak period of vehicle upgrading, showing huge potential; demands in Africa for locomotive, truck and way-train increasingly rise, and Africa has great market potential as it starts from a low base. At the same time, many countries have given priority to development of high-speed rail as their focus in the field of transportation and high-speed rail is expected to become a major growth pole of railway market in the future.

China’s “One Belt and One Road” strategy facilitates China’s exports of railway equipment. Chinese enterprises obtain more orders by virtue of their comprehensive comparative advantages. Total amount of overseas contracts signed by CSR Corporation Limited and China CNR Corporation Limited in 2014 exceeded USD 6 billion, with a year-on-year growth of over 60%, of which the USD 2.8 billion procurement project of 591 internal combustion engine-powered and electric locomotives won by CSR Corporation Limited and China CNR Corporation Limited in South Africa is the biggest overseas railway equipment order. I have introduced the overall situation of China’s exports of railway equipment above. Thanks.

Hu Suojin: Thank you, Mr. Zhi. Let’s move to the Q&A session. As today we hold special news briefing, we hope that you can ask questions about exports of railway equipment and “going global”.

Reporter from Phoenix Satellite Television: Data of exports of railway equipment in 2014 given by the Customs are quite impressive. Exports total RMB26.77 billion with a growth rate of 22.6%. Nevertheless, when we achieve grand success, we have heard lots of news such as “big order coming to our hands is lost”. What kind of difficulty faced by us in terms of China’s exports of railway equipment does it reveal? How about China’s share of global exports of railway equipment?

Zhi Luxun: As I have just mentioned, capacity of global railway market is about EUR 160 billion. We will make a calculation to give you a figure. Though China’s railway industry achieved great development in these years, it is also challenged. For example, compared to Europe, America and Japan, we start later overall and there are processes yet to be improved and further enhanced. The problem now we face in terms of railway is about standard. As I mentioned earlier, some railway projects followed our own standards and we will focus on internationalization of railway standards in the future. As we expand international market in a shorter time, it will take time to obtain recognition of international market, which requires us to put efforts.

There is also another difficulty. Now for some Chinese enterprises, there is room for them to regulate themselves in terms of export order. It is necessary to establish a fair and just competition environment. I have just mentioned that we start later. There is also a gap between us and developed countries as far overseas marketing network. If we intend to boost China’s railway equipment to “go global” and “enter the market” better, after-sale maintenance network is essential and we will also work on this in the future.

In addition, there is a confusion faced by us. Due to turmoil in some countries and slight increase in non-commercial risks, we will alert enterprises to avoid risks in terms of investment access, environmental assessment, labor policies, technical standards, etc. of foreign countries. We also help them handle these situations, especially through intermediary organizations, and help them do a good job of preliminary market access research and preparation.

Reporter from CCTV News Center: It is understood that China’s railway-related technologies now have been exported to more than 30 countries and regions and Chinese railway enterprises also intensify constant efforts to expand their overseas projects. I would like to invite Director Zhou to introduce typical projects of “going global" of China’s railway equipment. Thank you.

Zhou Zhencheng: Just now Mr. Zhi introduced successful cases of “going global” and some locomotive orders from the perspective of export. Then I will take examples from railway “going global” projects actually implemented to give you more perceptual knowledge. Let me start by mentioning the first high-speed rail project implemented by Chinese enterprises overseas in a real sense, namely, Phase II of Ankara-Istanbul Project in Turkey. The project is of great construction difficulty and has poor construction condition relative to domestic projects. Under this circumstance, Chinese enterprises overcame huge construction difficulty and tackled a great many technological problems, being highly praised by the owner and supervisors. When it was open to traffic in last July, Erdogan, as the then Prime Minister of Turkey, attended the Opening Ceremony and highly recognized Chinese enterprises' construction capacity in his address. Meanwhile, Turkish government said that Chinese enterprises helped them make its century-old dream of high-speed rail come true and Ankara-Istanbul Railway was an important milestone for Turkey’s economic and social development. I worked in Turkey before. At that time, there was an expressway from Ankara to Istanbul which lasted about 450 kilometers. As it took approximately 4 hours by car, it was relatively difficult to make a round trip in a day. After high-speed train line opened, it was possible to take a round trip from the capital to the largest commercial city in a day. Thus, local people benefited a lot.

The second example is Benguela Railway which we build in Angola. It was completed in August 2014 and spans 1344 kilometers. It is not only the best modernized railway in Angola in terms of its route, speed and size but also the longest one built by us overseas without any pause following Tanzania-Zambia Railway. It will play an important role for Angola’s post-war economic and social development and reflected Chinese enterprises’ long-distance railway construction capacity.

In terms of operation maintenance, the light rail project in Addis Ababa, Ethiopia is a successful case. It is the first time for a Chinese enterprise to obtain the right to operate overseas light rail project. In addition, the project integrates survey & design, construction, equipment manufacturing and operation maintenance and reflects Chinese enterprises’ comprehensive ability of overseas railway project construction.

Let me add another example. The 485-km Nairobi-Mombasa Railway in Kenya is the first section of northern strategic corridor of East Africa Community and is used by many countries in East Africa for their access to ports. It costs USD 3804 million in total and entirely uses Chinese technologies and standards. In the future, equipment and locomotives will also use our products.

As these examples illustrate, Chinese enterprises have had considerable capability and are qualified in terms of technology, standard, design, operation, construction and building.

Reporter from China News Service (CNS): I have a question for Mr. Zhi. What policies the government will introduce to facilitate China's railway equipment exporters and railway enterprises to go global? Thank you.

Zhi Luxun: It’s more than the railway equipment sector. For a certain period of time in the future, China’s foreign trade policies will focus more on creating a fair and just environment featuring rule by law. So this is the respect we’ll proceed with. The policies we’re going to take cover several aspects: firstly, in the respect of going global of standards, we’ll step up the translation and benchmarking of standards for the railway sector in collaboration with relevant departments, and encourage enterprises to engage in the development and revision of international standards; secondly, we’ll create an environment for fair competition by making future efforts to strengthen the establishment of an enterprise good faith system, and in terms of enterprise exporting self-discipline, we’ll regularly publish enterprise good faith statuses through intermediate organizations; thirdly, we’ll guide enterprises in better preventing risks, including preliminary assessment, dealing with problems arising from the execution process and later stage responses; fourthly, we’ll put our future focus on supporting the establishment of overseas marketing networks by enterprises, including setting up maintenance service centers, spare parts warehouses and R&D centers, to boost localization; and fifthly, we’ll encourage enterprises to “go global” and pull of “entry to market”, while strictly require enterprises to abide by local laws and regulations, perform social responsibility, boost the well-being, tax revenue and employment of local communities, and bring about industrial upgrades.
Policy-wise, we’ll follow the rules set out by WTO to combine industrial advantages with financial strengths in an organic manner to forge new advantages. For example, following market rules, we’ll expand the channels to utilize foreign exchange reserves, support enterprises in overseas fund-raising by issuing shares or bonds, and provide appropriate financing facility to facilitate railway and other equipment to “go global” by leveraging policy-based financial instruments. Thank you.

Reporter from India Today Group: I’d like to learn about the status of China-India cooperation on the railway sector. Does China have any plan to export high-speed rail to India? Thank you.

Zhou Zhencheng: First of all, since President Xi Jinping’s visit to India, relevant departments under both administrations have proposed many ideas on strengthening railway cooperation, and have reached consensuses on a range of issues, including the transformation of existing railway lines, upgrading of railway stations and jointly establishing a university of railways. Currently, relevant authorities under both governments are closely in touch to actively push forward the implementation of consensuses reached between the leaderships.

Second, Chinese government encourages and promotes cooperation projects on high-speed rail with all countries. If the Indian government has interests in this regard, Chinese government will be happy to encourage and support relevant enterprises to export to India or participate in India’s high-speed rail infrastructure development. Thank you.

Reporter from China Radio International (CRI): Though China has become the biggest overseas investor, we frequently encounter unexpected problems. The fact that Mexico has indefinitely suspended the construction of a high-speed rail project previously mentioned is an example in case. My questions are: What are the risks facing the “going global” of high-speed rail? What measures will the government take to help enterprises “go global”? And another question: Canada is unable construct high-speed rail alone, and is seeking support from China. Is there currently any cooperation between the two countries? Thank you.

Zhou Zhencheng: I’ll answer your questions beginning with several figures. I’ll first talk about investments. As of the end of 2014, we've seen approximately 30,000 overseas institutions and enterprises set up by investing, and overseas assets totaling about USD3 trillion. China has become the world’s third biggest foreign investor. That's why we have so many projects overseas. Thus, when occasionally events like the Mexican high-speed rail problem occur, what’s foremost is that we view it calmly. From the perspective of the government, we take individual cases seriously. After the occurrence of this event, as you all have noticed, spokespersons of the Ministry of Foreign Affairs and the National Development and Reform Commission expressed the attitude of Chinese government at the earliest possible time. From what has been learnt by the MOFCOM, since information on the Mexican high-speed rail project was released, relevant Chinese enterprises had tracked it for a long period of time, and input a large amount of manpower, material and financial resources. In our opinion, whatever reason led to the suspension of the project in Mexico, the local government should take effective measures to provide safeguards for the costs incurred to and the interests of Chinese enterprises. This is our position on this issue.

The risks enterprises encounter overseas involve two levels: on one level, currently as participants in foreign investment, enterprises should make independent decisions and assume risks themselves for overseas investments or their participation in engineering projects construction. Overseas projects, especially projects involving high-speed rail and railways, are very prone to be affected by political changes, economic policies and legal adjustments of host countries. Therefore, prior to going and investing in these countries, enterprises shall make adequate assessment and prudent decisions. This is a prerequisite. While on the government level, in order to help enterprises “go global” and truly move forward on a stable and sound track, we need to give them some instructions and guidance. For this reason, the MOFCOM, in collaboration with relevant departments, has been regularly publishing outbound investment and cooperation-related country or region -specific guides, country-specific risk analysis reports, country-specific investment and business barriers reports for consecutive years. We highlight possible risks and problems in relevant countries in advance to enable enterprises do their research. When enterprises encounter problems, they also need to safeguard their rights and interests according to law, and protect their lawful rights by following business practices. Where Chinese enterprises’ lawful rights and interests are compromised, government authorities will step in and actively tackle these problems with host countries. We’ve done a lot of work in this regard. For example, as Chinese enterprises “going global” increasingly expand their business presence over these years, we make active efforts in negotiating and concluding inter-governmental agreements like investment protection agreements with host countries to create a stable and transparent policy environment for enterprises “going global”. In general, the enterprise and governments spheres should play their respective roles and have their own priorities. Thank you.

Reporter from Asahi Shimbun: A proposal for the combination between CSR and CNR was put forward last year. As the two corporations have already been the world’s biggest and second biggest railway rolling stock dealers respectively, is there a possibility that the soon-to-be China Railway Rolling Stock Group will give rise to anti-monopoly issues overseas?

Zhou Zhencheng: We’ve noticed some news in this respect. We believe that the merger and restructuring of an enterprise should be a decision or choice made based on market conditions and corporate development strategy, thus is a market-based independent decision and behavior of enterprises.

Reporter from Caixin Media: Mr. Zhou just talked about the Turkey project as part of the going global of high-speed rail. My question is: the Turkish project is merely an infrastructure project. We’ve made efforts on rail transit equipment, namely high-speed rail rolling stock, for several years, but there is no export precedent yet. How about the representative projects in progress and their developments in terms of high-speed rail rolling stock? Is there any specific project in progress? Thank you.

Zhi Luxun: None for now.

Reporter from kyodo News: Japanese enterprises have been giving priority to the export of Japanese shinkansen (high-speed trains). I’d like to ask what advantages does Chinese high-speed rail possess compared with Japanese high-speed trains? What are the weaknesses of Japanese high-speed trains?

Zhi Luxun: China and Japan boasts different advantages in high-speed rail. Japan’s advantages lie in an early start and richer operational experience. While over all these years of development, the biggest advantage of China’s high-speed rail can be summed up as: low costs and technological maturity. Specifically China possesses the following advantages: the first is advantage in combined costs. According to a report released by the World Bank last year, the price per kilometer of China’s high-speed rail is RMB87–129 million, while those of the European countries range from RMB150–240 million, and so is the average construction price in Japan; Secondly, our construction period is 3/4 of that of developed countries; thirdly, our products are technologically maturing, and can meet running requirements in high-temperature, high-humidity, and high-altitude environments. Each country has its own merits. Your country starts earlier and possesses richer operational experience, while we are stronger in comprehensive competitive edges and comparative cost advantages.

Reporter from Reuters: I have a question for Mr. Zhi. You just talked about strengthening the establishment of overseas marketing networks by enterprises, and stepping up the “going global” of Chinese enterprises. I’d like to ask will you encourage Chinese enterprises to pursue mergers and acquisitions on overseas markets? Thank you.

Zhi Luxun: All mergers and acquisitions should follow market-based rules since the participants of M&As are business enterprises. Another point is enterprises should strictly abide by local regulations, particularly going passing preliminary studies. Mergers and acquisitions provide a direction. In terms of technological catch-up, many other countries have success stories. This also serves as an important means for China to improve our own technological R&D capacity.

21 Century Business Herald: Last year, with strong support from President Xi Jinping and Premiere Li Keqiang in promoting high-speed rail, we landed the contracts of several projects, including the Hungary-Serbia Railway and China-Thailand Railway. Can you tell us with which countries are or will Chinese government, especially the MOFCOM, lead the cooperation on specific railway projects this year or the coming years? What are the latest developments of intended projects under negotiation, such as high-speed rail projects connecting China with Laos and Thailand, and connecting Moscow and Kazan?

Zhou Zhencheng: In recent years, cooperation on high-speed rail was frequently mentioned during state visits of Chinese leadership to foreign countries or visits of foreign heads of state to China. As for the projects you've mentioned, relevant authorities, including the MOFCOM, the NDRC, and China Railway Corporation, are actively collaborating on implementing the consensuses reached between Chinese and foreign leaders, and pushing ahead relevant projects in an orderly manner. In terms of cooperation on railway between China and Thailand, relevant authorities under two administrations have established relevant mechanisms and conducted a few consultations on some specific issues. As for the Moscow high-speed rail project and the China-Laos rail project, relevant departments under two governments are actively in touch and steadily facilitating their implementation. Thank you.

Hu Suojin: It’s time to wrap up today’s briefing. Thank you all, our reporters and both leaders.

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