Sunday, March 18, 2007

Forbes - Bombardier emerges as a winner in China's rail systems

Fast Train to China
Kerry A. Dolan 03.26.07

As Beijing scrambles to expand the country's rail systems, Canada's Bombardier emerges as a likely winner.

In a cavernous train factory outside the coastal city of Qingdao, China, a dozen workers clad in navy blue uniforms attach air-conditioning ducts to the roof of a high-speed train car. Nearby, four men weld a roof to the body of a car, the silence pierced by the loud bangs of the welding gun.

The 1,500 employees at Bombardier Sifang Power (Qingdao) Transportation Ltd.--a venture led by Canadian railway powerhouse Bombardier, are on the front lines of the biggest rail boom China has seen. In a five-year plan ending in 2010 the Chinese government is shelling out $161 billion (1.25 trillion yuan) to lay new tracks and acquire equipment to expand the rail system. It is spending an additional $32 billion on rolling stock and locomotives.

Bombardier Transportation, with $6.6 billion in revenues the largest rail equipment company in the world, has had a long business relationship with China. It has inked nearly 40 contracts with the country over the past two decades. It was the first multinational train builder to set up a joint venture in China, in 1996--one of three the company now has there. In two and a half years Bombardier has signed Chinese contracts that will reap it $1.5 billion, with hopes of more to come.

High-profile projects include 361 cars equipped for high-altitude travel for a celebrated train line to Tibet (completed last year), a people mover for a new terminal at Beijing Capital International Airport and cars for the rail link from the Beijing airport into the city. The latter two are slated to be done in time for the 2008 Summer Olympics in Beijing.

In November Bombardier snagged what it says is the biggest single metro car order in Asia thus far: a $326 million contract for 306 cars and a propulsion system for a new Shanghai metro line, to be built in time for the 2010 World Expo in that city. Last month it signed a $480 million deal with China's Ministry of Railways to provide propulsion and control equipment for 500 freight locomotives.

"I don't want to be arrogant, but I'm very proud of our success in China," says Jianwei Zhang, the energetic president of Bombardier China. Zhang, 51, a native of northeastern China, was hired by Bombardier in Montreal in 1995 after completing an M.B.A. at Montreal University. He was awarded a doctorate in enterprise strategy in 1996. Bombardier gave Zhang charge of the Chinese rail business in 1998. "I think [Bombardier] is doing well in China because the guy they've got [in charge] there is very good," says Charles Brown, director of transportation and infrastructure consultancy Lake House Group in Hong Kong.

The need for more rail capacity in China is pressing. The country's railways are the world's busiest (China's big freight lead outweighs India's lesser edge in passenger rail). They move 24% of global rail traffic but account for just 6% of the world's tracks, according to Deutsche Bank. As each holiday approaches, trains to popular destinations are often packed so full that passengers stand in the aisles or squat in a corner for long journeys. Options for moving freight by rail are so limited that on average only one-third of shipment demand is met. The constraints of China's rail system have become an economic drag.

Thus the big ramp-up in government spending on railways--to a sum five times China's historical average. By 2010 the Ministry of Railways aims to have added 10,500 miles (17,000 kilometers) of new track, bringing the country's total to 56,000 miles. The opportunity that comes with such outlays is huge. Though Bombardier says it has generated more firm orders in China than its competitors--Alstom of France and Siemens of Germany, respectively the world's second- and third-largest rail equipment makers--those firms have also won significant contracts in China. FULL ARTICLE LINK

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