Train crash could curb China rail equipment exports

Reuters News
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Posted: Jul 25, 2011 2:19 AM
Train crash could curb China rail equipment exports

By Alison Leung and Fang Yan

HONG KONG/BEIJING (Reuters) - A deadly train crash in China over the weekend has raised concerns about the safety of the country's fast-growing rail network and threatens to undermine its plans to export high-speed train technology.

The concerns were enough to push share prices down in Chinese rail companies by as much as 16 percent.

China sacked three senior railway officials a day after Saturday's collision between two high-speed trains that killed at least 36 people in the country's worst rail disaster since 2008.

It has been working for years to develop a high-speed rail network to rival Japan's famed bullet trains and use the technology it has acquired or developed to sell its own trains abroad.

The country has one of the highest-density rail systems in the world, according to Michael Komesaroff of Urandaline Investments in Australia.

"The Chinese are running at least two times the level of anyone else in the world. That means signaling and systems management become more critical," Komesaroff said.

A spokesman for China South Locomotive, which built both trains in a joint venture with Canada's Bombardier, said signaling operations were to blame for the crash.

"The quality of the trains is fine. Neither had any accidents previously. It's the signaling system that went wrong," he said.

A spokesman for General Electric in the United States said the company supplied the signaling equipment on the line involved in Saturday's crash, but said it did not provide "vital" equipment.

The crash is a further blow to China's high-speed railway ambitions after the country's railway minister was sacked earlier this year and became the subject of a disciplinary investigation over corruption.

"The markets were concerned about possible slowdown of high-speed railway construction when the railway minister was sacked," said Du Jun, an analyst with Shanghai Securities.

"The accident might have some impact on export of the high-speed rail as overseas clients would obviously have doubts on quality and safety issues. However, it's a bit too early to draw any conclusions before they find out what exactly went wrong."

Initial reports from China were that the trains involved in the collision were made with Chinese technology, but Chinese media reports Monday laid the blame on "foreign technology."

SHARES TAKE A HIT

Shares of China South Locomotive fell as much as 16 percent to its 12 month low of HK$5.85, but regained some of that loss to trade at HK$6.28 at 05:37 GMT. Shares of China Northern Locomotive, which dominates China's train equipment market with CSR, fell 6.5 percent in Shanghai.

Shares of Zhuzhou CSR Times Electric, a train-borne electrical systems and electrical components maker, were down 12 percent. China Automation Group, a safety and critical control systems provider, fell 9.4 percent while China Railway Group, an infrastructure construction firm, lost 7 percent.

"Sentiment was dampened by the accident. This is adding more uncertainties to the already weak sector as safety checks may delay the process of awarding contracts to equipment providers," said Mark Po, an analyst at UOB Kay Hian.

Shares of Chinese airlines gained sharply as investors hope more travelers would take to the sky after the train crash.

Air China rose more than 4 percent while China Southern Airlines and China Eastern Airlines gained 4.4 percent and 4.8 percent, respectively.

TROUBLED INDUSTRY

China has been on a building boom to expand its national rail network and turn it into a global leader. Under Beijing's five-year plan to 2015, the country will invest between 3.6 trillion and 4 trillion yuan ($540-607 billion) in its rail sector.

"Nobody can tell whether these targets are still intact now," said Mark Po, an analyst at UOB Kay Hian.

The effort has not been without controversy as China's rail partners from Japan and Europe have often accused it of strong-arm tactics that force them to turn over technology to win contracts only to see China use that technology against them in bidding for other rail deals outside the country.

China has used a number of suppliers for trains and for the signaling equipment used to guide them. Its foreign suppliers include companies like General Electric, Bombardier, Kawasaki Heavy Industries, Alstom and others.

(Reporting by Alison Leung in Hong Kong and Fang Yan in Beijing; Writing by Charlie Zhu and Matt Driskill, Editing by Jonathan Thatcher)