Chinese-Built U.S. Rail System: I Don’t Think So

Financial Times did an article, Made in America by Chinese Contractors [link no longer exists], on how a consortium of China’s state-owned railway companies (Shanghai Railway Bureau, CSRC, China Railway Construction, and the Third Railway Survey and Design Institute) will likely win the bid to build the United States’ first high-speed railway network.

The winning bidder will design the rail network, supply the stock, build the tracks, and operate the line. This network is to run from Northern California to Southern California and will cost about $45bn to build.

I am betting China does not end up with this project.

Yes, I would expect the Chinese companies to win on price, but I find it hard to believe US politicians will allow a group of state-owned Chinese companies (SOEs) to build and run America’s high speed rail system.  I just do not see that happening. I am in China right now and have heard a lot of talk on how China has really not done well at all with building its own high speed rail. That system is rife with all sorts of build problems and virtually everyone here with whom I have talked is skeptical regarding its safety.

The FT article mentions this consortium’s having “lost $623m from its railway project in Mecca due to major cost-overruns,” but word on the street in China is a bit different. What I am hearing is that this consortium grossly underbid the Mecca project, fully intending to raise its fee once things got going. But when the consortium went to Saudi Arabia seeking another $1 billion, China was told there would be major political and economic repercussions for both China and for Chinese workers in Saudi Arabia if it did not back off. China backed down, hence the massive losses. My law firm’s China dispute resolution lawyers have worked on similar cases and this all rings very true to me.

I think the U.S. will reject China’s bid (even though it will likely come in way lower than any other) and it will use the cost overrun and quality control issues as its reason. In the final analysis, I do not see the U.S. as ready to accept China building and running something like this. Not yet anyway.

What do you think?

Read More

China Business