China’s Feuding Rail Companies Try Making Up

(Beijing) — After three years of increasing acrimony, China’s top rail-equipment builder and the nation’s main railway operator have entered into a more-harmonious chapter in their relationship.

CRRC Corp. Ltd. is the sole rail-equipment maker in China, and state-run China Railway Corp. (CRC) has always been its largest client. Their relationship became highly interdependent but fiercely competitive as each struggled to remain profitable under China’s market-oriented reform of its state-owned enterprises (SOEs).

On Monday, CRRC signed an agreement with CRC, the former said in a stock exchange filing. The two state-owned giants will cooperate on several fronts, including the most contentious one — the purchase price of high-speed trains.

Earlier this year, CRC demanded that CRRC slash the price of China’s new generation of high-speed trains by 20%, an unprecedented discount. The move prompted widespread complaints from CRRC and its second-tier suppliers.

Under the new agreement, the two companies must take many factors into consideration when setting prices, including purchase volumes as well as general price levels in the broader economy. Payments will now be made in several stages instead of with a single transaction.

The dispute over prices ended last week as they finally agreed to a 5% price cut. CRC has already agreed to buy 500 units of CRRC’s new-generation high-speed trains, dubbed Fuxing, CRRC said Monday in the stock exchange filing.

In addition, CRRC will help CRC expand its capacity for rail equipment maintenance, lowering maintenance costs while shortening the time needed. Meanwhile, CRC and its subsidiaries will be the preferred partners for CRRC’s newly innovated products.

The new agreement will also give both a routine communication mechanism, including daily correspondence as well as an annual meeting. They will jointly operate the intellectual property rights of the Fuxing trains, and carry out technical cooperation with foreign companies.

“The signing of the new agreement will provide guarantees for the upgrading of China’s rail equipment,” a source at CRC told Caixin.

CRRC’s largest customer has always been either CRC or its predecessor, the Ministry of Railways. In 2016, sales to CRC accounted for 46% of CRRC’s total sales revenue. At times, the figure has been as high as 70%.

Contact reporter Song Shiqing (shiqingsong@caixin.com)