Train Giant CRRC’s Overseas Drive Derails

Leading rail equipment-maker CRRC Corp. Ltd. is falling far short of its ambitious goals to use exports to offset slowing growth at home, facing headwinds from stiff competition, price pressures and growing protectionist sentiment, a company source told Caixin.

CRRC has signed $3 billion in new overseas orders so far this year, or just a third of the $9 billion it was targeting for all of 2017, the source said, speaking on condition of anonymity because the publicly listed company does not usually disclose such information. CRRC set the high target after posting $8.1 billion in new overseas orders for 2016, up 40% from a year earlier, assuming the modest gain of around 10% would be easy to meet.

“Based on the 2016 trends, the $9 billion target didn’t make any of us feeling there was much pressure,” he said.

But a number of factors have conspired to dampen overseas orders, including intense competition and also pressure to deliver quality product at the kind of deeply discounted prices that have helped the company succeed in the past, the source added.

CRRC was counting on exports to offset a slowdown in domestic orders, as China’s massive spending binge on new high-speed rail lines and new urban mass-transit systems starts to slow after a decade of breakneck spending. That slowdown was apparent in the company’s latest earnings report, which saw revenue dip 6% and profit fall by a sharper 23% in the first half of the year.

The decreases were due to declining orders for the company’s core rail-car business, and also for maintenance of existing cars, the source said. “Declines of this magnitude are something that CRRC has never experienced before in its history. At the moment, business trends are unusually difficult,” he added.

The disappointing export performance comes as CRRC recently learned it had been eliminated from what would have been its biggest overseas order for subway cars to date. That development saw the company lose its attempt to win a $3.2 billion order to supply 1,000 cars to the New York City subway authority in a joint bid with Canada’s Bombardier Inc.

The New York setback marked a derailment of CRRC’s recent string of victories for smaller similar contracts to supply urban rail cars to other North American cities. Those included a deal to supply Boston at the start of the year, followed by deals in Los Angeles, Philadelphia and most recently in Montreal.

But those four deals combined were relatively small compared to the New York tender, worth just $600 million combined.

Contact reporter Yang Ge (geyang@caixin.com)