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BUSINESS & TECH

Train Giant CRRC to Trim Freight-Car Manufacturing Capacity

By Lu Bingyang and Han Wei
CRRC plans to consolidate its 10 freight-car manufacturing subsidiaries, aiming to reduce overcapacity and better use its resources. Photo: IC
CRRC plans to consolidate its 10 freight-car manufacturing subsidiaries, aiming to reduce overcapacity and better use its resources. Photo: IC

CRRC Corp., China’s top state-owned rail equipment maker, plans to reshuffle its struggling freight-car production businesses in a bid to eliminate excess capacity as part of a corporate restructuring.

Sources close to the company told Caixin that CRRC has worked out a plan to consolidate its 10 freight-car manufacturing subsidiaries, reducing overcapacity and optimizing resource allocation.

CRRC will consolidate most of the freight-car production in its two strongest subsidiaries, CRRC Qiqihar Rolling Stock Co. and CRRC Yangtze Co., sources from CRRC said.

Those units plus four other manufacturers have total capacity to produce 100,000 rail cargo vehicles every year. CRRC controls about 80% of the freight-car market in terms of orders.

The business overhaul comes as CRRC suffers sliding freight-car sales reflecting weakening demand for railway cargo transportation amid the economic slowdown. Public data showed that from 2012 to 2016, the number of cargo vehicles ordered by China Railway Corp., the state railway operation, declined from 40,000 units to 6,000.

CRRC’s revenue from freight-car manufacturing dropped from 11.5 billion yuan in 2013 to 4.4 billion yuan in 2015. In the first half of 2016, freight-car revenue for CRRC totaled 2.9 billion yuan. At the same time, the freight-car business’s share of CRRC’s total revenue shrank from 11.5% in 2013 to 3% in the first half of 2016.

CRRC reported a 4% decline in net profit 2016. In the first half this year, the company’s net profit dropped 23.4% to 3.7 billion yuan.

“Such a drop is unprecedented for CRRC. The current situation is very difficult,” said a CRRC source.

A source from CRRC Yangtze told Caixin that many of CRRC’s rail vehicle-making subsidiaries received few or even no orders last year. Nine of the 10 companies reported net losses last year, including Qiqihar Rolling Stock and CRRC Yangtze.

CRRC was created in June 2015 through the combination of the country’s two major train-car makers -- China North Railway Corp (CNR) and China South Railway Corp (CSR) -- as the central government pushed for consolidation of state-owned enterprises. Qiqihaer Rolling Stock and CRRC Yangtze were previously the biggest cargo vehicle subsidiaries of CNR and CSR. Both companies have annual capacity to produce 15,000 freight cars and repair 10,000 more.

Contact reporter Han Wei (weihan@caixin.com)
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