The Joint Venture Zhuzhou Siwei Railway Products Co. Ltd.

As part of our ongoing research into American Joint Ventures in China, Datenna decided to highlight and research relevant cases. This case considers the joint venture set up by ABC Rail Products Corporation and CRRC Yangtze.

  • Zhuzhou Siwei Railway Products Co. Ltd. is a Sino-American Joint Venture established by the Chinese party CRRC Yangtze Co. Ltd. and the U.S. party ABC Railway Products Co. Ltd.
  • The Joint Venture is active in the railway sector, which is a key industry of China’s national plan Made in China 2025.
  • CRRC has been blacklisted by the U.S. Department of Defence in June 2020.

The Joint Venture

Zhuzhou Siwei Railway Products Co., Ltd. was established in China in 2001 as a joint venture between CRRC Yangtze Co. Ltd. and the U.S. partner ABC Rail Products Corporation. The joint venture scope of business includes the designing, developing, manufacturing, assembling, and selling of railway equipment both in the domestic and the international markets exporting to the USA, Sweden, and Australia. Their main manufacturing products are cast steel bogies, which function as support of the rail vehicle, to assure the stability of the rail body, to absorb vibrations and to minimize the impact of centrifugal forces when the train runs on curves at high speed. They are considered a key railway equipment when it comes to high-speed trains. Zhuzhou Siwei Railway Products has its main headquarters in Zhuzhou (Hunan Province), which is considered China’s railway transportation equipment innovation centre. Within the joint venture, the Chinese party holds the majority share (60%), whereas the foreign partner only holds 40% of the shares.

 

ABC Rail Products Corporation

 

ABC Rail Products Corporation is an American company established in 1987 and based in Chicago, Illinois. The company deals with the engineering, manufacturing, and marketing of products for the rail industries. Since 1992, the company has grown thanks to a series of affiliations and joint ventures worldwide. Before the Zhuzhou Siwei Railway Products joint venture, ABC Rail Products established another Sino-American joint venture in China in 1996 which mainly deals with cast steel wheels and other cast steel products for rail vehicles. That joint venture has a registered capital of $34M and it is registered as Datong CRRC Amsted Castings. At the time, the Chinese party was the China’s Ministry of Railroads; at present, CRRC Datong Electric Locomotives is the Chinese party holding 60% of the joint venture.

CRRC Yangtze Co. Ltd.

CRRC Yangtze is a Wuhan-based company with a registered capital of $204M. It engages in R&D, manufacturing, and servicing of railway freight car production as well as maintenance of urban rail vehicles, selling and exporting components of railway cars, and mechanical and electronic products. It also has first-class R&D centers, manufacturing bases, and export bases in the railway freight car industry. The company has several subsidiaries (mainly in Australia and Sierra Leone).

Before 2015, CRRC Yangtze was CSR Yangtze Rolling Stock, a large-scale backbone enterprise under China South Locomotive and Rolling Stock (CSR). When CSR merged with China North Locomotive and Rolling Stock Corporation (CNR), it lead to the formation of CRRC in 2015, thus, the Chinese shareholder of the joint venture became CRRC Yangtze. CRRC Yangtze Co is under full control of CRRC Yangtze Group, a subsidiary of CRRC Corporation. CRRC corporation is 15% controlled by the Hong Kong company HKSCC, but mainly by China Northern Locomotive & Rolling Stock Industry holding 50% of CRRC Corporation and the ultimate controlling party is the state-owned Assets Supervision and Administration Commission of the State Council (the “SASAC”). This could imply that there is a potential risk regarding influence of the Chinese State within the companies involved.

With a registered capital of $4.1B, CRRC can be considered a Chinese conglomerate in the railway sector and the largest stock manufacturer in the world. As it is the central enterprise under the Ministry of Railways, it is heavily subsidised by the Chinese government receiving more than 5 million RMB of government subsidies each year, allowing the company to lower its prices and achieve international competitiveness. CRRC also runs several National Key R&D laboratories, such as Traction and Control for Vehicles, New Power Semiconductor Devices, and High-Speed Train System Integration. CRRC Corporation has 44 total investments. Those investments, along with partnerships, and subsidiaries are used to expand its business in every node of the supply chain, from material to energy sources, from semiconductors to energy storage to reach the goal of a Chinese smart transportation system.

Made In China 2025 and China Standards 2035

Zhuzhou Siwei Railway and its shareholders all operate in the railway sector, a key industry of Made in China 2025. What is worth mentioning is that the joint venture is linked to CRRC, known for being one of the state-owned enterprises’ leaders in the MiC 2025 advanced railway transportation industry. As mentioned before, CRRC was born from the merger of CSR and CNR in 2015, the same year of the publication of the MiC 2025 plan. The merger of the two largest railway companies represented a turning point for the Chinese railway sector as CRRC became an exclusive monopolist for domestic locomotives, buses, tracks, and urban rail, thus reaching more than half of the global rail transit market shares.

CRRC serves the goal of China which is to create a transportation system that operates globally and to bring the fourth industrial revolution to the railway sector, designing intelligent high-speed vehicles based on AI, IoT, and smart technologies, thus imposing itself as a global controller of the new railway era. For this reason, CRRC is not only a key player for the MiC 2025 but also for China Standards 2035: the ongoing process of establishing a global footprint through joint ventures, procurements, and sales is designed to realize the go-out strategy and to increase Chinese international competitiveness in the railway sector, as well as acquiring strategic resources and international markets. Under this strategy, CRRC strives to position itself as a global railway standard maker.

But to achieve its ultimate goal it does need a global network and Zhuzhou Siwei Railway Products is just one example of CRRC’s efforts to expand its global presence and influence. The company counts 46 wholly-owned subsidiaries and, just as CRRC Yangtze, other CRRC affiliated companies have entered the U.S. market since 2015. CRRC MA Corporation established a rail car manufacturer headquarters in Massachusetts for the construction of Boston subway cars; CRRC Corporation set up CRRC Sifang America as an Illinois-based subsidiary that is supplying railcars to the Chicago Transit Authority (CTA); CRRC was also awarded a contract to build cars for the Los Angeles County Metropolitan Transportation Autohority (LACMTA).

The U.S. is not the only target market for CRRC: the company is present in Argentina, Brazil, Turkey, South Africa, New Zealand, and Australia. Europe could not have been left out from this list; CRRC had entered the European market through the acquisition of Beneq, a European company dealing with semiconductors and through the establishment of different subsidiaries, such as CRRC ZELC Europe.

CRRC being the biggest railway company in China and being indirectly linked to the Chinese government, its global presence might represent a risk for technology transfer that might be used to serve the purposes of Made in China 2025. Most importantly, it might lead to CRRC becoming one of the world key players in the railway sector.

Blacklisted by the US Government

In June 2020, notably, the U.S. Department of Defense added CRRC Corporation to the U.S. Blacklist along with other names of Chinese military companies operating directly or indirectly with the People’s Republic of China’s (PRC) Military-Civil Fusion development strategy. In fact, CRRC has joined the Military Civil Fusion fund in 2017 and it has publicly affirmed that the company will implement the military civil-fusion strategy and will expand the application of technology and products. For this reason, CRRC and all the firms within its arsenal are considered by the U.S. government blacklisted companies.

However, it seems that getting blacklisted was not enough to stop CRRC: in June 2021 Rail Security Alliance, a group of railroad suppliers, wrote a letter to the U.S. Secretary of Defense about raising concerns over the presence of CRRC in the United States economic scene asking for immediate action. However, CRRC seems to manoeuvres around policy barriers by building factories abroad, establishing subsidiaries, establishing joint ventures or using private firms under its arsenal, thus overcoming foreign country legislation and continuing to increase its global presence.