NEW YORK/BEIJING – Days before Chinese President Xi Jinping made a high-profile visit to the United States last week, Beijing said six Chinese businesses would join forces with a U.S. company to build a high-speed rail link between Los Angeles and Las Vegas.
The news was a double whammy for Japan, as it followed a decision by Indonesia to drop a project to build its first high-speed train line. Jakarta rejected offers from the only bidders, Japan and China.
China’s U.S. announcement has raised alarm in Japan’s railway industry, which plans to bid for the construction of a West Coast link from Los Angeles to San Francisco. There is now the possibility that a Chinese group could outmaneuver a Japanese bid — in a replay of a tender to supply railcars for the Boston subway last year.
The Los Angeles-Las Vegas project will involve U.S. railroad company XpressWest and a Chinese consortium led by China Railway Corp., which emerged from the breakup of the former Ministry of Railways.
CRRC Corp., the world’s largest train maker by revenue, is also taking part in the project to build the roughly 370-km-long link, which begins as early as next September.
There are few details about the Chinese side’s participation in the California-Nevada project, including the size of the capital China will put up or how the project will be financed.
The news has caused concern among Japanese companies keen on securing deals for a high-speed rail service linking Los Angeles and San Francisco.
The stakes are high for Japanese manufacturers seeking to win the rights to the project, which aims to connect the two major metropolises in California in less than three hours with a train that runs at a top speed of over 350 kph by 2029.
A group of Japanese companies, including East Japan Railway Co. and Kawasaki Heavy Industries Ltd., has been promoting shinkansen technology for the route, backed by the government in Tokyo.
Prime Minister Shinzo Abe himself made a sales pitch to California Gov. Jerry Brown when he visited the United States last spring, stressing the strong track record of safety for the shinkansen.
A source familiar with the project said bidding procedures for passenger cars on the California link are expected to start by the end of this year.
Besides the Japanese alliance, other potential contenders for the project include CRRC and Germany’s Siemens AG.
Bids are also expected to open sometime around October and November for equipment, including traffic control systems and signals.
“Japanese companies have expressed interest in them, too,” the source said.
The source added, it seems the Japanese group aims to secure package deals for equipment and vehicles.
The Japanese consortium is proposing an energy-saving vehicle that employs key technologies adopted for the shinkansen and other trains. An executive of a consortium member company said their proposal “best fits the demands of California, which has stringent environmental conservation requirements and is prone to earthquakes.”
A major problem with the Japanese project, however, may be its price tag of $68 billion. The substantial budget it would require could face serious scrutiny from cost-sensitive taxpayers in California.
“In the selection of suppliers of vehicles and other equipment, attention will likely focus on bid prices for each group,” a source said. Concern is growing among Japanese consortium participants that their pitch, focusing on a high-quality product, may be defeated by a lower-priced Chinese proposal.
Such an outcome would create a sense of deja vu for Kawasaki Heavy after its failed 2014 bid to replace 284 vehicles on the Orange and Red lines of Boston’s subway system.
China CNR Corp. won the contract with Massachusetts Bay Transportation Authority last October with a cost estimate around 37 percent lower than Kawasaki Heavy’s.
China CNR, a state-run rolling stock builder, merged with its key competitor CSR Corp. in June to create CRRC, which is joining the Los Angeles-Las Vegas project.
CRRC says its revenue in the first six months of this year totals 91.81 billion yuan ($14.43 billion), outstripping the railway business sales of what was once called the world’s “Big Three” rolling stock makers — Canada’s Bombardier Inc., Siemens and France’s Alstom.
An official at China’s Ministry of Commerce said “China’s high-speed rail is superior to Japan’s in cost performance and in shortening work periods.”
Japanese businesses remain vigilant about CRRC possibly emerging as a strong competitor against the Japanese consortium by a similar tactic in bid pricing, as it could attain an economy of scale if it turns out to be the supplier of trains for the California-Nevada link in the same region.