Report: Chinese Policies Damaging HSR, Globally

Written by William C. Vantuono, Editor-in-Chief

Chinese SOE (state-owned enterprise) CRRC (China Rail Rolling Stock Corp.) “is less innovative than European and Japanese firms, but mercantilist policies help it dominate in China and expand globally. This starves superior firms of revenue, reduces their R&D and slows the pace of global innovation,” according to a report from an independent Washington, D.C.-based think tank.

According to Heading Off Track: The Impact of China’s Mercantilist Policies on Global High-Speed Rail Innovation, prepared by ITIF, the Innovation Technology & Innovation Foundation (download below), “high-speed rail is a technology-driven sector that has taken decades for the leading Japanese and European firms, and the broader ecosystem of component suppliers in the United States and elsewhere, to master. Yet, over the previous 20 years, China used mercantilist policies to rapidly and unfairly close the gap. For example, it used the development of its massive high-speed rail network to unfairly seize foreign technology and know-how to support its local champion, CRRC, and other rail firms. This diverted huge amounts of revenue that, had China’s high-speed rail network been based on comparative advantage and market-based industrial development, would have otherwise gone to leading foreign firms.

“The impact continues to grow as China supports CRRC’s efforts to seize global market share. Chinese rail firms are increasingly competitive with foreign rail firms but remain less innovative. By taking global market share from these more-innovative firms, China’s rail industrial policy continues to detract from innovation in the high-speed rail sector, which otherwise would be developing better, cheaper high-speed rail systems.”

Among the report’s key points:

“China’s state-directed bid for a leadership position in the high-speed rail sector has distorted the global market with massive subsidization, mandated mergers, forced technology transfers, and other mercantilist practices.”
“With its vast resources, China could have financed win-win trade and innovation. Instead, it pursued zero-sum mercantilism, closing its own market and subsidizing its rail firms to help them take advantage of open foreign markets.”
“There are only a few large high-speed rail projects at any one time worldwide. It’s critical that they go to market- and innovation-driven firms, not state-driven players like CRRC.”
“CRRC is already working on high-speed projects in developing countries, and with its state backing it is now tirelessly pursuing its first big prize in a developed country.”
“The huge diversion of global market share and revenue to CRRC has helped it catch up toits competitors. But each project lost to CRRC means fewer new patents and technologiesfrom the world’s most innovative high-speed rail firms.”
“If CRRC’s global market share was 15% instead of 70%, then non-Chinese high-speed rail firms would have doubled the number of U.S. rail patents.”
“Canada, Europe, Japan, Korea, and the United States need to restrict Chinese rail firms and products in domestic procurement markets while supporting R&D, trade, and market opportunities for innovation-driven high-speed rail firms.”

Founded in 2006, ITIF describes itself as “an independent 501(c)(3) nonprofit, nonpartisan research and educational institute—a think tank. Its mission is to formulate, evaluate and promote policy solutions that accelerate innovation and boost productivity to spur growth, opportunity and progress. ITIF’s goal is to provide policymakers around the world with high-quality information, analysis and recommendations they can trust. To that end, ITIF adheres to a high standard of research integrity with an internal code of ethics grounded in analytical rigor, policy pragmatism and independence from external direction or bias.”

According to Wikipedia, ITIF has “criticized the Chinese government for … standards manipulation and intellectual property theft.”