Friday, October 29, 2010

How China took the lead in high speed rail

The Shanghai train is a 'Maglev', short for 'magnetic levitation'. It actually floats just above the track. Magnets propel it forward silently and the lack of friction allows it to reach phenomenal speeds.

Ironically, the world's first commercial Maglev ran from Birmingham International to Birmingham airport back in 1984. But the UK let the technology slip through its fingers. The route was dismantled in 1995 and replaced by a bus.

Meanwhile, Beijing has eagerly sucked up all the cutting-edge rail technology it can find. When it announced its plans back in 2004, the companies that came forward to bid for the biggest rail contracts in history were a who's who of rail technology: Bombardier (Canada), Siemens (Germany), Alstom (France) and Kawasaki Heavy Industries (Japan).

In the competition for contracts, the companies agreed to onerous terms and conditions. Production had to occur in China, and they had to agree to 'technology transfers', effectively helping to set up their own cheap Chinese competitors. Beijing has a word for this acquisitive process: 'digesting'.

Six years later, high speed rail companies are now having to compete with the Chinese rivals they created. Two Chinese manufacturers, CSR and CNR, are already among the world's top four train makers, as the chart below shows.



These companies are now snapping at each other's heels to land contracts world wide. We're about to see the biggest expansion of rail since the days of the Wild West. Billions of dollars are being pumped into high-speed rail projects worldwide, from Bologna, to Argentina, to California. It could be one of the most lucrative investment themes of the decade.

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