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Bloomberg Businessweek October 7, 2019T
he concrete floors shine in the new $100 million
factory on Chicago’s far South Side. Towering
shelves painted in blue, yellow, and red are mostly
empty. The quiet is eerie, punctuated only by a
forklift’s occasional beep.
On a bank of 6-foot-high platforms rest the steel shells of
five 48-foot-long passenger rail cars destined for the Chicago
Transit Authority. Inside the cars, clutches of workers trace
multicolored bundles of wire. Outside, others in safety hel-
mets and glasses attach HVAC equipment to the undercar-
riages. All work for the Chicago subsidiary of China Railway
Rolling Stock Corp. And what they’re doing scares the hell
out of some U.S. manufacturers and Washington politicians.
CRRC is the world’s largest maker of freight and passenger
rail cars. Over the past decade, the state-owned Chinese com-
pany has gone from country to country underbidding rivals
and taking business from giants such as Alstom, Bombardier,
Siemens, and Hyundai’s rail unit, Rotem. When Siemens and
Alstom tried to merge two years ago, before being blocked by
European Union regulators, they cited the CRRC juggernaut
as one rationale. The Chinese company effectively wiped out
Australia’s homegrown rail
car industry in less than a
decade. Early in 2018, CRRC
declared in a since-deleted
tweet, “So far, 83% of all rail
products in the world are
operated by #CRRC or are
CRRC ones. How long will it
take for us conquering the
remaining 17%?”
Since 2014, CRRC has won $2.6 billion in contracts to sup-
ply subway cars to transit authorities in Boston, Chicago, Los
Angeles, and Philadelphia. The Chicago factory and another
in Springfield, Mass., along with a parts-making facility in
Los Angeles, collectively employ about 365—including more
than 150 union members earning as much as $32 an hour—
and plan to add dozens more. In Chicago, production man-
ager Brian Vasquez strolls the floor pointing out empty areas
where his facility intends to expand into, among other things,
double-decker commuter cars. “It kind of looks like overkill,”
Vasquez says, “but CRRC is preparing for the future.”
That future is uncertain, in no small measure because
of the dysfunctional relationship between the U.S. and
China. This is how fraught things are: In a Congress where
it’s almost impossible to get anything significant done, four
U.S. companies in the freight car business have persuaded
the House and Senate to pass legislation that would withhold
federal funds for any municipal project using CRRC cars.
CRRC’s antagonists echo the Trump administration’s
harangues against Huawei Technologies Co. and ZTE Corp.
They argue that CRRC will use its advantages as a subsidized
company to dominate not only the U.S. passenger rail indus-
try but also, eventually, the larger freight car business. They
say, too, that China will use CRRC rail cars for espionage, aneconomic and military security concern. Lawmakers from
both parties have embraced these arguments, though there’s
clearer evidence for the former than the latter.
In either case, if you’d like Washington to help you kneecap
a Chinese rival, now is a good time. FBI Director Christopher
Wray told a congressional hearing in July that “there is no coun-
try that poses a more severe counterintelligence threat to this
country right now than China,” accusing it of trying “to steal
their way up the economic ladder at our expense.”
Lobbyist Erik Olson of the Rail Security Alliance, which
represents the four domestic freight car companies, says it’s
perilous to give CRRC any benefit of the doubt. “You can’t
mitigate against the threat,” Olson says. “You have to choose
risk avoidance: Don’t buy the train in the first place.”O
n a sunny March day in 2017, then-Mayor Rahm
Emanuel plunged a shiny silver shovel into a
mound of dirt 20 miles south of downtown
Chicago. He, along with a few other local politi-
cians and CRRC officials, was breaking ground for the factory.
It was going up in the blue-collar Hegewisch neighborhood
on a 45-acre site near a Ford Motor Co. plant, a United Auto
Workers hall, and a couple of beer-and-shot joints.
The project promised the community 170 jobs and the
renewal of an industry that had disappeared when the last
rail car shop closed in the early 1980s. “Four years from
now, Chicagoans like myself will be commuting on a rail car
made in Chicago by Chicagoans,” Emanuel said. That the
plant would be built by a company based in Beijing didn’t
seem to matter.
No U.S. companies make passenger rail cars. That’s
partly because Americans don’t travel on trains nearly as
much as they do in automobiles. Most of the companies
that make passenger rail cars for the U.S. hail from coun-
tries where personal train travel is more common: Alstom
(France), Hyundai Rotem (South Korea), Kawasaki ( Japan),
and Siemens (Germany).
And CRRC. The company dates to 1881, when Xugezhuang
Machinery Works built China’s first steam locomotive, nick-
named “Rocket of China.” Today, CRRC is effectively a sub-
sidiary of the People’s Republic, with more than 180,000
employees working at more than 40 subsidiaries around the
world. The current version of the company was formed by
the merger of two huge makers of rail gear in 2015, the same
year the national government issued its Made in China 2025
policy. That initiative listed 10 industries in which China seeks
to become a global power. No. 5 is advanced rail equipment.
China has tried to mute its ambitious tone as the trade war has
heated up, but a recent report from the Berlin-based Mercator
Institute for China Studies said the country “has not at all
abandoned its economic—and strategic—goal of catching up
with Western industrialized countries and gaining a compet-
itive edge in high-tech and emerging technologies.”
CRRC posted a profit of $1.5 billion last year on revenue of
$33.1 billion. It landed its first U.S. contract in Boston five years XINHUA/ALAMYBreaking ground for the Chicago factory