49BloombergBusinessweek October 7, 2019
agoandsecuredorderstobuildrailcarsforChicagoandLos
Angelesnotlongafter.InBoston,its$567millionbidtosupply
284 subwaycarsbeatouttheclosestrival,HyundaiRotemCo.
Ltd.,by$150million.InChicago,its$1.3billionbidfor 846 cars
was$226millionlessthantheofferfromCanada’sBombardier
Inc.DaveSmolensky,a spokesmanforCRRC’splantinChicago,
saysBombardieroriginallybidlowerina previousroundin
whichCRRCdidn’tparticipate,thenraiseditsbidaftera com-
petitordroppedout.Bombardier“thoughttheyweregoing
tobethesolebidder,”hesays.“It’sa perfectexampleofwhat
happenswhenyoulosecompetition.”A Bombardierspokes-
womancallsthisa misrepresentation,sayingtherequirements
changedforthesecondbid.“Wesubmitteda highlycompeti-
tiveproposaldesignedtowin.”
CRRC’scriticssaytheChicagocontractwasthealmost
inevitableresultofa state-ownedcompanyundercutting
rivalswithfinancialhelpfrombackhomeanddangling
baubleslikenewfactoriesbeforelocalpoliticians.According
totheU.S.-ChinaEconomicSecurityandReviewCommission,
createdbyCongressin2000,CRRCreceived$194millionin
subsidiesin 2014 andanadditional$268.7millionthenext
year.However,a recentstudybytheCongressionalResearch
Serviceconcludedthatallegationsofunfairundercuttinghave
“notbeenproven,”giventhatthecompanyfailedtowincon-
tractsinAtlantaandNewYorkCity.
It wasn’tCRRC’sinitialsuccessmakingU.S.passengercars
thatprovokedthecompany’santagonists,buta flopinfreight
cars.Thefreightbusinessis decidedlydifferentthanitspas-
sengercousin.Forone,it’sa viabledomesticindustry—consult-
ingfirmOxfordEconomicsestimatesthatit accountsforabout
$5billioninannualrevenueand65,000U.S.jobs.Whilepas-
sengercars,withtheirinteriorseating,airconditioning,and
othercomfortfeatures,cancostmorethan$1millionapiece,
a freightcarrarelycostsmorethan$150,000.Butfreightis a
moreconsistentbusinessovertime,becausewhileit’slinked
tobroadeconomiccycles,it relieslessoncustomers’episodic
decisionstoupgradetheirfleets.Municipalitiesthatusefed-
eralfundstobuyrailcarsmustalsofollow“BuyAmerican”
lawsdatingtotheGreatDepressionthatrequiremanufactur-
erstouseminimumlevelsofpartsfromU.S.-basedsuppliers.
Nosuchrulesapplytofreight.
CRRC’sfreightcarambitionsintheU.S.firstbecameevi-
dentin2014,whenit joinedwitha Wilmington,N.C.,rail
technologycompanycalledVertexanda Chineseprivate
equityfirmtoformVertexRailcarCorp.Vertexwastobuild
a varietyoffreightrailcarsinWilmington,creatingmore
than1,000jobs.Thecompanyapparentlysoldsomecars,
butlegalandothertroublesforcedit outofbusinessin2018.
CRRC’sinvolvementneverthelesscaughttheattentionof
AmstedRailCo.,a Chicago-basedmakerofaxles,brakes,
wheels,andotherfreightcarparts.
Olson,oftheRailSecurityAlliance,saysAmstedwascon-
cernedaboutCRRCpartlybecauseChinesestate-owned
enterprisestendto relyheavilyonChinesesuppliers.
AmstedhadnoticedwithalarmthatafterCRRC’stwopre-
decessorcompaniesenteredtheAustralianrailcarindus-
tryin2016,theytookover.ThelargestAustralianrailcar
maker,BradkenPtyLtd.,had40%ofthemarketin2008;
by2017,it hadexitedthefreightandpassengermarketsand
CRRCclaimedvirtuallyallofboth.Amstedsoughthelpfrom
Olson,a formercongressionalstafferwhohadjoinedVenn
Strategies,a Washingtonlobbying firm.
In May 2016, Olson helped form the Rail Security Alliance
with Amsted and three other U.S. rail equipment makers:
American Railcar Industries, Greenbrier Companies, and
Trinity Industries. That’s not an especially large lobbying
force, but it quickly proved effective. By September more
than 50 congressional Republicans and Democrats had
signed letters to the Committee on Foreign Investment in
the U.S., or Cfius, urging it to review CRRC’s role in the
Vertex joint venture. The lawmakers argued that the Chinese
company was likely to shift purchasing to China, leaving
Americans with nothing more than assembly work. They
also raised concerns about cybersecurity.
Cfius never acted on Vertex. But the U.S. suppliers started
lobbying for legislation that would ban municipalities from
accepting federal funding for contracts with CRRC. Key con-
gressional supporters included Texas Senator John Cornyn,
a Republican, and others with rail interests in their states or
districts. Last year the ban on federal money made it into
a government funding bill but was stripped out before the
legislation reached President Trump’s desk. The companies
have continued pushing for the ban, amplifying concerns that
CRRC trains pose a cybersecurity threat.T
he ground in Washington was fertile for such talk.
As the Rail Security Alliance cranked up its spy-
train campaign, the Pentagon was banning the sale
of Huawei and ZTE phones on U.S. military bases,
and the Army was stripping its bases of surveillance cameras
made by Chinese state-owned Hangzhou Hikvision Digital
Technology Co. China’s government was denying reports
that it had bugged the headquarters it built in Ethiopia for
the 55-nation African Union. On Capitol Hill, the alliance cir-
culated a glossy 15-page pamphlet, authored by retired U.S.
Army Brigadier General John Adams, highlighting poten-
tial economic and cybersecurity threats posed by CRRC.
It raised the possibilities of China secretly monitoring mil-
itary rail movements and facilitating toxic chemical spills.
“I know they have the capability because we have the capa-
bility. We just don’t do it,” Adams says. “And I do believe,“So much of the conversation
about China is what we think
they might be up to but so far
have no evidence for”