By Chris Cooper
July 26 (Bloomberg) -- Chinese rail suppliers, who helped
build the world’s largest bullet-train network in less than a
decade, may struggle to sell equipment overseas after two
locomotives collided, killing at least 39 people.
Trainmakers CSR Corp. and China CNR Corp., builders
including China Railway Construction Corp. and parts makers such
as Zhuzhou CSR Times Electric Co., have challenged European and
Japanese suppliers overseas, touting experience gained from
construction of the nation’s domestic network. The fatal crash,
near Wenzhou on July 23, may undermine their sales pitches.
“Their chances of selling high-speed trains are zero,”
said Edwin Merner, president of Atlantis Investment Research
Corp. in Tokyo, which manages about $3 billion in assets. “I
don’t think they can ever get confidence back.”
CSR, the builder of the trains in the crash, and China CNR
both fell in Shanghai for a second day after the accident on
concerns the incident may damp China’s export push and slow
domestic construction. Beijing-based CSR and partner General
Electric Co. may bid to supply trains for a planned California
high-speed line, possibly competing against Siemens AG, Alstom
SA and Bombardier Inc.
“There’s probably little chance of China winning a high-
speed train order in the U.S.,” said Ryota Himeno, an analyst
at Mitsubishi UFJ Morgan Stanley Securities Co. “There’ll be
much more importance placed on safety now.”

Safety Review

China has ordered a two-month review following the crash
and fired three officials. The accident happened after a train
stopped because of a lightning strike and a second one crashed
into the back of it. Six train cars derailed following the
collision, including four that fell off a viaduct.
CSR dropped as much as 7 percent to 5.62 yuan at 9:45 a.m.
in Shanghai, after declining 8.9 percent yesterday. China CNR
fell as much as 5.6 percent. In Hong Kong, CSR rose 1.8 percent
after dropping 14 percent, the most in about three years,
yesterday. China Rail Construction, builder of more than half of
the nation’s rail links since 1949, dropped as much as 2.8
percent in Hong Kong.
The ministry is investigating the cause of the crash, which
was likely the result of equipment failure following the
lightning strike, state-run Xinhua News Agency said on July 24,
citing Wang Yongping, a ministry spokesman. Questions faxed to
the ministry by Bloomberg News yesterday were unanswered.

Two Americans

It’s “too early” to assess what impact the crash will
have on CSR’s orders, an investor relations official, who only
gave his surname, Zhang, said yesterday by phone. The company,
China’s biggest trainmaker, had 13 billion yuan ($2 billion) of
overseas orders at the end of last year, including a high-speed
train contract from Malaysia, according to its annual report.
The 39 dead include two Americans, Xinhua said late
yesterday, citing unidentified Wenzhou city government
officials.
The crash could also be a “turning point” for China’s
wider economy, as the government may slow growth “gradually but
firmly” to about 7 percent or 8 percent as it works on fixing
problems created by more rapid expansion, Minggao Shen, a
Citigroup Inc. analyst, said in a report yesterday. The accident
will also likely slow investment in high-speed rail, as well as
subways, bridges and roads in the near term at least, he said.
China will likely delay issuing tenders for domestic rail
projects following the crash, Shenyin & Wanguo Securities Co.
analysts Huang Kui and Li Xiaoguang said in a report. The
brokerage downgraded CSR and China CNR to “neutral.”
The crash may also reduce domestic travelers’ trust in
high-speed railroads and prompt passengers to revert to flights
instead, Chu Hai, an analyst with Pingan Securities Co., said in
a note yesterday.

Schwarzenegger’s Rides

California has said it may open bids for building a 432-
mile (695 kilometers) line linking San Francisco and Los Angeles
as early as this year. Arnold Schwarzenegger, the state’s then-
governor, tried a Chinese high-speed train in September as part
of an Asian tour that also included rides in Japan and South
Korea.
China plans to have 16,000 kilometers of high-speed rail by
2015, Wang Zhiguo, vice minister of railways, said in January.
The nation opened its first high-speed line in 2007. It had
4,576 kilometers of track in operation as of March, according to
the International Union of Railways.
A 1,318-kilometer kilometer line linking Beijing and
Shanghai opened on June 30. The $34 billion railroad suffered
delays yesterday because of storm-related electrical breakdowns,
according to China Daily. That was at least the fourth time this
has happened since operations began.
“China has been investing to build up its rail network,
but the problem is they’ve been doing it too fast,” said Byun
Sung Jin, an analyst at Mirae Asset Securities Co. in Seoul.
“Like a balloon, if you expand too much, it’s bound to
explode.”