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CRRC may face new US sanctions

11 October 2022
Reading time ~ 6 min
Metro trains manufacturing for the Boston Metro Orange Line at the CRRC plant in Springfield
Metro trains manufacturing for the Boston Metro Orange Line at the CRRC plant in Springfield. Source: CRRC
Litvintsova Olga, Editor of International Projects, ROLLINGSTOCK Agency
Reading time ~ 6 min
Stolchnev Alexey, Russian Projects Editor, ROLLINGSTOCK Agency

USA: Last week, the US Department of Defense blacklisted the rolling stock manufacturer and a number of other Chinese enterprises that it believes are fulfilling a defense order in China. Being on the list does not imply an immediate imposition of sanctions, however, based on it, the US president may later impose them. In addition, the listing may result in the imposition of various restrictions on CRRC counterparties in the country, including additional export controls and ban on investments.

At the same time, the ban on investing in the CRRC was already introduced in June last year. The corresponding document, signed by US President Joe Biden, prohibits American citizens and companies from trading in CRRC’s securities.

Counterworks against CRRC have been continuing in the US for several years. Thus, in July 2019, the US Senate approved a one-year ban on signing state contracts for the supply of rolling stock with companies that are owned or subsidized by the Chinese government. In early 2020, the US Congress adopted a law that completely banned state funding for the purchase of rolling stock from Chinese manufacturers due to threats to cybersecurity. Also, in the summer of 2020, CRRC was included in a similar list of companies suspected of having links with the Chinese defense authorities during the government of former US President Donald Trump. It is worth noting that just before the introduction of restrictions, CRRC was preparing to participate in the competition for a large order of up to 949 metro cars for New York.

If the US Department of Defense sees the CRRC as a threat to the country’s security, then the US Information Technology and Innovation Foundation (ITIF) sees it as a threat to expansion into the world market. A report published by ITIF in May last year claims that significant state support allows CRRC to offer rolling stock 20-30% cheaper than other manufacturers. One of the ITIF proposals is to limit the CRRC’s involvement in local supplies and develop a “more fair” international procurement system. The Rail Security Alliance, an American association of rolling stock and components manufacturers, also made calls to continue blocking the CRRC.

CRRC owns two US manufacturing sites located in Springfield and Chicago. They were established for the implementation of several major contracts since the current legislation in the US requires the localization of rolling stock for deliveries under state contracts.

The first two US contracts totaling $880 mln USD were awarded to CRRC by the Massachusetts Bay Transportation Authority (MBTA) in 2014. Rolling stock was built at the Springfield plant, in which CRRC has invested $95 mln. According to initial plans, the producer was supposed to deliver 152 metro cars for the Orange Line of the Boston metro system by January this year, and 252 cars for the Red Line by next September. However, in 2020, the delivery schedule was postponed: a new deadline was approved for the Orange Line in April 2023, and for the Red Line in September 2024. In October, CRRC asked to delay deliveries again due to concerns related to the COVID-19 pandemic: for the Orange Line until the summer of 2023, and for the Red Line until 2025. MBTA representatives are not ready to confirm the new schedule and threaten the manufacturer with fines of $500 for each day of one train delivery delay. In addition to vehicles for Boston, 45 double-deck cars for the Northeast Corridor (NEC) and 64 metro cars for Los Angeles are assembled in Springfield. The corresponding tenders were won by CRRC in 2016 and 2018.

Also, CRRC assembles the 7000-series metro cars at the Chicago plant in accordance with the firm part of the contract concluded in 2016 with the Chicago Transportation Administration (CTA). It includes delivery of 400 metro cars until 2024. More than $100 mln was invested in the site. CRRC carries out the final assembly of cars at the enterprise, the components for which are supplied by 24 companies, and 19 of them are based in the USA. The order also includes an option for other 446 railcars, and if it is signed, the total value of the contract could reach $1.3 bln. It is noted that the company will not be able to receive new orders in the country, while this ban should not affect the current contract with CTA.