EU: In January 2023, new European public procurement rules for companies with state support of non-EU countries, FSR, came into force. The FSR establishes control over procurements for at least €250 mln and purchases of assets generating a turnover of at least €500 mln. The first non-EU company to be affected by the new rules in the rolling stock market is CRRC. With state support, the company made offers with significantly lower prices compared to its European competitors.
The new EU regulation is expected to apply to procurement procedures initiated in July 2023. The FSR enables the European Commission to investigate tenders with an estimated value above €250 mln with financial contributions from non-EU governments and tender bids by companies that received over €4 mln from non-EU governments in the previous three years. Such investigations are to protect EU companies from lower prices that non-EU bidders can offer because of state support. If the Commission establishes that foreign financial contributions have an adverse effect, then it will balance it and can even prohibit awarding the contract to a bidder with such support.
Entry into the European market through purchases of assets will also be complicated. The Commission will monitor purchases of European assets where the acquired company, one of the merging parties, or the joint venture generates an EU turnover of at least €500 mln and such companies received more than €50 mln from non-EU governments in the previous three years.
The Commission states that tenders and deals below the mentioned thresholds can also be investigated either on its initiative or upon notification.
In the rolling stock market, the developments will disadvantage the activities of the world’s major player, CRRC, most of all. Its expansion into international markets is based on large-scale governmental support to its offers and to offers by Chinese construction companies that implement turnkey infrastructure projects.
Following the measures that limit its activities throughout regions and countries, CRRC now receives fewer export orders and has already lost some of them. UNIFE data published on soes-in-europe.eu, the website presenting information on third-country state-owned enterprises in the European procurement market, reveal that in 2019–2020 CRRC lost eight EU tenders worth almost €2.8 bln and won only four tenders worth €236 mln.
CRRC’s double-deck electric train for the EU market. Source: CRRC
Back then CRRC’s biggest win and loss were in Romania. The manufacturer lost action on a contract to supply up to 80 electric trains although it had offered a price 25–28% lower than Alstom or Siemens. In the meantime, in a consortium with local Astra CRRC was ordered 100 trams for Bucharest. UNIFE reports only one case when CRRC’s proposal was rejected directly. In 2020 the company’s bid for the construction of 45 trams for Germany was deemed non-complying with the required localisation level.
According to UNIFE, in 2011–2018, CRRC participated in seven tenders and won all of them. These tenders required to supply small batches of freight cars, locomotives, trams, and multiple units. Among these tenders totalling €227 mln, a contract to deliver electric trains for €190 mln stood out in terms of price, but Leo Express, the private operator in Czechia, terminated it in 2022.