China’s High-Speed Railways: A Work of the Ministry?

Earlier this year, in newspapers, on TV, and over the Internet, China’s state media triumphantly announced the country’s breakthrough in high-speed trains. According to reports from Xinhua, China’s state news agency, China now has the world’s “longest high-speed railway tracks, fastest high-speed trains (running at 380 km/h), and largest scale of high-speed railway under construction”.

How have foreigners responded to these announcements? In March, soon after the Chinese media blitz, Japanese business executives criticized the Chinese for “steal(ing) technology and compromis(ing) safety (in speedup)”. In April, newspapers like The New York Times worried about IP issues as China was expected to export its high-speed trains. In October, when the California governor Arnold Schwarzenegger was on a shopping tour to buy low-costs Chinese bullet trains, The Financial Times wrote a long editorial piece on “how China digests (or steals?) the technology” (October 8). However, none of these responses questioned the content of the Chinese claims. Indeed, China’s leadership in high-speed railway systems seems to be well-founded.

The fear is that the Chinese will take over one industry after another by implementing similar “digesting” strategies, defined by China’s Ministry of Railway as improving and innovating on the basis of imported foreign technologies. Those who are familiar with China’s history of technology development over the past thirty years would cast doubts on such a quick conclusion. From the late 1980s, Chinese officials began to talk about the so-called digesting strategies, based on imitating the successes of Japan and South Korea. Yet, from automobiles to pharmaceuticals to semiconductor chips, many of China’s expensive state projects have failed.

It is rare for the technology import and digest projects to be conducted by a strong arm of the government. In the case of rail transport, however, the Ministry of Railway owned the country’s entire railway system, plus dozens of super-large state-owned train makers with annual sales of billions of RMB. The railway system is essentially a national monopoly, which enabled it to act like a business group in collectively and aggressively bargaining with foreign partners, Germany’s Siemens, France’s Alstom, Japan’s Kawasaki Heavy Industries, and Canada’s Bombardier. Lured by the world’s largest high-speed railway market, the four foreign companies compete with each other so fiercely that they are all suspected of transferring to the Chinese more of the advanced technologies than they had agreed to provide.

In many other technology-digest projects conducted by weaker ministries, China’s decentralized development pattern gave enormous incentives to local governments to foster growth, but it also created too much governmental competition, manifested in greater concessions to attract multinationals. Such competition generally undermined the state’s ability to leverage China’s big market in bargaining with the powerful multinationals. Before the success of high-speed railways, the norm of the Chinese state technology-digest projects was to pay a lot and only get a little.

The other difference in railways is the technological sophistication of the Chinese firms involved. Historically most Chinese state-owned enterprises (SOEs) were badly managed, at least before the major restructuring of SOEs in 1998. Many of the SOEs involved in state projects had little capability to learn new skills or engage in technology upgrading. But railways were different because of a history of attempts to learn from abroad. As early as 1990 the Ministry of Railway began sending engineers to France and Japan to learn the high-speed technology. The first Chinese home-grown high-speed model was a system called “Spring City” developed in 1998 in a state lab located in a ministry-owned SOE. The “Spring City” engineering team was subsequently involved in developing the China Star of 2002 and in later technology transfer programs. As a result, a few of the SOEs in railways were technologically quite sophisticated before entering the digest project.

In sum, the main reason for China’s success in high-speed trains is the Ministry of Railway’s system of innovation.

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About Yin Li

As a graduate student of economic development, my interest is in understanding innovation, which in my belief, the key dynamism of a modern economy. Through visionary strategy, mobilized organization, and committed resources, successful industrial enterprises generate innovations that have shaped national economy and the world we are living in. Since the beginning of 20th century, innovative enterprises have played the central role in the rise of the American, European and Japanese economy. Now a similar process is inevitably happening in China, which I am devoting this blog to.

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