China considers merger of domestic rail giants

China’s two state-owned railway equipment producers could be merged into one entity intended to lead the country’s high-speed rail export drive, the Financial Times reported. If approved, the merger of China North Locomotive & Rolling Stock Corp (CNR) and China South Locomotive & Rolling Stock Corp (CSR; 601766.SH, 1766.HK) would create the world’s largest rail company by operating revenue. It would also control over 90% of the Chinese rail equipment market. CSR and CNR have already announced plans to boost income more than threefold over the next five years, to around US$22.6 billion and US$21.1 billion respectively. The merger is backed by China’s railway ministry and the state assets regulator on the basis that a combined entity would be able to compete for international tenders without fear of being undercut by its rival. However, other ministries oppose the move, arguing that it is important to maintain competition in the domestic rail equipment market.