Yellow Light for High-Speed-Train Deals in Asia

Kawasaki, Siemens, and Alstom have picked up juicy contracts, but China and Korea are focused on their own systems, while India balks at the cost

by Brian Bremner

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The launch of the new $15 billion Taiwan High Speed Rail service, built with imported Japanese high-velocity-train technology, on Jan. 5 once again confirmed the Asia's economic dynamism. And global engineering and transportation companies sure hope the Taiwanese bullet train (which will cut travel time between Taipei and the southern port city of Kaohsiung from four hours to 90 minutes) heralds the start of a 21st century build-out of the region's public rail transport systems.

In many ways, Asia should be an ideal staging ground for next-generation train systems now being pitched by Japanese firms such as Mitsui (MITSY) and Kawasaki Heavy Industries (KWHIY) as well as European players such as Germany's Siemens (SI) and Alstom of France.

A group of Japanese companies led by Central Japan Railway Company is developing a lightning-fast, superconducting magnetic levitation train called the JR-Maglev MLX01 that has reached record speeds of 361 mph (581 km/h) in test runs. Since 2004, the Shanghai Maglev Train—built with German technology—in China has delivered passengers from Pudong International Airport to the Longyang Road Station, a downtown subway station, in about eight minutes.

High Hopes in Japan

The region is economically prosperous, densely populated, and eager to connect major urban centers to boost development. Japan pretty much invented high-speed rail service—generally defined as trains that clock speeds in excess of 125 mph (200 km/h)—in 1964 with the debut of its first bullet-shaped train, the Tokaido Shinkansen, which connected Tokyo, Nagoya, and Kyoto.

And in Japan there are big hopes that Kawasaki and others will cash in on proposed high-speed train projects in China, India, and other emerging markets such as Russia. Kawasaki Heavy, for instance, manufactured train cars for the Taiwan bullet train, and is selling other transportation gear in China. "The Taiwan Shinkansen is the first case (for Kawasaki) to export and it is symbolic as a trigger," points out Nomura Securities analyst Shigeki Okazaki in Tokyo. "In the future, there are good prospects in India and Russia."

All that may be true, but there are good reasons to think the Japanese and European high-tech train manufacturers won't exactly waltz through the region picking up big contracts. For one thing, these massive, big-ticket, public transportation projects can take ages to design and build. Taiwan conceived its bullet train system back in 1980, and successive governments dithered over project details and then abruptly dumped French and German contractors for the Japanese team in 2000.

Sure, Asia contracts can be lucrative, but South Korea and China have pressured foreign companies to agree to technology-transfer clauses to build up their own industries.

Focus on Tech Transfer

Back in 2004, South Korea became the second Asian nation after Japan to build a high-speed train service between major cities. The Korean KTX (Korean Train Express) high-speed rail service is based largely on France's TGV technology developed by Alstom.

But the South Koreans insisted upon and won technology transfer rights as part of the project. Now, the government and private companies such as Hyundai Motor Group unit Rotem are working on next-generation high-speed train systems and have ambitions to compete with Alstom, Siemens, and the Japanese for contracts in Asia, Latin America, and the Middle East. "We now have high-speed train technology that could be offered in export markets," says Bang Yoon Sock, deputy director at the Ministry of Construction and Transportation's railway industry division.

With its vast build-out of national rail networks, China also has extraordinary leverage to extract technology-sharing concessions. True, there have been some big contract wins by foreigners on the mainland.