The first China-US joint high-speed rail project was halted after the US partner XpressWest unilaterally withdrew from its deal with China Railway International (CRI). The termination of the partnership is a major blow to plans to build a rail line linking Las Vegas and Los Angeles.

Federal rules blamed
XpressWest and CRI released a joint announcement in September 2015 about the plan to set up a joint venture company to construct, finance and potentially operate a 370-kilometer high-speed railway project connecting California and Nevada. The construction work, requiring an estimated total investment of about $12.7 billion, was originally scheduled to start in September this year.
 

“Our biggest challenge continues to be the federal government’s requirement that high-speed trains must be manufactured in the US,” said Tony Marnell, CEO of XpressWest, in the announcement posted on the company’s website.
 

According to the contract, cancellation requires the consent of both parties. XpressWest’s unexpected withdrawal is in violation of the deal, and its reasons for doing so are unconvincing, said Teng Jianqun, director of the Department for American Studies at the China Institute of International Studies. Teng said the exclusion of other countries from US rail construction by the federal government is a form of trade protectionism.

Yang Jian, a tenured professor from the University of Colorado at Denver, said XpressWest’s decision violates the fundamental essence of what a contract represents.

“The rail project is commercially beneficial for the US, which was one of the reasons why the deal was signed in the first place,” Yang said. “The breach is possibly caused by the non-commercial factors, particularly political factors that tend to be reinforced by the US election. This may disturb normal commercial decision-making, resulting in commercial losses for both XpressWest and CRI.”
 

This is an example of the political risks that Chinese companies encounter when investing in the United States, he said.

Chinese high-speed railway
Wang Mengshu, an academician of the Chinese Academy of Engineering, said China’s high-speed rail industry has three major advantages. One is that China excels in rail and tunnel construction technology, which enables it to cope with a number of technical challenges, such as the potential for rail lines to be warped by temperature variations. Moreover, China also has a team of technologically proficient personnel in the rail sector. According to estimates, Chinese companies are able to deliver rail projects at a cost that is 67 percent to 50 percent lower than companies in other countries.
 

“Symbolizing the globalization of Chinese manufacturing, high-speed rail construction is a systematic project that involves too many factors. Therefore, it is normal for it to encounter twists and turns during the process. Thus, rational thinking is needed,” said Zhang Jianping, director of the Department of International Economic Cooperation at the Institute for International Economic Research under China’s National Development and Reform Commission.

Concealing trade barrier
In recent years, China has established high-speed rail partnerships with at least 30 countries. The range of connectivity covers Turkey, Saudi Arabia, Iran, Thailand, Laos, Malaysia, Brazil, Russia and other countries.

According to some analysts, Chinese rail projects are able to succeed in foreign markets based on their knowledge of local demand and full use of their comparative advantage, which is not only profitable for Chinese enterprises but also benefits the local people.
 

Zhang pointed out that XpressWest’s withdrawal is more likely an extension of trade friction. “The high-speed rail industry will bring up the demand for relevant products like steel and electrical equipment. For a US company to suspend a rail project in order to protect its domestic industry is not in the American interest.”
 

“Since World War II, the United States has profited a lot from international free trade and investment, of which it is also a promoter. Therefore, unless there is a sufficient technological justification, suspicion of a trade barrier in disguise is inevitable,” Yang Jian said, adding that the United States is expected to make mutually beneficial trade with China a norm, while China needs to be better aware of the political risks that are inherent in international trade and investment to formulate more effective approaches to risk management.