Manufacture This

The blog of the Alliance for American Manufacturing

In the short-term, great. But in the long run, is business with the Chinese state a good idea?

Big press conference up in Massachusetts today. At a manufacturing facility in Springfield, local and state leaders, including Gov. Charlie Baker, were on hand for the unveiling of rail cars manufactured for the MBTA (that’s the Boston area’s rail system, for those not from New England).

The workers in Springfield are understandably thrilled to be earning a good wage while leaving their stamp on such a visible part of Boston. “It's pretty cool knowing ‘hey I built this thing,’ it's going to be around for a good 50 years if not longer,” one worker told a local news outlet.

And really, that guy’s got a point. You can’t knock the sweat these workers put into assembling these rail cars.

But you can knock the workers’ parent company, and the potential economic damage done in awarding this rail car contract to it. That company is CRRC, or China Railway Rolling Stock Corporation, which took on the MBTA contract after it formed from the merger of two state-owned enterprises (SOE) in 2015. The contract was won in 2014 by one of those parent companies, CNR MA, after it underbid its competition by roughly $150 million.

That’s a heck of an offer -- made by a company with the financial backing of the Chinese government. It’s also a bad look, as critics noted at the time, for the Massachusetts Department of Transportation to so eagerly award business to a company controlled by that government.

While it’s good that CRRC adhered to conditions set by the state and built a factory in Springfield to get that contract, and it’s obviously good for these workers in New England to have steady work building rail cars, the environment in which CRRC landed this business is concerning. That was a problem bred in Washington: A lack of steady federal infrastructure investment that encourages them to consider price tags first. When you’re robbing Peter to pay Paul, you aren’t considering the long-term problem created by weakening the domestic manufacturing ecosystem that supports thousands of American jobs. When American manufacturers lose a work bid set out by an American state to a Chinese SOE, that’s an example of that problem in action.

That leads to another question: How much faith should be put into a company that has actual deference to the Communist Party of China built into its bylaws? A report released in October went into this issue with a little bit of depth. It argued that the Chinese government, and the Communist Party of China, are leaning on CRRC to build a foothold in the United States by first winning transit contracts – and then moving into more important corners of the U.S. economy.  

From the report:

The Chinese government is banking on the fact that once CRRC secures sufficient U.S. municipal transit contracts, it can pivot quickly and inexpensively toward the more strategically important freight rail sector. There, China can unload much of its current freight car manufacturing capacity oversupply – offsetting its own, slowing domestic market while continuing its strategy of using exports to sustain the nation’s employment base.

CRRC, meanwhile, has won contracts to build rail cars for Los Angeles, Chicago and Philadelphia

Here’s what we said about CRRC and its Massachusetts adventure at the time:                                                                                                                                             

In a climate where states have huge infrastructure issues and minimal capital to spend, here's a good question: Has Washington’s lack of investment put at risk existing domestic private-sector manufacturers and the domestic supply chains that employ thousands of workers throughout the United States?

Three years later, and that question still holds up! It’s unfortunate that some members of Congressional leadership are right now trying to ease entry of such SOEs into the American market. These companies are massively subsidized by a government with which the United States is squaring off over trade policy.

Why are they being offered contracts in which American taxpayers are footing the bill?