VIDEO: AAM President Scott Paul Testifies on Security, Competitive Risks of State-Owned Enterprises

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Washington, D.C. – Today, Alliance for American Manufacturing President Scott Paul testified before the House Committee on Transportation and Infrastructure to outline the security and competitive risks of state-owned enterprises (SOEs) to American public transit and freight systems.

Mr. Paul warns in The Washington Post that SOEs, such as the China Railway Rolling Stock Corporation (CRRC), are a threat to competition due to their unfair bidding practices, "Once CRRC achieves enough market share in the U.S. transit business, all other competitors fall by the wayside. … That's certainly not good for taxpayers or competition, or for transit providers that are looking for legitimate, fair and broad competition for their contracts."

In an October 2018 report on the threats U.S. freight rail infrastructure faces, Brig. Gen. John Adams, U.S. Army (Ret.), highlights that "[r]ail manufacturing is one of the 10 industries included in the Chinese government's 'Made in China 2025' initiative, a plan targeting global dominance in sectors that the Government of China considers most strategic to its global aims," making the inroads that Chinese SOEs, including CRRC, have accomplished in the sector alarming.


Chairman DeFazio, Ranking Member Graves, and members of the Committee, on behalf of the Alliance for American Manufacturing, a labor-business partnership, thank you for the opportunity to testify.

I’m going to summarize my extensive written testimony and make three points. First, China’s state-owned enterprises, and Beijing’s economic policies that support these firms, are a threat to American jobs and security. Second, firms in the rail and bus transit space such as CRRC and BYD, that have established a foothold in the U.S., thanks in part to government contracts financed by taxpayers, are part of this web and represent the tip of the iceberg. Third, you can protect American jobs and security, and demand reciprocity, through legislation and regulation.

China’s model of state-led capitalism has contributed to the loss of 3.4 million U.S. jobs and the hollowing out of our industrial base as dumped and subsidized imports surged into our market since China joined the WTO in 2001. China heavily subsidizes its 51,000 state-owned enterprises (SOEs) in almost every industry imaginable. These SOEs have devastated broad swaths of American manufacturing through dumping products, building up overcapacity, and targeting American firms with cyberhacking and IP theft. The SOEs are also supported by policies including but not limited to discriminatory loan rates, tax rates, direct subsidies, protected home markets, lax labor and environmental regulation, and exchange rate misalignment. Put simply, firms in the U.S. and elsewhere are not competing with other companies, they are competing with an entire nation, which has amassed $29 trillion in value for these SOEs.

And now these SOEs threaten the infrastructure arena. Two such firms – China Railroad Rolling Stock Corporation (CRRC) and Build Your Dreams (BYD) – have begun securing lucrative, U.S. taxpayer-supported contracts to supply our major cities with transit rail cars and electric buses. Their ambitions are sizeable: Establishing a substantial foothold in public procurement as a means of expanding into private sectors such as the freight rail and passenger automobile markets, as I illustrate in my written testimony.

CRRC is systematically working to drive established competitors out of the market and to achieve a monopoly in transit rail car production. If successful, this would be a disaster for taxpayers and for transit providers that are looking for legitimate, fair and broad competition for their contracts. You can look at the Australian market for perspective. In just the last decade, CRRC undertook a similar campaign leading to the obliteration of that country’s rail manufacturing sector.

While final assembly of CRRC rail cars may be local, component and parts manufacturing include heavy Chinese content. CRRC’s U.S. assembly plants are a vehicle for this content to be delivered into the U.S. market. That puts 90,000 high-wage jobs—many of them unionized—in 750 companies and 39 states, at risk of being displaced.

Dominating the medium- and heavy-duty electric bus sector is also in Beijing's plans. A key feature of China’s industrial policy is the support of “national champions” such as BYD. Its revenue growth has coincided closely with the trend of government support subsidies, access to below-market-rate capital and other industrial policies.

It’s clear BYD is also a delivery system for Chinese imports at taxpayer expense. An Inspector General (IG) report issued by the City of Albuquerque calls into question the legitimacy of BYD’s compliance with federal Buy America laws.

Further evidence to support these assertions includes BYD’s public comments to the U.S. Trade Representative (USTR) requesting Section 301 tariff relief for Made in China storage batteries, parts, and electric vehicles, specifically noting four electric bus models.

Already the world’s largest electric vehicle company by sales, BYD executives have been outspoken in their plans to one day sell passenger cars in the United States. BYD’s chairman has boasted of plans to dominate world auto sales by 2025.

BYD’s economic model of assembling vehicles in the United States, but relying on imported parts and components, would threaten over 5,600 parts suppliers spread across the nation, employing 871,000 workers, the very heart of American manufacturing.

My testimony today should not be read as an attack on the American workers employed by CRRC or BYD, nor on foreign investment. We must respect the dignity of work and encourage foreign investment. But this is no ordinary foreign investment. Our workers and firms in the supply chain are not competing with a company in CRRC or BYD, they are competing with an entire country.

I wish to outline a series of recommendations for this committee and Congress to consider.

First, we urge your support for the bipartisan Transit Infrastructure Vehicle Security Act, introduced by several distinguished committee members, including Representatives Rouda and Crawford. We agree that America’s tax dollars should not be used to support Chinese SOEs seeking to undermine legitimate competition.

Second, transit systems such as WMATA should not be permitted to allocate “non-federal” resources for the procurement of rail cars from CRRC when it also receives hundreds of millions annually from the federal government.

Third, close loopholes and add teeth to Buy America. The U.S. Department of Transportation and Federal Transit Administration (FTA) need to promptly modernize Buy America rules as it pertains to battery-electric power propulsion systems on buses. A long-term plan, with appropriate recognition of the need for transition strategies, must be adopted.

Fourth, we urge that both CRRC’s and BYD’s Buy America certifications be audited to ensure compliance.

Fifth, even if bids by firms like CRRC and BYD were to abide by market-based pricing, it is necessary that we address security concerns.

Sixth, we must protect our freight rail sector with far more transparency and limitations on Chinese state involvement.

Seventh, we must insist on reciprocity in procurement. No U.S.-based firm can enter the Chinese procurement market the way in which CRRC and BYD have entered the American market. China is not a signatory to the Government Procurement Agreement (GPA). Put simply, the United States should consider banning all Chinese products and firms from our procurement market until there is demonstrable progress on reciprocity in law and in practice.

Finally, we encourage you to continue the hard work of passing a substantial infrastructure investment paired with strong Buy America requirements. A lack of adequate, consistent funding puts added pressure on transit agencies to find ways to cut costs, even if that means sourcing rolling stock from companies with lingering quality issues, dubious Buy America compliance, security issues, and clear designs on leveraging state backing to grab market share from their competitors.

Thank you for the opportunity to testify. We look forward to working with you to strengthen America’s economy and national security through smart infrastructure and procurement policy. I look forward to your questions.