Analysis: China's spluttering railway investment likely to hit equipment makers

BEIJING (Xinhua) -- A drastic slowdown in China's railway investment in January is likely to cast a shadow over the nation's relevant equipment manufacturing sector in 2012, say analysts.

Earlier, on Wednesday, China's Ministry of Railways (MOR) announced that national basic railway construction investment dived 76 percent year on year to just 8.7 billion yuan in January, with railway-related fixed-asset investment also down 69.6 percent year on year to 12.2 billion yuan.

In spite of broad agreement about the slowdown of 2012 railway investment, the gloomy January results were still worse than industry experts' expectations. This may make the MOR's 400 billion yuan 2012 railway infrastructure construction investment target a "mission impossible", even taking into account the fact that the January data is usually the annual low point.

As a result, China's railway equipment manufacturers are surely now under pressure. "Ever since the second half of 2011, the country's entire railway equipment manufacturing industry has been unstable, as most of the producers were unsure about their next year's production plans because of the MOR's stretched capital conditions," according to a manager with a listed railway equipment manufacturer.

Currently, the MOR remains the largest buyer for Chinese railway equipment manufacturers, and it is hard for them to count on the overseas orders and orders from domestic companies in view of the low quantity, observes the manager.

Despite growing railway construction in emerging nations and US's railway restructuring programs over the last couple years, China's large railway equipment manufacturers such as China CNR, CSR, and Jinxi Axle have not benefited significantly.

In these circumstances, incomes of railway equipment manufacturers are likely to steadily shrink alongside the decline in new contracts over the next two or three years, hold industry experts.

But in view of the steady growth in China's freight market, railway-freight equipment producers, especially coal transportation equipment manufacturers, may be the only safe haven.

In recent years, China's average daily cargo turnover and delivery volume have been increasing steadily and capacity of two of its three major coal transportation railways is near saturation.Meanwhile, some Chinese companies are also increasing their own train or other railway-related vehicle purchases, which may give a boost to the country's railway manufacturing industry. (Edited by Duan Jing, duanjing@xinhua.orgAir Jordan