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Economic, political risks complicate China’s rail ambition

By Su Tan (Global Times)    08:14, February 03, 2015

The campaign to expand China's high-speed rail enterprises internationally hit a bump in the road recently when Mexico announced it would suspend indefinitely a high-speed rail project that Chinese enterprises are involved in, but not before several rounds of wrangling.

The government cited spending cuts amid a slump in oil prices and a global slowdown as the reasons.

This is not the first U-turn in the project that aimed to provide a high-speed rail line from Mexico City to the industrial city of Queretaro. In November, Mexico suddenly canceled the rail contract awarded to a Chinese consortium due to transparency concerns and domestic politics.

It later relaunched the bidding process. Mexican authorities released preliminary bid terms for the project on January 14 and postponed the due publication of final tender documents on January 28. The Chinese consortium again joined the tender and seemed poised to clinch the deal over four other rivals.

As Latin America's second-largest economy, Mexico relies heavily on crude oil to fund about one-third of its budget. The plunge in international oil prices would deal a blow to its economy. However, since the sharp decline in oil prices was already seen in 2014 and lingers on, its impact would not just have been felt in the last few weeks. Even on January 23, Mexico's Federal Competition Commission offered 23 recommendations in a bid to invite greater participation into the tender. This somewhat bolstered suspicions that the decision to suspend the contract was more politically motivated.

The abrupt changes by the Mexican government regarding a $3.75 billion deal will surely dampen the confidence of Chinese investors that seek to work with Mexico. China's rail enterprises have made some progress in other Latin American countries, including Brazil and Argentina. But this initial success may also be subject to risks later.

We have to realize that China's booming high-speed rail industry will face various disagreeable and uncertain situations in its efforts to go global. Recent data showed that the Beijing-Shanghai high-speed line was expected to make a profit of 1.2 billion yuan ($19.2 million).

The low cost and high quality of China's high-speed rail will allow it extensive room for cooperation and China is in the midst of negotiations with 28 countries on high-speed rail projects.

But in this process, Chinese enterprises should learn from the Mexican case that they need to give full consideration and evaluation of possible risks due to political and economic situations in countries they plan to work with and be well-prepared for handling such incidents. 

(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Editor:Yuan Can,Yao Chun)

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