July 23, 2016 5:50 am JST

Japan, China face round 2 in high-speed rail battle

MANABU ITO and TOMOMI KIKUCHI, Nikkei staff writers

A boy tries a shinkansen simulator at a mall in Kuala Lumpur.

TOKYO/SINGAPORE -- Japan and China are locking horns over a high-speed rail link slated to connect Singapore and Malaysia in 2026, after Beijing beat out Japanese competition for a similar contract in Indonesia last year.

"The shinkansen bullet train serves as the foundation for conducting business efficiently in Japan," the country's transport minister, Keiichi Ishii, said at a symposium in Singapore on Friday. He told the event's roughly 280 attendees, including the city-state's transport officials and business leaders, that Japanese companies manage their projects efficiently and would deliver on time.

A consortium consisting of East Japan Railway, Sumitomo Corp., Mitsubishi Corp., Hitachi and Mitsubishi Heavy Industries has its eyes on the deal. East Japan Railway, better known as JR East, opened an office in Singapore in March 2013 to gather information. The company plans to use its own experience in punctual railway operations, safety measures and maintenance to help win the contract.

Hitachi, which received a large-scale order for rolling stock in the U.K., is confident in Japan's shinkansen technology and eager to bolster exports of high-speed train cars. Mitsubishi Heavy will be responsible for the electrical and mechanical systems, while Sumitomo and Mitsubishi will provide financial and management assistance.

China, meanwhile, is working to ramp up infrastructure exports under President Xi Jinping's "One Belt, One Road" initiative. A key goal is establishing a high-speed railroad from the Chinese city of Kunming across Southeast Asia, for which the Singapore-Malaysia link is a crucial component.

Beijing has already begun making moves for winning the contract. In March, state-run giant China Railway Group announced that it will invest $2 billion to redevelop the area where the new station in central Kuala Lumpur will be built.

China's state-run companies also snapped up a number of assets from Malaysian state investment fund 1MDB last year, purportedly for more than market value, effectively rescuing the troubled fund founded by Prime Minister Najib Razak.

"China has the advantage at this point in time," a Malaysian diplomat said. China has already won rail construction projects in Laos and Thailand. It could lock Japan and other countries out of Southeast Asia by making its gauge and systems the region's de facto standard.

Singapore and Malaysia signed a memorandum of understanding for the project on Tuesday, where they agreed that the tender process should be fair, equal and transparent. The city-state may be warning Malaysia against giving in to Beijing's cash.

But even if China stopped currying favors, Japan will not necessarily gain the upper hand. A fair and transparent bidding process will likely attract even more competition, such as from France's Alstom and German giant Siemens. Japanese bidders will be forced to carefully weigh the risks associated with the project, which has already been delayed significantly from the initial target opening date of 2020.

Hopes on the ground

The Singapore-Malaysia link is expected to provide a significant boost to tourism and business. Singaporeans could easily go shopping in Kuala Lumpur where prices are lower, for example, or tourists to Singapore could take a quick hop over to Malaysia.

Malaysia is also banking on the project to boost employment. The government estimates that construction and other related operations will lift gross national income by 6.2 billion ringgit ($1.52 billion) and create 28,700 new jobs. Najib called the project "a game-changer" in a Tuesday news conference.

But the rail link will face tough competition from low-cost carriers and other forms of transportation. It takes about 4 hours to travel from the heart of Kuala Lumpur to the heart of Singapore by plane, including the time to and from airports. Leading budget carrier AirAsia offers one-way tickets for as little as 38 Singapore dollars ($28).

The high-speed train will take its passengers between the two cities in roughly an hour and a half. But the stations will be located a 20 to 30 minute car ride from the city centers. It remains to be seen whether the link could recoup its costs, estimated at about 65 billion ringgit, while competing with cheap flights.

East Japan Railway Co.

Japan

Market(Ticker): TKS(9020)
Sector:
Industry:
Transportation
Railroads
Market cap(USD): 34,988.80M
Shares: 389.40M

Sumitomo Corp.

Japan

Market(Ticker): TKS(8053)
Sector:
Industry:
Distribution Services
Wholesale Distributors
Market cap(USD): 16,585.56M
Shares: 1,250.60M

Mitsubishi Corp.

Japan

Market(Ticker): TKS(8058)
Sector:
Industry:
Distribution Services
Wholesale Distributors
Market cap(USD): 34,360.35M
Shares: 1,590.07M

Hitachi Ltd.

Japan

Market(Ticker): TKS(6501)
Sector:
Industry:
Producer Manufacturing
Industrial Conglomerates
Market cap(USD): 26,861.02M
Shares: 4,833.46M

Mitsubishi Heavy Industries, Ltd.

Japan

Market(Ticker): TKS(7011)
Sector:
Industry:
Producer Manufacturing
Industrial Machinery
Market cap(USD): 13,801.35M
Shares: 3,373.64M
Asia300

China Railway Group Ltd.

China

Market(Ticker): HKG(390)
Sector:
Industry:
Industrial Services
Engineering & Construction
Market cap(USD): 27,341.82M
Shares: 22,844.30M

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