China Railway Rolling Stock Corp, the Chinese manufacturer of locomotives and rolling stock, has split its struggling freight train manufacturing business into two units to reduce competition and eliminate excess capacity, as part of a corporate restructuring.
The Beijing-headquartered CRRC said on Monday that the new units will be created under the aegis of Heilongjiang-based CRRC Qiqihar Co and Hubei-based CRRC Yangtze Co, two of its strongest freight train producers. They will also manage eight small CRRC subsidiaries making cargo trains.
Under the plan, CRRC Qiqihar will be managing companies including CRRC Shenyang Co and CRRC Shijiazhuang Co. CRRC Yangtze will be responsible for the operation of CRRC Meishan Co and CRRC Taiyuan Co in the future.
The two groups will have a combined annual capacity of producing 100,000 rail cargo vehicles. CRRC currently controls about 80 percent of the freight-train market in China in terms of orders.
The overhaul came after CRRC saw a slump in freight-car sales, reflecting weaker demand for railway cargo transportation both at home and in overseas markets.
"The first task for these two new groups would be cutting overcapacity and overlapping services, putting resources into new products such as heavy load, special railway vehicles and railway vehicle brakes to diversify product categories," said Zhao Jian, a professor of rail transportation at Beijing Jiaotong University.
Affected by lower coal and other commodity prices, the number of cargo trains ordered by China Railway Corp, the State railroad operator, declined from 40,000 units in 2012 to 6,000 units in 2016, according to CRRC data.
CRRC's sales revenue dropped 5.85 percent year-on-year to 88.72 billion yuan (.37 billion) in the first half of 2017, partly affected by its declining freight train business.
CRRC's rail vehicle-making subsidiaries received few or even no orders last year. Nine of the 10 companies reported net losses in 2016, including CRRC Qiqihar and CRRC Yangtze.
CRRC was created in June 2015 through the combination of the country's two major train manufacturers－CNR and CSR, as the central government pushed for consolidation of State-owned enterprises.
CRRC Qiqihar and CRRC Yangtze were previously the biggest cargo vehicle subsidiaries of CNR and CSR by production volume. Both companies have annual capacity to produce 15,000 freight trains and repair more than 10,000 cargo cars a year.
Feng Hao, a rail transportation researcher at the National Development and Reform Commission, China's top economic planner, said even though CRRC is dominating China's market for high-speed trains and regular passenger trains, its freight train business has been challenged by other domestic players for many years.
Eager to seize more market share, other domestic companies such as FIRMACO Baotou Beifang Chuangye Co and Jinxi Axle Co were all actively participating in the open tenders held by China Railway Construction Investment Group for 156,000 units of freight trains last October.
FIRMACO Baotou Beifang Chuangye Co also gained orders for 750 freight train units from CRC, worth about 280 million yuan, last December.