State-Owned Security Concerns for Transit Rail01 Jul 2020
China has not been shy about its expansion into global markets. Through the Made in China 2025 and Belt and Road Initiative, the communist nation has broadcast its intention to be more involved around the world, to project power, and to integrate itself in the infrastructure, economics, and politics of more of the world.
One outgrowth of this broad strategy was the merger of two of China’s largest rail manufacturing companies to form the China Railway Rolling Stock Corporation (CRRC). Through this mega-corporation, owned and controlled by the communist government and military, China has gained access to multiple markets.
Read our Policy Brief on Chinese Infrastructure Ambitions
One major example is the Australian freight rail market, where CRRC entirely supplanted domestic competition in fewer than 10 years. The expansion is noteworthy for its own sake, but the implications for security are what raise further concerns.
America’s spy chiefs and top intelligence officials have already warned against Chinese technology and its capability to interfere with and even shut down private energy infrastructure. The Pentagon recently classified CRRC as one of 20 military-directed Chinese firms. This is why many have expressed concern that CRRC entered public infrastructure bids across the U.S.
To date, CRRC won bids in Boston, Chicago, Los Angeles, and Philadelphia, each with bids below well-established competitors and friendly trade partners. The entry into U.S. markets is further concerning given the high-tech aspect of the transit rail cars they are contracted to provide. With everything from train control technology and onboard computer systems to WiFi and cameras, there is potential for anything from ransomware attacks and lockdowns to espionage or even collisions.
Congress already passed legislation banning federal taxpayer dollars from being awarded to CRRC. This was through language known as the Transit Infrastructure Vehicle Security Act (TIVSA) included in last year’s National Defense Authorization Act (NDAA). The law did not specify China or CRRC, but prohibited federal dollars to non-market state-owned firms, which describes CRRC.
The next frontier for many is to prevent state-level tax dollars from CRRC, either forcing them out of the market or forcing them to lower bids to such levels that transportation authorities can accept them without any taxpayer assistance. These lower bids would not be impossible for a state-owned enterprise, but would fully reveal that they are not market participants, because no private firm could compete at those levels.
As it stands, upgrading our transit infrastructure is incredibly important. Investment in public infrastructure has long been overlooked, and there is a reason many localities are turning to low bids to update their metro and subway networks, while saving millions of dollars. Allowing China to play a role in that is a question of prudence that must be examined thoroughly.
Written by Benjamin Dierker, Director of Public Policy
You can read more about TIVSA and its potential impacts in our latest policy brief here.
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The Alliance for Innovation and Infrastructure (Aii) is an independent, national research and educational organization. An innovative think tank, Aii explores the intersection of economics, law, and public policy in the areas of climate, damage prevention, energy, infrastructure, innovation, technology, and transportation.