State-owned and state-supported enterprises

March 17, 2020

On Thursday, March 5, 2020, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing on “Threats Posed by State-Owned and State-Supported Enterprises to Public Transportation.”

orange and white subway train going through a station

MBTA Subway Train, © Marvin Rodas / Adobe Stock


Last year the Transit Infrastructure Vehicle Security Act was introduced by Senators Mike Crapo (R-ID), Sherrod Brown (D-OH), John Cornyn (R-TX), and Tammy Baldwin (D-WI). The act’s language provided the foundation for Section 7613 of the $738 billion National Defense Authorization Act, or NDAA, enacted in December 2019.

The legislation arose from the concerns of unfair competition and for national security primarily posed by two state-owned companies, the railcar manufacturer China Railway Rolling Stock Corporation (CRRC) and the Chinese bus and electric battery manufacturer Build Your Dreams (BYD). These two state-supported companies based in China have made inroads into the U.S. market. Critics point to documents that show that China desires to dominate both sectors.

Through the efforts of Representative Richard E. Neal (D-MA) in language inserted into the NDAA, a grandfather clause permits CRRC to compete for contracts making cars for transit systems with which it already does business. That list includes Boston’s MBTA, Philadelphia’s SEPTA, and the Los Angeles Metro. CRRC also has a two-year grace period to compete for any transit contract except with the Washington Metropolitan Area Transit Authority. The compromise keeps nearly 200 employees working at CRRC’s $95 million factory in East Springfield, Massachusetts, in Neal’s district (Richard Neal Press Release).

Recent Congressional Correspondence:

Senators Brown and Crapo and Representatives Peter DeFazio (D-OR) and Sam Graves (R-MO) recently wrote to Secretary of Transportation Elaine Chao stressing the urgency that the department inform transit agencies of the new law.

The Hearing:

At the hearing Senator Cornyn stated, “Unfortunately, special interests were able to demand a two-year enforcement delay of some of this legislation’s critical components.”

In his statement, Senator Crapo discussed the role of the Chinese government in the industry, and said “We have already heard anecdotally that both BYD and CRRC have been seeking to misinform agencies as to the applicability of the language.”

Michael O’Malley, president of the Railway Supply Institute, said in his testimony, “…it is critical that Congress and the Administration continue to scrutinize CRRC’s unfair practices ensure that the Transportation Infrastructure Vehicle Security Act (TIVSA) is implemented quickly as intended, and enact future policies that will discourage CRRC from further undermining the U.S. railcar manufacturing market. For example, this committee can help ensure that Congress approves a long-term infrastructure bill that gives passenger rail agencies – and the suppliers that support them – the resources they need to make sustainable investments right here in the United States.”

Frank J. Cilluffo, director of the McCrary Institute for Cyber and Critical Infrastructure Security and Center for Cyber and Homeland Security at Auburn University, stated in his testimony that from a cyber-standpoint, a state-owned enterprise (Chinese or otherwise) foothold into the supply chain of public transportation, a critical U.S. infrastructure sector, could open the door to a wealth of intelligence that could be weaponized against us.

Additional Background:

In 2014, CRRC was given a contract to design and manufacture 284 Orange and Red Line subway cars for the Massachusetts Bay Transportation Authority (MBTA).

In 2017, MBTA awarded CRRC an additional $277 million contract to build an additional 120 Red Line cars. CRRC also signed a contract with the Los Angeles County Metropolitan Transportation Authority (LACMTA) to produce 64 subway cars, with an option for an additional 218 cars. CRRC also contracted to produce 45 double-decker commuter rail cars for Southeastern Pennsylvania Transportation Authority (SEPTA). Since 2017, Montreal’s EXO has ordered 44 double-decker coaches.

While CRRC has won four important bids, they have lost a $600 million contract to supply 127 trainsets to the Metropolitan Atlanta Rapid Transit Authority and a $3.2 billion contract for the New York Metropolitan Transportation Authority.



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