The Mexico high-speed rail project, which once temporarily canceled the winning result of Chinese enterprises, is about to restart bidding. China Railway Construction Corporation (CRCC, 601186.SH) and China South Locomotive & Rolling Stock Corporation (CSR, 601766.SH) have launched a second round of preparations, determined not to let the cooked duck fly away again.

The Mexican Ministry of Communications and Transportation recently stated that on January 14 it will announce the preliminary bidding conditions for the multi-billion-dollar high-speed rail construction project, restarting the bidding plan that was originally won by Chinese enterprises in November last year but suddenly canceled by the government.

A reporter from China Business News (Weibo) learned from CRCC on the 7th that once the Mexican government restarts the high-speed rail bidding, CRCC and CSR are expected to still participate in the bidding.

"Currently, we still have a team locally communicating with the Mexican government. If the Mexican government ultimately confirms the restart of bidding, we should still participate, and we are full of confidence in winning again," Yu Xingxi, board secretary of CRCC, told the reporter.

Facing Four International Giants

On November 3, 2014, Mexico time, the Mexican Ministry of Communications and Transportation announced that a consortium composed of CRCC, CSR, and four Mexican local companies had won the bid for the Mexico City-Querétaro high-speed rail project, and issued the bidding result announcement, with a contract value of approximately 27.016 billion yuan.

This project is Mexico's largest infrastructure project to date and is regarded as the first truly meaningful overseas order for China's high-speed rail "going global." It is China's first overseas high-speed rail line with a design speed of 300 km/h that is designed, constructed, and fully adopts Chinese standards and equipment. Core technologies such as the high-speed train control system all use China's complete set of high-speed rail technology.

However, just three days later, at 23:00 on November 6, Mexico time (13:00 Beijing time on November 7), the Mexican Ministry of Communications and Transportation issued a notice canceling the winning result of the project and decided to restart the bidding process.

The sudden decision was made by Mexican President Enrique Peña Nieto, who said it was based on considerations of "legality and transparency." The president's pressure mainly came from the opposition party, which believed that the bidding period was too short, unfair to participating companies, and that the Mexican companies in the consortium with the Chinese side had too close relations with government officials.

The announcement period for the new bidding is 180 days (the first time was only two months) to give potential bidders enough time to prepare, and a supervisor will review the entire process to ensure "full transparency and legality from the very beginning of the bidding process."

"If we participate in the bidding again, under normal circumstances, we will continue to form a consortium with original partners such as CSR," Yu Xingxi told the reporter. In addition, because Mexico requires bidders to form consortia with local companies to be eligible to bid, the Chinese side will still cooperate with qualified Mexican companies.

According to the reporter, the new bidding requirements are not much different from the last time. The entire project still adopts a "one-stop solution," meaning the winning enterprise not only provides a full set of line design, construction, design and manufacturing of high-speed trains, and line debugging, but also provides operation and maintenance for five years. Unlike the first bidding, this restart will see Chinese enterprises facing direct competition from many foreign giants. Sources say that Siemens, Bombardier, Alstom, and Mitsubishi are all interested in participating in the second bidding.

At this time, the bidding cards of Chinese enterprises have already been exposed; at least the winning price from the first round has been disclosed. However, the reporter learned from CRCC and CSR that they are still confident of winning the second bid, "the competitive advantages of Chinese enterprises are still very obvious."

Advantages and Risks Coexist

A railway industry insider analyzed to the reporter that China's high-speed rail technology is actually already globally leading, and its high-speed rail construction experience is also richer. For example, the high-speed rail lines that CRCC has participated in designing and constructing are more than the sum of those of foreign companies.

At the same time, China's high-speed rail vehicles not only have the highest design speed but also low construction costs, some only two-thirds of foreign ones. Equipment procurement and labor costs are also cheaper than abroad, and construction periods are shorter than abroad.

In addition, in terms of financing, the Mexico high-speed rail project also has export credit provided by China's national policy banks, solving most of the funding problems.

The above advantages were also evident in the first round of bidding. The industry insider revealed to the reporter that the reason why only the Chinese side could submit a bid within the time specified by Mexico also reflects "China speed." A 400-person bid preparation team worked around the clock for 24 hours a day to produce the bid, which finally filled eight boxes with a total weight of 2.1 tons. In similar domestic bidding projects, some only give one month's preparation time.

However, compared with domestic companies, international giants have certain advantages in language and business operation experience, and may also be more familiar with local politics and laws.

In some of the above aspects, Chinese enterprises have also encountered many "uncertainties." For example, in a high-speed rail construction project in Turkey that Chinese enterprises participated in, from winning the bid in October 2005 to the completion of the main works on January 17, 2014, a 158-kilometer high-speed rail line took eight years to build. One reason was the endless changes in project design.

On the one hand, high-speed rail was new to Turkey, and the preliminary geological survey by the local railway bureau was not solid and accurate enough, forcing the project to survey, design, and construct simultaneously. On the other hand, compared with the Chinese market, the European market places more emphasis on process control, so it particularly stresses "slow work produces fine results." In addition, poor language and cultural communication also caused repeated design changes, because Turks do not like to speak English, and many railway technical terms in Turkish were learned on the job during construction.

"Now, we also conduct comprehensive assessments of potential risks, such as whether there will be major local unrest, whether laws will be amended to our disadvantage, and whether exchange rates will fluctuate significantly," Yu Xingxi told the reporter. However, events like the temporary cancellation of an already-won high-speed rail project in Mexico were indeed "unexpected" before.

As for whether the Mexican government needs to compensate the two Chinese companies for losses due to the unilateral cancellation of the winning result without legal cause, Yu Xingxi said that they are still communicating with the other party on issues related to the cancellation of the winning result.