BEIJING – Railway company stocks plunged on Monday in a panic selling amid investor concerns that the high-speed train crash in East China on Saturday may trigger a substantial slowdown of the country’s investment in its ambitious railway construction.
Share prices of China South Locomotive and Rolling Stock Corp Ltd (CSR) and China North Locomotive and Rolling Stock Corp Ltd (CNR), the country’s two major train manufacturers, tumbled more than 8 percent in Shanghai while six other railway equipment suppliers fell to their daily trading limit of 10 percent.
Beijing Time Technologies Co Ltd, a signaling equipment manufacturer, and four other suppliers of the trains that collided on Saturday, were also suspended from trading.
Analysts said a slowdown of China’s railway infrastructure investment is possible after the deadly train accident and it may result in a negative impact on the business prospects of listed railway companies.
“The latest accident may prompt the Ministry of Railways to review the progress of the country’s railway expansion and we believe that an investment slowdown is possible,” said Chu Hai, an analyst at Ping’an Securities.
“If the government postpones or cancels future projects and equipment auctions, the growth prospects of CSR and CNR will be hurt as future orders may decline,” Zhang Deyuan, an analyst at Founder Securities, wrote in a report.
Shenyin & Wanguo Securities on Monday downgraded their ratings for CSR and CNR to neutral.
A spokesman from CSR, which built both trains in a joint venture with Canadian manufacturer Bombardier, defended the company by saying it is not the train quality but the signaling operations that were to blame for the crash.
It has been speculated that Beijing may substantially cut railway investment after total investments reached an unprecedented 823.5 billion yuan ($127.8 billion) last year.
Analysts said the Ministry of Railways may face financing difficulties with a budget of 2 trillion yuan. Its profitability is also under pressure because of rising costs. These will also make policymakers in Beijing adjust the pace of the country’s railway construction, they said.
Meanwhile, industry experts warned that the latest crash threatens to undermine the country’s plans to export high-speed train technology.
China has made strides in recent years tapping the global high-speed market. It has signed agreements with more than 30 countries since 2003, including the United States, Russia, Brazil, Saudi Arabia, Turkey, Poland and India.
“Chinese railway’s export business will be negatively affected as overseas clients may doubt our quality,” said Yang Hao, a transportation professor with Beijing Jiaotong University.