Chinese State-Owned Companies Just Lost a Big Light Rail Contract in Israel

Pressure from the Biden administration contributed to the decision not to award the contract to the China Railway Construction Corporation (CRCC), according to reports.

It’s been a little while since we last discussed the China Railway Rolling Stock Corporation (CRRC), a Chinese state-owned company with ties to China’s military that won a number of transit contracts in the United States to build railcars (after submitting lowball offers).

Given the litany of security concerns around CRRC and other firms with ties to China’s government, Congress passed legislation in 2019 that prevents federal dollars from being used to buy rail cars or buses built by Chinese state-owned firms, effectively banning CRRC from government-funded transit contracts. While there have been attempts to weaken the law, called the Transportation Infrastructure Vehicle Security Act (TIVSA), there’s also been significant pushback to doing so.

But CRRC isn’t just limiting itself to the American market. It’s become a worldwide player, a key part of the Made in China 2025 ambitions to dominate global industries. And it isn’t the only Chinese state-owned transit firm trying to make moves on the global stage when it comes to rail projects.

Which brings us to what just happened in Israel.

According to the Jerusalem Post, Chinese companies lost a bid for a contract to help build two new light rail lines in Tel Aviv, described as “one of the largest infrastructure projects in Israel’s history.” One company, the China Railway Construction Corporation (CRCC), even put in a bid that was “1 billion Israeli shekels ($313,000) lower than the transit system’s own estimates for the cost of the project,” the outlet Al-Monitor reported.

But, the Israeli government-owned NTA Metropolitan Mass Transit System instead selected Alstrom, a French company, and Israeli companies Dan and Electra, to build the Green Line of the system. Israeli company Shafir and Spanish company CAF will build the Purple Line, according to the Jerusalem Post.

So why did Israel opt to go for the other companies over the Chinese state-owned firms, despite the low bids? It was viewed as an issue of national security — and there was added pressure from American officials. Here’s the Al-Monitor:

“One of the concerns raised by the Americans, but also by some top security officials in Israel, was that the construction of one of the mass transit lines would include excavations and maintenance for electrical cables, which run in close proximity to the Israel Defense Forces headquarters in central Tel Aviv, and other defense facilities in the Tel Aviv Metropolitan area. Given this proximity, it would apparently be easy to plant sensitive listening, tracking and recording devices along the line.”

While security concerns are paramount, there also are economic worries, as the Jerusalem Post reported:

“CRCC has a history of ‘dumping,’ a common practice by companies taking part in China’s initiative to expand its infrastructure construction around the world, by which they bid for a tender at a loss, in order to win.

“Their bid for the Tel Aviv Green and Purple Lines was significantly lower than the others, and NTA began an investigation in August of how it could actually provide the necessary services at such a low price.”

And that’s not all! Here’s Al-Monitor again:

“The Chinese company is suspected of numerous cases of bribery, forgery, dereliction of safety concerns and failures to meet timetables in projects around the world… There are also suspicions of corruption involving major projects in Mexico, Australia, South Africa and other countries.”

It’s also worth noting that CRCC already faces sanctions in the United States because of security concerns, and in 2019 the World Bank issued a nine-month debarment against it due to “misconduct” during a construction project in Georgia.

While we’ve long focused on the U.S. response to the ambitions of China’s state-owned enterprises like CRCC and CRRC, it’s interesting to see this fight now playing out on the international stage. In this case, Israel is a close ally of the United States, and “Jerusalem is on the American side if it has to choose a side,” the Jerusalem Post reported. On top of that, the security concerns raised by both American and Israeli officials were significant.

But, this won’t be the last time China’s government aims to win a major contract in a country that is traditionally allied with the United States. We’ll keep a close eye on similar cases as they play out.