U.S. rail interests see China as major security risk

China’s push for industrial market share around the world to prop up the country’s employment base is heightening concern about the country’s potential to infiltrate the U.S. freight rail system.

A report published in October 2018 by retired Army Brigadier General John Adams and funded by the Rail Security Alliance (RSA), a Washington lobbying group for the rail supply industry, warned that Beijing’s “Made in China 2025” plan seeks to make inroads into the U.S. freight rail sector by investing in the manufacturing of the rolling stock that supports it.

The vehicle for doing so is the China Railway and Rolling Stock Corporation (CRRC), a $33 billion, 183,000 worker-strong state-owned conglomerate that is now the largest rolling stock producer in the world, according to the report. “While it is owned by the Chinese government, CRRC is controlled by the Communist Party of China, and it has set about to build a foothold in the U.S. market, with a near-term goal of overtaking our rail sector,” the report warns.

Because CRRC is propped up by the Chinese government, it can drastically undercut bids – by as much as 50 percent – for rail supply contracts in the U.S. Since 2015, the report states, CRRC has won $2.6 billion in transit rail contracts to supply “Made in China” railcars for the Boston, Chicago, Los Angeles and Philadelphia transit systems.

The point of increasing its rolling stock market share overseas? “Employment at home,” RSA Vice President Erik Olson told FreightWaves. “This is an employment program to help Beijing create one million jobs a month to keep people in the country employed.” Securing U.S. transit contracts will allow China to pivot quickly to the freight rail sector, Olson said, where it can continue to use exports to sustain its employment base – while creating major national security risks in the U.S.

“We know that the Chinese spy on us, and there’s a lot of concern about how they’re gathering intelligence. Freight cars have become very sophisticated, with sensors, transponders, cameras and GPS. What happens if the sole source of these railcars come from China? They might not be trying to start a war, but they certainly can use the technology for tracking and surveillance.”

Rail shippers should also be concerned about the prospects of China controlling a key piece of the U.S. freight system, according to the RSA report. U.S. railroads originated over 1.5 trillion tons of freight in 27 million carloads in 2016, with 67 percent of coal used for power generation moving by rail.

“Similarly, the chemicals we use to keep our water supply pure and much of the food products we consume are shipped by private freight rail. Therefore, ensuring that these products arrive at their destinations and are free from tampering is of paramount concern.” The Association of American Railroads, which represents the major Class I rail operators, declined to comment on the report.

RSA provided information prior to bi-partisan legislation being introduced in March by U.S. Senators John Cornyn (R-Texas) and Tammy Baldwin (D-Wisconsin). The Transit Infrastructure Vehicle Security Act would prohibit transit agencies from using federal funds to purchase rail cars manufactured by Chinese-owned or subsidized companies. It also requires rail transit operators to install a plan to identify cybersecurity risks.

“The threat to our national security through the exploitation of our transportation and infrastructure sectors is one we should take seriously,” Cornyn said when the bill was introduced. “This legislation will help safeguard against this threat.”

While the legislation is “a good start” to tackling the rail security issue, it doesn’t address the potential threat to the freight system, Olson said. His group is in the midst of seeking other avenues with which to generate more attention on the issue.

“We’ve been working on this for the last three years, and over the last year Congress and others have woken up to it as a national security threat,” he said. “We’re talking with other members of Congress on more legislation, as well as with the White House and the Administration. We have an audience.”