China seeks compensation from Mexico after high-speed project suspended

Updated: 2015-02-09 05:19

By Zhang Yuchen(China Daily Latin America)

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China seeks compensation from Mexico after high-speed project suspended

A CRH train that runs on Lanzhou-Urumqi High-Speed Railway stops at Urumqi South Railway Station in Urumqi, Xinjiang Uygur autonomous region, on Dec 26, 2014. Cai Zengle / Xinhua 

China is demanding that Mexico adequately compensate Chinese companies that bid on a proposed high-speed railway in the North American country, a project the Mexican government just announced it would suspend because of falling oil prices.

Last Monday the Chinese government called on the Mexican government to respect the legal rights of Chinese firms after the Mexican finance ministry suspended the controversial $3.7 billion high-speed rail project on January 30.

Luis Videgaray Caso, Mexico’s secretary of finance and public credit, announced on that day that the “indefinite suspension” was the result of falling oil prices and the need to cut public spending. The federal government derives about a third of its revenue from the oil sector. The minister added that the project to build a $9.2 billion international airport in Mexico City would not be affected.

"We feel really sorry about the decision. Chinese companies have invested much in bidding for the project," said China's National Development and Reform Commission (NDRC) in a statement.

China hopes the Mexican government will deal with the problems caused by the suspension of the project appropriately, effectively protecting Chinese companies' legitimate rights, and adopt active measures to promote pragmatic cooperation between the two countries, the statement said.

The bid was won by a Chinese-led consortium last November but the Mexican government later abruptly annulled the result citing domestic reasons. China Railway Construction Corporation (CRCC), which led the consortium in the last tender, had recently decided to re-enter the bidding.

Aside from the Chinese-led consortium, companies from Canada, France, Spain and Italy had also hoped to participate in a fresh round of bidding.

The formal bidding documents had been expected on Jan. 28 but were postponed, with word of the "indefinite suspension" coming two days later. Gerardo Ruiz Esparza, the Mexican transport secretary, said the rail line, which was to have covered the 220km between Mexico City and the industrial hub of Querétaro, was suspended, but not cancelled.

As for the amount of any proposed compensation, negotiations are said to be under way, and no formal announcements have been made. But CRCC is very confident about the outcome, said Yu Xingxi, secretary general of CRCC.

According to media reports, CRCC said then that it had launched an emergency plan and formed a team of legal experts, and would “resort to legal means to safeguard the legal rights of the company.”

In the first three quarters of 2014, the new contracts signed with CRCC amounted to 564.92 billion yuan, including the newly signed overseas contracts amounting to 114.67 billion yuan, according to Yu Xingxi.

A report by China’s ministry of commerce was released on Feb 4, showing that in 2014, China exported 26.77 billion yuan in railway equipment, an increase of 22.6 percent over the previous year. At present, China's railway technology has been exported to more than 30 countries and regions.

Over the same period of time, Chinese enterprises participating in overseas railway construction earned a total contract amount of $ 24.7 billion, an increase more than three times higher than the past year.

After the announcement of the indefinite suspension, CRCC saw an almost 10 percent loss in shares on the Shanghai index and train-maker CSR, which was part of the consortium, saw the price of its shares fall by more than 7 percent.

The matter concerned the Chinese authorities as well.

“We note the Mexican government’s decision, and China hopes the Mexican government can properly deal with subsequent problems,” a Chinese foreign ministry spokesperson told Xinhua.

Also Mexico needs to “value and properly cope with the huge manpower and money Chinese enterprises invested in the project bid, and carry out measures for further bilateral cooperation,” said a spokesperson for the National Development and Reform Commission, China’s top economic planning body.