I work in rail safety. Two major non-Chinese train companies attempted to merge a few years ago, explicitly to build a company that could compete with China's national company, and provide safer alternatives to state-sponsored cyberhacking of Western rail.
It fell down to an anti-monopoly decision by a single person in the EU ministry, who killed the proposal. Several attempts were made to streamline the merger, but she wouldn't budge.
As a result, CRCC continues to win contracts abroad, largely (it is believed) by undercutting competition. IP theft is known to be one objective of their at-loss or low-profit contracts (I've been involved in fighting that, specifically).
It's hardly a stretch to imagine that having control of the rail in countries that might oppose you militarily is strategically huge.
This article is about busways, but the parallels are obvious.
About a year ago a Polish rail equipment supplier brought a lawsuit over a locomotive because it was serviced by a third-party, and the service was enabled by jailbreaking software in the locomotive.
Surveillance tech in products doesn't necessarily imply grey zone warfare. But that doesn't make it a good thing either.
I'm not sure this comment does justice to the situation.
Poland put out a separate bid for manufacturing and servicing of their locomotives and one company won the manufacturing bid while another won the servicing bid.
The servicing company was unable to get the trains into working order and after hiring hackers accused the manufactoring company of bricking the software on purpose by including geo-fences where the trains would no longer work after arriving at the servicing company's property.
Perhaps the interesting part to me was Dragon Sector's (the hackers) claims that the software needs to be blessed so although they discovered problems they never changed anything because they don't have the authority to bless it and heavily imply that the fact that the manufactoring company is changing the software at will is illegal.
The changes by the manufactoring company had an (undisclosed) activation sequence added to it so you didn't need to modify the software in order to get the train working so the servicing company never actually modified the software.
The jailbreak was necessary because Polish supplier hardcoded location of their service shop and added code which makes train inoperative if serviced elsewhere.
The problem with "oh, but wait, this merger actually improves competition" is that mergers are a contagion. A large competitor's mere existence creates an economic imperative for more mergers. This happens both horizontally (across multiple firms) and vertically (up and down the supply chain). When you get big, you can start stripping your vendors' and customers' of their profit margin, which means they need to get big to compensate. Even if a merger might have positive competitive effects, it still spreads the contagion. Which is a problem, because anyone who doesn't or can't get big will get fucked. That includes individual consumers and workers.
If the problem is that Chinese companies are shipping train firmware with backdoors, then you need to ban those companies. Problem is, given the Newag situation[0], I don't think they can actually do this at the level of individual procurements. So they need specific EU directives banning this behavior and explicitly adding a process by which procurement can ban suppliers for prior noncompliance. What facilitating an illegal merger will do is reduce the EU's bargaining power with industry, ensuring that we get more backdoored trains and more risk.
[0] Short version: they got caught shipping firmware that bricks the train if you take it to a third-party repair shop, even though the contract specifically mandated Newag provide repair manuals. EU agencies and member states do not have the power to disqualify Newag from future tenders for failing to adhere to prior ones, so they keep winning contracts
How do you confirm that a train controller or any other piece of hardware does not contain a backdoor using industry standard software tools?
You can write whatever you want into a contract, but if you have no way to validate it, it's meaningless.
Also, the state-owned (and subsidized) Chinese company that doesn't have to play by the West's antitrust rules doesn't need to worry about your "contagion" concerns.
You figured it out. It's trivial to include a backdoor in a large system of systems, and one placed by a remotely competent adversary will not be found.
So what's the point of a regulation that can't be enforced?
I'm asking how you expect an auditor to confirm the absence of something in a series of black boxes that a determined and skilled adversary would like to hide.
The European champion would still be ten times smaller than the Chinese but would have factual monopoly in Europe. I don’t think blocking the merger was entirely unreasonable.
The parent comment is describing a scenario where the Chinese company may get a factual monopoly in Europe because it can outcompete the two European companies due to economies of scale.
Chinese companies will get a factual monopoly no matter what, as long as they keep comparing imports vs domestics on prices. It's not like East Asian "subsidies" are going to end in 3 to 6 months, years, even decades. The imports from timbuktu will be just perpetually cheaper by being imports.
Wouldn't cases of possible corporate-enabled espionage, like the one being discussed be a big competitive advantage for the European companies, regardless of their pricing or scale?
And that competitive advantage could presumably give them more scale?
So the major, common and probably most destructive, theme is the ecosystem of specialised tender companies. I mostly know this from the software side, but if you start working on such projects, you'll quicky find out that there's a persistent ecosystem of companies which specialize for these tender signups.
People employed there optimize for winning them (at any cost - quid-pro-quo agreements aren't rare in my experience). It's common for several such companies to collude in a way that they get awarded the tenders in a circle ("I get this one, next one is for you.")
Afterwards, they outsource the work to the cheapest lowest bidder (usually IT studends in the cases I've seen for software development, but essentially they'll be bottom of the barrel juniors). The quality of such products is about the same as the quality of any outsourced product which is built only to satisfy a checklist at the end. The US equivalent of that would be a corporation getting a defense contract and then basically have everything built by the cheapest outsourcer in India or similar location.
Funny enough, university labs (or spinoffs) tend to be major part of this ecosystem, using grad students as workforce - their credentials tend to give them legitimacy over smaller companies.
The results are as disastrous as you can expect - companies a HNer could expect to win usually don't (due to lack of specialized knowledge on how to game the tender process, lack of connections and cost) and those that do are really there to do the bare minimum, shed the work as much as possible and deliver something they can't get sued over.
It's also not uncommon to see whole chains of such companies - the winner sometimes shares some outsourcing work with "losers" they outsource work further, skimming the funds on top and essentially outsourcing everything to the cheapest engineer they can find.
Dealing with any public EU project has been nothing but misery for me personally (as you can imagine from this post :) and this environment bred some of the most toxic workplaces I've worked with. The products were universally terrible and rarely actually useful for the purpose.
As much as I want independent EU software ecosystem, I don't think using public funding can breed anything but more corruption.
> As much as I want independent EU software ecosystem, I don't think using public funding can breed anything but more corruption.
Well, you described what happens when you outsource everything.
Governments used to ... gasp ... employ people to do tasks so that you didn't have to outsource every single piddly task. And since those employees could do the tasks, there was a floor such that selecting nobody and doing it in house was always an option.
Yes, that has different failure modes. However, you have more levers over those failure modes as opposed to a single lever of "Head to court and try to win a legal case."
The system as bad as it is can be good as well. Let some consultants find out how to get the bids, and others how to do it well, and can be a outsourced third party. It gives differentiation without everyone needing to be large enough to actually bid on the contracts.
He is describing how bidding for publicly funded projects fails, because the bidding process designed to avoid corruption has been poorly designed (or corrupted by lobbying) such that it effectively sidelines honest and qualified bids.
I would say this is a typical outcome with well meaning bureaucrats in a democracy, not capitalism
It sounds exactly like how business works in my experience. It’s just the principle agent problem showing up in the government that same way it does in the private sphere.
I mean, if you’re at a place that uses staff aug and managing a project it’s just something you have to watch out from your vendors as table stakes. Whenever a new vendor was hired my fellow low level managers would be making bets on how long before they switched out their best guys with some fresh out of college junior that they’d give a fancy title to.
I understand what gp is nominally describing; I asked the question, after all. I am just pointing out that the exact same pressures/dynamics that were described also underpin capitalism.
As someone who barely interacts with the people that care about tenders, my impression is that people that usually win are the ones better at playing the game rather than better at the job. The job later is potentially repackaged in chunks and offered to other players that in turn will do the same downstream. Something like Romania gets EU fund money to build roads in Romania with a German engineering project, German contractors, German supplied materials, but Romanian workers.
Or in a more particular case part of recycling trash in Germany is basically being dumped illegally in Poland for a while and the same companies keep operating and winning contracts because why not.
You create a political class full of lawyers, and you get a country where lawyers thrive, who would have thought?
This is one of those things that is so obvious as to not require a source. Just sharing my perspective on this conversation, I don’t think it’s an unreasonable question to ask if you’re unfamiliar with the space
I'm with you on this. I feel like too much boogye-man-ing and FUD scaremongering is taking place on the cover of "China evil and has giants" in order to justify breaking anti-monopoly laws and allowing our own monopolies to form under this justification, that will only benefit shareholders of those companies but eventually harm European consumers via lack of innovation due to lack of competition, price gouging and the European workers via the inevitable layoffs that follow such mergers.
If you have two large, slow, bureaucratic and uncompetitive companies, then merging them together won't make the resulting giant less so, but the contrary, it'll be even more inefficient and uncompetitive, and then expect government bailouts because now they're too big to fail.
You either believe that monopolies produce worse products or you don't.
If you believe it, the "I know they are bad" -> "but we need to complete with the boogie man" -> "we need to build our own monopoly" argument is just confusing. So we should make worse products to be competitive?
If you don't believe it, you should be explaining why monopolies make better products, not arguing that desperate times call for desperate abandonment of logic.
So, in order to avoid the negative consequences of a European monopoly, we make sure that a Chinese monopoly prevails? That doesn't seem like a wining strategy for Europe.
The west is too lax on some of these officials. People like this should be thoroughly investigated. China is flagrantly breaking the rules of the WTO that the west has set up, having state backed companies, and these people are either purposefully or unintentionally undermining the west's efforts to fight back.
Ukraine has been buying up every cheap car in Europe for use in miscellaneous service just behind the front or as low profile transportation at it, so I'm not sure what your point is?
Civilian transportation has numerous vital roles in supporting a nation during a war.
Or maybe she just doesn't believe it's worth discarding anti-trust law over the bogeyman of the day.
The two train companies that couldn't merge can still make trains, and still sell them to whomever they want. European purchasers can still buy them. And after reading articles like this one, these two companies have a big competitive advantage: they don't include Chinese backdoors. Maybe they're small now, but if the Chinese train/bus/etc. manufacturing companies end up being blacklisted in the EU, these two companies will grow. And, better yet, there will still be some healthy competition in the space.
I found it very hard to believe that a Chinese company has more influence than Alstrom + Siemens, in Europe. It might make sense if it's a US company, but I find it difficult to believe for a Chinese one, especially that the recent Netherland example shows that EU can do whatever they want using what excuses they can find, and execute very efficiently.
I'd like to post some questions for thought:
1. What is exactly the bidding process of that particular transaction the OP described?
2. What is exactly in the contract? Does it force the Chinese company to use a lot of local companies for sub-contracting, at the same time keeping a very low profit? In essence, this basically means the EU companies grabbed the biggest share while the Chinese company just got the job. I'm not saying this is the case, but I highly doubt it IS the case as I heard similar stories from other companies.
What fraction of conspiracy theories have proven correct, at a Snowden-ish level?
My sense is that conspiracy theorists are essentially a cron job crying "Wolf!" every 60 seconds. The occasional real-world wolf does not justify paying any attention to the alarms. OTOH, it's a false dichotomy to believe that the false alarms prove the non-existence of wolves.
If the past decade of my life has taught me anything, it's "attribute all malicious actions to malice." It's usually just a matter of direct vs. indirect malice. Meaning, are they directly benefiting from their malicious actions or are they just assholes who "do it for the lulz".
The malicious actions are just at the potential stage at the moment. Someone has the capability to mess with our buses by means of a remote software update.
Just like someone has the capability to do with virtually everything we have running software.
So put 70% anti dumping duties (tariffs) on CRCC trains like they did with ebikes?
This will probably get fixed with software audits necessary for compliance under the NIS2 directive. The EU fixed the problem with more regulation and bureaucracy, ensuring that only the big boys can comply. Protect us from China by becoming China?
If you are a capitalist, you should be pro-acquisition (i.e. of smaller firms) and anti-merger (for larger firms), because mergers are a form of crony capitalism that leads to reduced product quality and market dysfunction.
First, merging firms reduce the number of products they sell, with the effects materializing one year after the M&A and accelerating over the next several years.
Second, merging firms tend to drop and add products at the periphery of their joint product portfolio.
Third, the net effect is an increase in the similarity among the products that firms offer following a merger or acquisition.
This finding has been consistently true since people have started measuring merger outcomes, "we find that each merger is associated with a quality decrease (increase) in markets where the merging firms had (had no) pre-merger competition with each other, and the quality change can have a U-shaped relationship with pre-merger competition intensity. Consumer gains/losses associated with quality changes, which we monetize, are substantial " – https://www.sciencedirect.com/science/article/abs/pii/S01677...
It is doubtful that merging two companies would have improved the EU's capability to compete with Chinese state operators. On the other hand, lowering the capital threshold to create a new entrant would definitely improve the EU's competitive position and capabilities, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=cele...
Even acquisitions can be problematic for competition. They often seem to be done for the purpose of gaining/protecting market share, with the acquired product getting dropped soon after.
I think most capitalists aren't pro or anti acquisition, for the simple fact that they don't believe they have the right to tell two people (or two groups of people) that they aren't allowed to associate with each other.
But if you're more consequentialist, you might take it on a case-by-case basis.
> Two major non-Chinese train companies attempted to merge
Siemens (Germany) and Alstom (France)
> It fell down to an anti-monopoly decision by a single person in the EU ministry, who killed the proposal
Margrethe Vestager, the European Commissioner for Competition at the time (2019). At the time of the decision, she said "No Chinese supplier has ever participated in a signaling tender in Europe or delivered a single very high speed train outside China. There is no prospect of Chinese entry in the European market in the foreseeable future." This has since been proven to be a bad prognostication, as China Railway Signal & Communication (CRSC) is actively deploying its ETCS Level 2 signaling system on the Budapest–Beograd railway line in Hungary[1]; and China has delivered trains to Serbia, leased trains to Austria's Westbahn, acquired German locomotive manufacturer Vossloh Locomotives, and participated in a public tender in Bulgaria for electric trains.
She is no longer in that position. She has as of 2024 become "tough on China,"[2] acknowledging mistakes made in the past and touting how "China came to dominate the solar panel industry... and is running the same game now, across strategic industries including electric vehicles, wind turbines and microchips."
She now says Biden's IRA was a mistake, that Europe has been de-industrializing and that is not a good thing, and that Europe has been too afraid to impose tariffs on China out of fear of retaliation from China.
It sounds remarkably similar to the MAGA playbook on trade and re-industrialization.
That's falling somewhat short of admitting she alone fucked that situation up. The US and Canada had already given permission for the merge to bypass antitrust laws.
Antitrust is important, so why not pass a law that prioritizes national or European companies for critical infrastructure, even if they're more expensive? Creating a monopoly to combat another monopoly is unlikely to end well in the future.
This seems like the most obvious solution, provided local offers aren't massively more expensive. I don't see why we wouldn't award contracts to EU companies that create jobs here, pay taxes here, and follow local regulations. We don't need a super company with a local monopoly, just to stop prioritising “as cheap as possible”.
The reason why is because if they did China would retaliate and cut off cheap access to Chinese imports. That is the double edged sword of globalization the US and Europe are reckoning with today, in different ways
I'm not really on an anti-China rhetoric, they can be a valuable partner and I think we do have a positive relationship with them. BUT, they don't need to win all public government contracts by undercutting local companies. They'd be equally upset if we did the same.
I do agree that the global market is causing quite some trouble, although that could be avoided by most (all?) countries being nice to each other. Or even excellent to each other!
Agreed. I'd think a better solution would be to ban Chinese companies from these sorts of contracts, and invest in the non-Chinese companies to help them grow. You don't need to allow monopolies to form to be successful here.
Well, those are pretty big companies already - not sure combining them together is really good idea, unless you want to end up with a lumbering inefficient local monopolist.
I that regard I guess the anti-monopoly law is working ?
> […] There is no prospect of Chinese entry in the European market in the foreseeable future.
The remark stands as yet another regrettable instance of history echoing itself – a lamentable parallel to that uttered by Sir Claude Maxwell MacDonald, whose acquisition of a 99-year lease over the New Territories of Hong Kong on behalf of the British Crown from the Qing dynasty was justified with the breathtakingly short-sighted assertion that it was «as good as forever».
One observes, with increasing weariness, that politicians – regardless of generation or supposed pedigree – remain obstinately immune to the most elementary of truths: history is neither linear nor predictable. It twists, recoils, and devours the complacent. Political decision-making, therefore, ought never be entrusted to those governed by the ephemeral whims of populism – it demands the discipline, foresight, and cold precision of a strategist trained not merely to react, but to foresee. Alas – such minds are in tragically short supply.
Is there really not enough room in the global market for two smaller companies to compete (and win) against CRCC?
I think this is especially not that big a deal considering the national security implications. I expect Norway would contract with a non-Chinese company for bus, rail, everything from now on due to that, regardless of whether or not they are smaller than the CRCC.
Is there a strategy where China could remain a supplier of "lobotomized" hardware? Example: China supplies the trains, but all the silicon must be added after import.
You are, of course, referring to Alstom and Siemens.
"A slap in the face is more effective than ten lectures. It makes you understand very quickly." —Leopold van Sacher-Masoch
Siemens received the slap in the form of Stuxnet. Industrial controls and transport are not the same business unit, but enough of the message got around internally.
I firmly believe Alstom would not be making such garbage today, at least not from a cybersecurity perspective, had this merger gone ahead. And, let's say, I know quite well exactly what type of hot garbage they unfortunately continue to make.
Honestly I couldn't care less considering how scummy our train making companies are, I'm fine with Chinese selling trains on a loss for pieces of paper. It's their problem if they want to build them and ship them for pennies, their loss.
Our companies meanwhile are all turning in John Deere, and I'm glad the merger was blocked.
The security part, obviously I do care but this article says very little about it.
It fell down to an anti-monopoly decision by a single person in the EU ministry, who killed the proposal. Several attempts were made to streamline the merger, but she wouldn't budge.
As a result, CRCC continues to win contracts abroad, largely (it is believed) by undercutting competition. IP theft is known to be one objective of their at-loss or low-profit contracts (I've been involved in fighting that, specifically).
It's hardly a stretch to imagine that having control of the rail in countries that might oppose you militarily is strategically huge.
This article is about busways, but the parallels are obvious.