Chinese company required to follow South African ‘Local Content’ requirement

As the Railway Gazette reports, CSR Zhuhou won a South African contract for the supply and delivery for electric freight locomotives.

The Transnet contract includes local production requirements, with the first locomotives to have 60% South African content.

What is interesting about this contract is that it is one of the first times that I hear that a Chinese company has to adhere to ‘local content’ requirements in another country. I.e. what foreign multi-national companies such as Siemens, Bombadier and Alstom had experienced in China, now becomes reality for Chinese companies. It will be exciting to see the future of this development… especially as it will have to be Chinese technology that is being exported to South Africa. China might get up caught in the same loop that foreign companies complained about when entering the Chinese markt: loss of knowhow in order to build up local competitors that later (anticipatedly) will turn to the world market (as happened in this case)…

The ‘local content’ requirement stands for transfer of technology as it requires the contractor to produce a part of the product (or the whole of it) in the country of sale, e.g. in China or as in the case of the electric locomotive contract, in South Africa. As mentioned above 60% of each locomotive has to be produced in South Africa, yet nothing is said on how these 60% are being measured. One way is that the total cost of each locomotive is taken and the parts procured in South Africa would have to be 60%, e.g. engine, wheels, car body or parts of it. Another way could be that 60% of the value add of each locomotive  would have to be created in South Africa, i.e. more than just the mere parts but also including assembly or possibly production. Whereas the first version is a purely procurement-related excercise, especially the second interpretation of this clause can cause trouble as it takes away a major part of the Chinese production factor.

What an interesting world we live in…

PS: Above photo was taken by me in Zhuzhou, way back in 2005

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