On April 27, 2020, after an in-depth review, the FCO cleared the acquisition of Vossloh Locomotives GmbH Kiel (“Vossloh”) by CRRC Zhuzhou Locomotives Co., Ltd. (“CRRC”). German shunter manufacturer Vossloh is the market leader in Europe with a market share of 40 to 50 percent. CRRC is a state-owned Chinese company and the world’s largest manufacturer of rolling stock, selling its products predominantly in China.
The FCO considered the involvement of CRRC as a state-owned company from a centrally planned economy and identified several particularities in this respect. First, the FCO noted that CRRC is part of a large group of companies in which the Chinese state is a majority shareholder. It thus benefits from significant economies of scale and scope as well as from a high degree of vertical integration, such as internal production.
Second, the FCO considered state-owned companies more likely to be able and willing to implement low-pricing strategies to strengthen their market position. Although low-pricing strategies are not necessarily anticompetitive, there is a risk that they distort competition if they are not based on comparative cost advantages in the medium term. In particular, the FCO considered subsidies received from the Chinese government and CRRC’s access to financial resources, including beneficial financial treatment from Chinese state-owned banks (e.g., in case of insolvency). The FCO also referred to internal documents showing that CRRC had applied low-pricing strategies in the past to extend its market position to foreign markets. Further, European Commission decisions adopted against Chinese State-owned companies for price-dumping practices indicate a readiness of such companies to engage in such practices.
Nonetheless, the FCO found that CRRC’s nature as a Chinese state-owned company did not affect its substantive assessment of the transaction. While the FCO analyzed several counterfactual scenarios for its substantive assessment, the FCO ultimately found that there is not sufficient evidence that the transaction would create a dominant position or otherwise significantly impede competition within the next five to ten years:
The FCO took into account particularities of the shunter industry: First, since demand volumes fluctuate significantly from year to year due to the long product life, the FCO looked at sales volumes of the past five years instead of a single year period. Second, due to huge delays between the award of a contract and the provision of the goods, the FCO applied a five-to-ten year forecast period instead of the usual three to five years.
The FCO did not consider it appropriate to rely on Vossloh’s (nor CRRC’s) historic market position, but took into account that Vossloh’s competitiveness declined over the past few years due to its lack of investments in new technologies, whereas new strong competitors (Alstom, Stadler, and Toshiba) have entered the shunter market with new products. CRRC, on the other hand, has not yet established a secured market position in the European shunter market, where high barriers to entry are expected to affect CRRC’s possibility to expand. The FCO found it likely that CRRC would establish a secured market position in the forecast period of five years, but that this would not amount to a dominant market position. Further, since it is still uncertain whether Vossloh is able to regain its past market strength, in particular in light of the new strong competitors, the FCO considered an expected low-pricing strategy by CRRC to be unlikely to help the merged companies to create a dominant market position.
For the first time, the FCO provided guidance on its approach to acquisitions by state-owned companies from centrally-planned economies. Although the FCO highlighted the state-owned character of the acquiring company, it based its analysis purely on competitive grounds, leaving no space for corrections of the legal framework through policy considerations. In that regard, the FCO explicitly stated that “competition law cannot and must not correct difficulties in [international] trade relations”.