News that the US-China deal to build the first high-speed rail system in the US was called off sent Chinese railroad stocks tumbling Friday in Hong Kong.

China Railway International, the company participating in the US venture, is a specially formed company made up of state-owned China Railway Group, CRRC, and China State Construction Engineering.

Shares of China Railway Group declined 4.8% to 5.81 Hong Kong dollars, and CRCC, the state-owned rolling stock manufacturer, lost 4.5% to HK$7.08. Rival China Railway Construction, the country’s largest railroad construction and engineering company, skidded 5.4% to HK$9.45.


The agreement was touted as a symbol of U.S.-China cooperation when it was signed last September ahead of a formal visit by President Xi Jinping to the U.S.

China Railway International was working with XpressWest, a private U.S. company, to build a high-speed rail to link Los Angeles with Las Vegas. Chinese officials at the time hailed the deal for helping China secure a greater foothold in the U.S. market.

Las Vegas-based XpressWest said in a written statement Wednesday that it terminated the partnership because of “difficulties associated with timely performance” and its Chinese partner’s challenges in obtaining necessary approvals to proceed with the project.
XpressWest added that the deal fell through because of difficulties in meeting the US government’s requirement that high-speed trains must be manufactured in the US.

“Our ambitions outpace CRI’s ability to move the project forward timely and efficiently,” Tony Marnell, chief executive of XpressWest said in a statement.

Xinhua, the government’s news agency, cited a China Railway International manager as saying the US company’s move was “precipitate” and “irresponsible” and that the Chinese side would seek to defend its interests.

The US government requires that high-speed trains be manufactured inside the US. The only problem with that is that there are no high-speed trains made in America.

XpressWest questioned the logic behind the requirement in its statement: “As everyone knows, there are no high-speed trains manufactured in the United States. This inflexible requirement has been a fundamental barrier to financing high-speed rail in our country. For the past 10 years, we have patiently waited for policymakers to recognize high-speed rail in the United States is a new enterprise and that allowing trains from countries with decades of safe high-speed rail experience is needed to connect the Southwest region and start this new industry.”

China has made bids to build high-speed rail lines in Australia, the UK, southeast Asia, Iran, and Mexico. But recently, these deals have had a string of bad luck. After beating Japan to build a railway in Indonesia, that project hit a string of delays and many are calling for it to be scrapped. In March, Thailand said it would fund its proposed rail project by itself. And a proposed cross-strait tunnel has received no response from Taiwan.

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