Railway giants' stocks surge on merger announcement

CNR Corp displays their products at Modern Railways Exhibition in Beijing on Oct 28, 2014.[Photo/CFP]

The stock prices of CNR Corp and CSR Corp, China's two railway vehicle manufacturers, surged by the daily limit of 10 percent on the Shanghai stock exchange on Wednesday morning.

Trading in their shares resumed on Wednesday following the announcement on Tuesday that they will merge into one conglomerate.

The merger comes after two months of government review and preparation, officially ending an era in which the companies often cut into each other's profit in the global market.

Wang Mengshu, an academic at the Chinese Academy of Engineering and an ardent supporter of the move, said the domestic market for high-speed trains is quite saturated, so the merger will prevent unhealthy price competition in the world market.

"The new group will have a clear edge over global rivals by being able to optimize the two rail product manufacturers' technological edges, human capital and production capacity," said Wang.

CSR will issue shares to CNR's shareholders to complete the merger.

Over the last three years, CNR and CSR often found themselves competing against each other for overseas orders, including a contract to build a high-speed rail line connecting Turkey's two largest cities (won by CSR) and the largest export contract of mainline passenger trains to Argentina (won by CNR).

Though the Chinese train makers were rarely underbid by competitors from Germany, France, Canada and Japan, they often had to battle each other with lower prices to win international contracts.