Chinese state firms likely to win HS2 bid as FirstGroup, Virgin flounder

Chinese state railway firms are now at the top of the list to operate new high-speed trains in Britain, as other local bidders remain embroiled in their own franchise crises.

According to The Times, the state-owned Guangshen Railway Company and Hong Kong’s MTR Corporation, which is three-quarters owned by the special administrative region’s government, were on track to win the contract to operate the contentious HS2 route.

The pair’s bid is on a shortlist of three, which also includes a consortium involving Virgin Group, and another headed by FTSE 250 passenger transport operator FirstGroup.

Another railway consortium involving Virgin - Virgin Trains East Coast, which was 90% owned by FTSE 250 firm Stagecoach - was forced to hand back the keys to the Intercity East Coast franchise this month after it could not cope with premium payments to the Department for Transport.

That route is now effectively renationalised, being operated by the DfT under the LNER brand.

FirstGroup, meanwhile, reported losses of £326m, with its chief executive resigning last month, as it struggles to makes ends meet on its multiple UK rail franchises.

It is in cahoots with MTR Corporation on the ailing South Western Railway franchise, which operates suburban and long-distance trains out of London Waterloo, having taken it over from Stagecoach last summer - the first change of operator for that route since privatisation.

Given those issues, The Times suggested the terms of the West Coast Partnership - which includes HS2 - could be too much for either local bid.

The newspaper quoted a source as saying the Chinese firms “have deep, state-backed pockets, and would have a blank cheque”.

Chinese state involvement in UK infrastructure projects has caused concern at Westminster in recent years, with the government delaying final approval for the Hinkley Point C nuclear power project two years ago as it reviewed potential security issues that could be caused by Beijing’s involvement.

And earlier this year, the National Cyber Security Centre told telecommunication firms against using equipment from Chinese technology company ZTE over national security risks.

ZTE has since effectively gone bust, after US firms were barred from supplying it with vital equipment after a national security breach, although Donald Trump has proposed a rescue package as part of trade negotiations with Beijing.

Final bids for the West Coast Partnership franchise, which will involve running both the existing Intercity West Coast services and the new HS2 trains, are due in early July.