Brussel - The European Commission blocked a planned merger between the railway business of German industrial giant Siemens and France's Alstom on Wednesday, arguing that they failed to address its "serious" competition concerns.

Competition Concerns

The two companies, as well as the French and German governments, argued that the merger would create a European champion that could take on foreign rivals such as Chinese rail manufacturing giant CRRC.

But the commission rejected the argument, finding that it would have harmed competition in the European railway industry.

"This merger would have resulted in higher prices for the signalling systems that keep passengers safe and for the next generations of very high-speed trains," EU Competition Commissioner Margrethe Vestager said in a statement.

"The commission prohibited the merger because the companies were not willing to address our serious competition concerns," she added.

The commission said it had received complaints about the planned merger from customers, competitors, industry associations and trade unions, as well as getting negative reactions from several national competition authorities.

Concerns focused on the worry that the transaction would harm competition and reduce innovation in signalling systems - which are crucial to railway safety by preventing collisions - and very high-speed trains. This could force smaller competitors out of business and drive up prices.

Chinese Competition

Ahead of the expected announcement, French Economy Minister Bruno Le Maire said blocking the merger would be an "economic error," arguing on France 2 television that the decision would "serve the economic and industrial interests of China."

As part of its in-depth investigation into the merger, the commission said it considered the global competitive landscape.

It concluded that Chinese suppliers are currently "not present" in the key European market for signalling systems and are "unlikely" in the foreseeable future to present a threat to Siemens' and Alstom's high-speed trains business.

But Le Maire said that China's CRRC was likely to arrive in Europe "in a very short while."

The Commission would be serving Chinese interests "because they will prevent Alstom and Siemens, the two champions of signalling and rail, from merging to have the same weight as the great Chinese industrial champion," he argued.

Le Maire said Paris and Berlin would be proposing changes to European competition law within weeks to ensure that competition was assessed globally and not just in Europe and that heads of government could have an input to decisions on mergers.

Siemens, Alstom and CRRC

Siemens manufactures Germany's ICE very high-speed train, while Alstom has developed France's equivalent, the TGV. These types of train travel at speeds of 300 kilometres per hour or above.

A 2017 prospectus for the merger plan cited combined sales of 15.3 billion euros (17.5 billion dollars) and total staff of 62,300 worldwide.

By comparison, CRRC - itself the product of a 2016 merger - reported total revenue of 207 billion yuan (30.7 billion dollars) in 2017.

CRRC holds a 71-per-cent global market share in high-speed rail technology, compared to a 3-per-cent share for Siemens and 7 per cent for Alstom, according to SCI Verkehr, a German railway consultancy firm.

Within Europe, Siemens has a 17-per-cent market share while Alstom holds 33 per cent. CRRC is not present in the European market, its data confirms.