"Through the merger, CSR and CNR propose to build jointly a brand-new, multinational world-leading supplier of high-end equipment and systems solutions with rolling stock at its core," a statement by the two companies said.

Shares of the two companies soared on the news, in both Hong Kong and Shanghai. The deal, which is worth 160 billion yuan ($26 billion, 21.4 billion euros) will see the China South Locomotive & Rolling Stock Corporation (CSR) absorb the shares of the China CNR Corporation. The companies were spun off from the same state-owned rail vehicle maker in 2000 and currently compete separately in the global market.

In October, CNR made a name for itself by securing a deal to supply metro trains to the US city of Boston. CSR was part of a consortium that won a $3.75 billion high-speed railway contract from Mexico in early November, but the deal was canceled due to questions over the legality of the bidding process.

Expanding abroad

China's train makers are keen to expand abroad, as the domestic market is largely saturated. CSR and CNR are already a household name in South-East Asia, Africa, and Latin America. But the newly merged company is also eager to expand in Europe and the US, where it is eyeing a contract for high-speed trains for the state of California.

Both companies are instrumental in building the largest high-speed network in the world in China, which allowed them to develop their own high-speed trains that can compete with those of Germany's Siemens, Canada's Bombardier, or France's Alstom.

CNR and CSR also build most of China's underground trains as well as 80 percent of China's freight trains.

Generous financing from state infrastructure funds and China's state banks may even give them the edge over foreign rivals.

ng/bk (dpa, AFP)