It would also be hard to ask KiwiRail to give preference to local tenders because of the effect intervention might have on free trade agreements, Mr Joyce said yesterday.
"We are a trading nation, and only succeed by selling our goods and services to the rest of the world," he said.
"If we gave preferential treatment to local tenders, then we wouldn't be able to have free trade agreements with countries like Australia and China.
"The reality is that it is largely our exports to those countries that keep us afloat."
Members of a group promoting Otago rail manufacturing have urged the Government to find a way to encourage KiwiRail to award big manufacturing contracts to Hillside Engineering.
The Dunedin workshops this week missed out on a $29 million contract to build 300 open-top wagons, which KiwiRail awarded to China CNR Corporation.
Otago Chamber of Commerce chief executive John Christie said, while Hillside's bid was 25% more expensive, it could have been worth much more to GDP.
Hillside contractor EB's Engineering Solutions managing director Greg Wansink said the Government offered incentives to retain The Hobbit movie, and that it should consider the same to help avoid KiwiRail's manufacturing contracts going off shore.
Mr Joyce said the Government had "already made a very significant commitment" to KiwiRail, giving it $750 million and forgoing any sort of return for 10 years so it could spend $4.6 billion on its turnaround plan.
"It is very hard to argue that taxpayers should subsidise the costs of rolling stock on top of that," Mr Joyce said.
It was appropriate KiwiRail selected the best tender because "in these tight economic times, taxpayers will demand that sort of accountability for all purchases by government and government-owned companies".
New Zealand had the skilled workers and the capacity to complete big transport contracts, but "the question is whether we can match the prices of other companies", Mr Joyce said.
Dunedin-based Labour Party economic development spokesman David Parker said it was difficult to pair the Government's so-far failing plan to match Australian wages with the expectation that state-owned companies should compete with Chinese prices.
The Government owned KiwiRail, and could tell it to give preference to New Zealand tenders if there was a chance jobs could be retained, and the $15 billion current account deficit, worsened by a stalled recovery, could be reduced, Mr Parker said.
With Dunedin South MP Clare Curran, Mr Parker said the Government campaigned on using infrastructure projects to stimulate the economy, but that it let Hillside become another lost opportunity for the lower South Island.
