- 2018-11-12
China's high-speed rail overseas "deceleration"
China's high-speed rail ambitions are derailing. Rather than opening up a path for the “Belt and Road” initiative, some of these projects have been abandoned or postponed. Such ruined plans, as well as some projects under construction, have created suspicion, public hostility, and large amounts of debt in the countries that China hopes to win.
"In the early days of the Belt and Road Initiative, China paid great attention to high-speed rail. Almost every time leaders went overseas for state visits, they mentioned high-speed rail and promoted it as a strategic export side by side with nuclear energy," the European Commission for Foreign Relations, a think tank. Agatha Kratz, an expert on high-speed rail at the Council on Foreign Relations, said, “But the effectiveness of high-speed rail diplomacy is actually very low, and Chinese leaders are realizing this.”
Chinese President Xi Jinping called the “Belt and Road Initiative” a “Project of the Century”, but the difficult setbacks of China's high-speed rail projects overseas may imply that the theoretical foundation of this vision is being challenged. The huge population, authoritarian system, and sufficient borrowing capacity make high-speed rail suitable for China, but it may be quite unsuitable for many countries that China is trying to attract.
These setbacks are not limited to the areas covered by the “Belt and Road”. There are also some railway projects in the United States and Latin America that have not been eliminated.
In terms of scale, the high-speed rail project can be described as one of the largest infrastructure undertakings in history. A study conducted by the Center for Strategic and International Studies (CSIS), a think tank in Washington, and the Financial Times of the United Kingdom, showed that China’s 18 overseas high-speed rail plans-including one completed project (Ankara-Istanbul) and 5 under construction Projects and 12 other projects that have already been announced-with an estimated total value of US$143 billion. In contrast, the "Marshall Plan" led by the United States to help Europe recover after World War II was finally completed with the United States' contribution of 13 billion U.S. dollars, which is equivalent to today's 130 billion U.S. dollars.
The scale of this magnificent design in China makes many of its flaws even more noticeable. According to estimates by the British Financial Times, the total value of cancelled projects in Libya, Mexico, Myanmar, the United States and Venezuela reached 47.5 billion U.S. dollars.
According to estimates by the Center for Strategic and International Studies, this is close to twice the total value of the 5 projects under construction (Laos, Saudi Arabia, Turkey and Iran) of USD 24.9 billion. Iran is currently building two high-speed rail lines.
Some projects were cancelled due to factors far beyond the control of Beijing. In Libya, for example, the outbreak of the civil war in 2011 made the $2.6 billion railroad project from Tripoli to Sirte to the ground. Sirte is the hometown of the late dictator Muammer Gaddafi.
In other cases, the high-speed rail project appears to have been cancelled due to criticism of China's operation. Mexican Transport Minister Gerardo Ruiz Esparza stated that Mexico’s decision to cancel a US$3.7 billion high-speed rail contract in 2014 was to ensure “absolute clarity, legality and transparency”.
In the United States, XpressWest said that last year's decision to cancel the high-speed rail line from Los Angeles to Las Vegas was partly due to China Railway International's "difficulties in implementing projects in a timely manner." As for Venezuela, it was once touted by the late President Hugo Chávez as a project to bring "socialism on the rails" to this Latin American country. It is now called the "Red Elephant" by the locals-stations along the route and The railroad tracks have been abandoned and destroyed.
Kratz said, "China's efforts to promote high-speed rail overseas are currently hitting a wall in implementation."
So why are so many railway projects supported by China's unrivaled financing capabilities, large-scale construction companies, and advanced technology abandoned halfway? The answer reveals to a large extent the limitations of Beijing's global development vision.
The British "Financial Times" investigated three projects (located in Laos, Indonesia, and between Serbia and Hungary) and revealed various flaws and mismatches that may hinder China's power projection in these countries and other countries.
The first problem is a completely different ability to bear and digest debt. China's economic strength and authoritarian system allow companies that enjoy government de facto guarantees to raise debts on a large scale and operate in a state of perennial losses. China Railway Corporation, the state-owned railway operator and investor in the high-speed network, has a debt of 3.8 trillion yuan ($558 billion)-far more than Greece's total national debt. Some officials said that this was partly because most of the loss-making operations of China's 22,000-kilometer high-speed rail network.
Yu Weiping, vice president of CRRC, a Chinese high-speed rail locomotive manufacturer, admitted that doubts about the profitability of high-speed rail projects are reasonable. Yu Weiping said, “People doubt whether the high-speed rail can be profitable, but the data announced by the China Railway Corporation in 2015 shows that the six high-speed rail lines have already achieved profitability."
A country like China with such a large economy, a strong sovereign credit rating, and US$3 trillion in foreign exchange reserves can support a heavy debt burden. However, Laos, with a gross domestic product (GDP) of USD 12.3 billion in 2015, is far from able to absorb the cost of high-speed rail-the project is estimated to cost USD 5.8 billion, which is close to half of the country's GDP.
The railway line under construction in Laos is 417 kilometers long, from the Chinese border to Vientiane, the capital of Laos. Before the project was formally agreed, some people had already expressed doubts. According to media reports quoted on the Asian Development Bank (ADB) website, in 2013 the ADB described the project’s plan as “unaffordable”. In the same year, the World Bank urged "a careful review of the potential impact of debt sustainability."
According to the feasibility study issued by China to Vientiane in 2012, the internal financial return rate of the railway is only 4.6%. Somsavat Lengsavad, the deputy prime minister of Laos at the time, reported to the Lao Parliament that such a meager profit margin meant that Chinese railway companies were reluctant to invest in the project.
According to the Lingshawar report, Beijing proposed that Laos should become the main investor in the project and finance the project by borrowing from China Ex-Im Bank. The foreign media department of the Lao government did not respond to a request for comment on the cost of the railway and its impact on the country’s debt situation.
Critics of this railway say that China wants Laos to pay the price to advance China's own goals. They pointed out that the railway forms a key link in China's grand plan to build a high-speed rail from Kunming in southwestern China, via Thailand and Malaysia, to Singapore.
"The high-speed rail line through Laos has no economic significance," said Murray Hiebert, an expert on CSIS Southeast Asia. "China's goal is obviously to find a land route from western China to inland Southeast Asia. But. Given the small population and economy of Laos, there is little trade that will benefit Laos, and Laos will transport very few goods to China via this railway."
ADB Deputy Governor Stephen Groff made a similar point, although he declined to comment specifically on the Laotian Railway. "In those investments, the real beneficiaries are at both ends. There are a large number of poor communities along the way that do not see the immediate benefits of those investment projects," he said. "If there is no economic benefit to the country, they should ask for preferential benefits. Many terms."
In Indonesia, the mismatch is mainly not in the ability to raise debt, but in the political system. In China, the authoritarian system ensures that state-owned railway companies will basically not encounter obstacles when obtaining land and construction permits in the domestic market.
But Indonesia is a vibrant democracy with strong land tenure laws. An official groundbreaking ceremony for the USD 5.5 billion Jakarta-Bandung Railway was held in January 2016. But today, more than a year later, officials said that the project has not yet officially started construction because it has not been able to buy all the land in the area where the railway will pass.
Officials said that Jakarta is also recalculating the cost of the 142-kilometer project as a significant overrun is expected. But a senior Indonesian government official who requested anonymity said the country’s President Joko Widodo was determined to complete the project.
"We told the Chinese that this railway tied the fate of the two countries together," the official continued. "If they fail to start the project, they will damage their reputation in many countries where they wish to invest. In the 2019 general election, our president cannot let people see the smooth progress of the project, and that would be very bad."
Gong Xue, an analyst at the Rajaratnam Institute of International Relations (RSIS) at Nanyang Technological University in Singapore, said that the wider suspicion caused by Chinese investment has made these problems worse. She said that Chinese state-owned enterprises that have developed on the basis of backstage deals with government officials are not accustomed to the political unpredictability and democratic supervision encountered in Indonesia. She asked, "In a country where public opinion may affect the fate of investment, how open can they be to the public?"
The high-speed rail technology touted by Li Keqiang during his train journey in 2015 has encountered administrative obstacles in Europe. China’s first high-speed rail project in Europe has aroused official suspicion, but failed to fulfill the Chinese Premier’s prediction that the project will demonstrate China’s “advantageous production capacity, advanced technology, and high cost performance”. European officials said that the European Commission has launched an investigation into the 350-kilometer high-speed rail planned to run between the Serbian capital Belgrade and Budapest, Hungary.
In August 2012, German Chancellor Angela Merkel, who was visiting China, and the then Chinese Chancellor *** took the high-speed train from Beijing to Tianjin. The officials added that the European Commission will assess the financial feasibility of the US$2.89 billion high-speed rail project and investigate whether it violates EU laws that require public tenders for large-scale transportation projects.
The results of the investigation have not been announced, but any setbacks encountered by the Serbian-Hungarian high-speed rail project at the administrative level will have shock waves that exceed the project itself. This project has been advertised as evidence of the benefits that can be brought about by extensive diplomatic contacts with China.