Chinese High-Speed Rail in Southeast Asia

“I really like China” a diplomat told us a few months ago, “they are the only ones around with a plan for the 21st century.” That plan – China’s Belt & Road Initiative (BRI) – has, however, raised ample concern, from Asia all the way to the Berlin and Washington. Assessments of its potential to disrupt the established economic, political, and diplomatic status quo in Eurasia have led some to perceive it as China’s own “Marshal Plan,” “Great Game,” and “challenge to the US.”

As a component of China’s BRI, Beijing’s high-speed rail (HSR) diplomacy illustrates both China’s ambition and the challenges it faces. Since around 2010, Beijing’s highest-ranking officials claim to have discussed HSR projects with about 50 countries. This includes seven of China’s ASEAN partners: Laos, Thailand, Indonesia, Malaysia, Singapore, Vietnam, and Myanmar. China’s sales pitch can be difficult to resist, combining low prices, high efficiency, and a willingness to provide financing and additional investment when needed.

Country	Won by	Project Status
Indonesia	China	Project preparation started
Thailand	China	Project preparation started
Laos	China	Construction started
Malaysia, Singapore	n/a	Bid upcoming
Vietnam	China	Shelved
Myanmar	China	Shelved

These moves have raised a range of concerns. HSR lines are known to be extraordinarily costly with slim prospects of generating profits, potentially creating a heavy burden for host countries. Often promoted along loans from China’s policy banks, they can create imbalanced creditor-debtor relationships in China’s favor. Using these loans, Beijing might be able extract political or economic concessions from governments. Often bundled with additional investments, these projects might help open new avenues for Chinese economic interests in the host economies.

These projects are seen to pose security challenges as well. As the technology owner, China could control a crucial infrastructure in host countries. Moreover, HSR lines provide Beijing with an unimpeded transport channel into neighbouring countries, which could be used for military purposes (for example to move military equipment and personnel across the subcontinent). All this would help China grow influence at the expense not only of local governments, but also of other external regional stakeholders such as the United States and Japan.

While compelling, these concerns have not been methodically and empirically assessed until now. What kind and how much of a threat, if any, does China’s HSR diplomacy entail for host countries and the region?

Our recent study, based on extensive research and close to fifty interviews with stakeholders, weighs this question against available evidence and shows that while some concerns are indeed warranted, a majority of these fears are misinformed.

For one, our research indicates that China’s HSR diplomacy is primarily serving China’s agenda for economic restructuring, overcapacity reduction, and opening foreign markets to China’s railway companies. Incidentally, and to China’s liking, HSR projects can also project to the world the image of Beijing as a technologically capable economic power and global public good provider. China’s BRI, after all, does aim to facilitate trade between China and its partners (some of them landlocked) through infrastructure investment, and to carry out bilateral development projects such as rail line construction. Importantly, the proposed HSR lines correspond to the long-standing ASEAN-level plan for enhancing connectivity across the region.

Second, we found a limited capacity on the part of China to leverage its economic might for political rewards. We find that most often in Southeast Asia, HSR projects do not have enough economic significance to produce broader, game-changing linkages and outcomes. Whether measured in terms of a host country’s GDP, trade or investment relationship with Beijing, or compared to other economic partners’ involvement in the region, the “weight” of these projects is actually moderate – with Japan and the United States remaining comfortable frontrunners within the grand economic game unfolding in Southeast Asia. Whether all of China’s BRI projects in these countries, if realized, could lead to such a result in the long-term remains to be seen.

Top 5 Investors in ASEAN, 2015

	Value ($B)	% of to FDI
ASEAN	22.2	18.3%
EU-28	20.1	16.6%
Japan	17.6	14.5%
U.S.	13.6	11.3%
China	8.3	6.8%

China’s Rank as an Investor, and First Investment Partner in SEA (2014)

	China as % of Total Inward FDI	China’s Rank as Investor (excl. ASEAN)	Top Investor in Country (excl. ASEAN)
Indonesia	5%	2nd	Japan
Thailand	9%	4th	Japan
Malaysia	2%	3rd	EU-28
Singapore	7%	4th	EU-28
Laos	67%	1st	China
Vietnam	2%	4th	RoK
Myanmar	8%	1st	China

Third, negotiation processes in Indonesia and Thailand notably suggest that rather than acting as a bully and imposing its conditions on host countries, China has actually shown a great degree of flexibility and compromise in the negotiation and formulation of HSR projects, merely to help get these signed and off the ground. For example, China has been willing to drop claims on land around the lines, and resource collaterals for its loans, where required to do so. A rice-for-rail agreement was eventually dropped from the Sino-Thai negotiation table, while rights for land use remained with host countries in both Thailand and Laos. China has also accepted different financing, ownership and implementation models from those originally proposed. To be sure, it will be important to monitor these deals to see if China’s behaviour changes as the projects progress. But so far, China’s attitude has been one of compromise.

Fourth, while China could easily retain a technological and managerial edge, and thus some degree of influence, over the operation of HSR lines in host countries, it has no interest in impeding or sabotaging their use in non-conflict times; given its high financial stake in the lines and potentially disastrous repercussions on its international image as an investor. And in the hypothetical situation of a stand-off/conflict between Beijing and the host country, it is unclear that China would be able to deploy troops via HSR, especially as railways can easily be destroyed.

Fifth and finally, if anything, China’s increased involvements in the region has pushed others – Japan, for example – to scale up their own engagement with Southeast Asia.

Of course, China’s HSR projects are not without risks for the host countries. Some of the HSR projects being discussed or carried out do not make much economic sense and might affect host countries budgets dramatically. Laos, for example, is pursuing a $5.8 billion project, which amounts to about half its GDP and would raise its indebtedness to unprecedented heights. Given its level of economic dependence on China, whether Laos might compensate for the loan through appropriation of assets (HSR, land, or others) or feel under pressure to accept China’s stance on domestic and international issues of concern to Beijing remains to be seen.

In summary, China’s HSR push has been a bumpy one, marked with as many challenges and concessions as achievements. Rather than being symbols of China’s growing strength, HSR projects have drawn divisions between China and host countries. Protracted, complex, and difficult negotiations have generated bad press, nurturing resentment and the perception of China as an incompetent or ill-meaning aspiring hegemon. Reflecting on this experience, it is reasonable to expect that Beijing will seek to manage the projects more carefully and with less fanfare in the future. Otherwise, China’s HSR projects could remain a liability for Beijing’s foreign policy rather than an asset.

Agatha Kratz is an Associate Policy Fellow for the European Council on Foreign Relations, and a PhD candidate at King’s College London.

Dr. Dragan Pavlićević is Lecturer in China Studies (International Relations) at Xi’an Jiaotong-Liverpool University.