China’s railway diplomacy: Benefits and challenges

China’s railway diplomacy: Benefits and challenges

While the outcome of the recent high-prized Indonesian railway deal is a huge success for China’s railway diplomacy, both countries will have to tackle safety and transparency issues.

China has won a bid to build Indonesia’s first fast-train railway network that links Jakarta with the textile hub of Bandung. The 150-kilometre speedy railroad is part of a 750-kilometre railway system planned for Indonesia.

The outcome came as a surprise, as just a few weeks ago Indonesia had scrapped proposals from both China and Japan over financing issues, and asked for a medium-speed line instead of the initially-requested high-speed line.

In the end, however, Indonesia opted for China’s new proposal, which does not require loan guarantees from the Indonesia government, thus making it less burdensome. The final decision reflects the domestic circumstances of Indonesia, and reveals China’s economic power and grand strategy.

China offers a more competitive financing package that conforms to the greatest need of Indonesia: improving infrastructure without undermining the people’s welfare.

When President Joko Widodo (Jokowi) entered office in 2014, he promised to be a ‘man of the people’, improving common and rural people’s welfare. In this sense, China’s financing package, which asks for no government spending from the Indonesian government, has proven to be more competitive.

Of course, President Jokowi also pledged to improve infrastructure by upgrading the country’s aging roads and railways. But he has been struggled to push his agenda forward and the execution of a state budget has been slowed. Not only would China’s proposal help President Jokowi deliver more on infrastructure, but low spending requirements would cut down the bureaucratic process, as well.

‘One Belt One Road’ grand strategy

The high-profile railway contract had been a fierce competition between China and Japan. But China has won the project by accepting high financial risk, which Japanese Chief Cabinet Secretary Yoshihide Suga “doubted would be successful” without Indonesian funding.

While it’s clear that China has taken a huge risk in the bid in order to secure the contract, it is an investment they are happy to take. Not only is exporting China’s speedy trains the key driver to boost China’s slowing growth, it also links to China’s ‘One Belt One Road’ grand strategy, which aims to build a network of railways, roads, and ports that stretch between Asia and Europe to boost trade, investment, and influence in the region.

The demand for a speedy railway system is high in Southeast Asia, but the number of countries that are able to provide this technology is very limited, with Japan being China’s biggest competitor. It is highly anticipated that whoever wins this project will be the front runner for future rail projects from other Southeast Asian countries. 

The most notable upcoming project is the Kuala Lumpur-Singapore rail network that is expected to put in for bidding next year. This is the contract that China has in mind, and has on numerous occasions expressed its interest in this project.

Once it is completed, the rail network would be the first Southeast Asia high-speed railway that would cut the journey between the two countries down to 90 minutes from six hours. One significant fact about this new route is that it would form part of the Trans-Asian Railway project, which hopes to facilitate cultural exchanges and trade within Asian and between Asia and Europe.

Professor Sun Zhang, a railway expert from Shanghai’s Tongji University, says the ‘One Belt One Road’ initiative starts and goes through Southeast Asia, thus strengthening the transportation system between Asia and Europe, and improving the interconnectedness of the regional economy.

Concerns remain over China’s high speed trains

While it seems like a formidable deal for China and Indonesia, before they start to lay tracks, there are several risks that China needs to consider.

Firstly, the safety issues. The train tragedy that happened in 2011, killing at least 40 people and injuring about 200 others, are still vividly remembered, and often cited when people discuss China’s bullet train.

Secondly, transparency issues remain. When commenting on the outcome of the Indonesian deal, Japanese embassy official Kijima pointed out the issue of transparency in the bidding process. Whether the process was transparent is a matter of debate; lack of transparency, nonetheless, is a persistent obstacle for Chinese railway players going abroad.

Indonesia should also play its part to ensure the process is transparent in order to facilitate legitimacy and sustainability.

Finally, inclusiveness could become an issue. Arrogance and lack of understanding of the local situation has made Chinese business stumble during their journey abroad. China’s high speed train is no exception.

The cancellation of a $20-billion Burmese railway project that would connect Chinese Yunnan province and the Bay of Bengal due to local protests over environmental concerns is a clear demonstration of China’s failure to include key actors. How Chinese businesses communicate and engage with local actors will be important not only for the Indonesian contract, but also other overseas projects.

Overall, it is clear the deal is an economic and diplomatic success for China, but it is also a reflection of Indonesia needs. The next step is for both countries to work on the safety and transparency issue, and embrace local actors to ensure the smooth implementation of Indonesia’s first high-speed railway.

About Author

Qingzhen Chen

Qingzhen is a GRI Senior Analyst and a research analyst for an international information company. Her research focuses on China and the Asia Pacific. Previously she was a market researcher for PwC. She has gained regional knowledge from internships with the UNDP, China Policy, and the Royal United Services Institute. She holds a BA in Politics and East European Studies and an MSc in Security Studies from University College London.