Since Mahathir reenergized the plan, ASEAN has focused on creating three main routes stretching from Kunming, the capital of China’s Yunnan province, to Bangkok, Thailand. The eastern route would pass through Vietnam and Cambodia, the middle route through Laos, and the western route through Myanmar. At Bangkok, the routes are intended to converge and continue south, passing through Kuala Lumpur, Malaysia, and terminating in Singapore.
In addition to these three main routes, countries have proposed a dizzying number of supporting railways in the region. Indonesia alone has planned over thirty-two hundred kilometers of railway.52 James Clark, a freelance writer who runs a travel agency, has pieced together these proposals in a subway-style map that he updates each year. Reflecting the pan-Asian railway’s enduring appeal, these maps are entrancing and make the exotic familiar. Infrastructure takes center stage, and Southeast Asia looks as accessible as Manhattan. For an instant, it is easy to forget all that stands in the way. Build the railways, these images whisper, and integration will follow.53
Of course, even if the entire network became whole overnight, a prospect that could cost $75 billion, differences in track gauges and procedures at borders would still constrain greater connectivity.54 “It’s a question for all the train investments because they just talk about building the lines and that is it,” explains Ruth Banomyong, head of the Transport Department at Bangkok’s Thammasat Business School. “They don’t talk about the actual modality of managing a system that is supposed to go across borders. You probably need a new agreement for international rail transport for the region.”55
Depictions of the pan-Asian railway can be deceptive in a second sense: they presume there is sufficient demand for these services to exist. Putting aside intrepid travelers and railway aficionados, most people traveling from Kunming to Singapore would still prefer to fly, which will remain cheaper and faster. Likewise, cargo shuttled between the two destinations would be cheaper if transported first to the coast and then by boat to Singapore. Most studies have found that a pan-Asian rail system would complement maritime shipping rather than compete with it.
The pan-Asian railway is more potent politically than commercially. It is something to strive toward, in bits and pieces, that will complement existing trade networks. It is something for politicians to invoke in the name of regional solidarity, integration, and development. As Mahathir explained during a visit to Kazakhstan in 1996, “In East Asia we are seriously studying a railway system linking Southeast Asia with China. It will be the logical step to link this system eventually with the railway system in Central Asia passing via and through Kazakhstan. This will give many land-bound Central Asian Nations access to the sea.”56
During the same trip, Mahathir’s comments foreshadowed what would become China’s BRI: “Kazakhstan is indeed located in a strategic position in Euro-Asia between China, an important neighbour, which is in the process of becoming an important economic power and the Russian Federation in the north, and to the West the whole of the European Continent. Since trade involves transportation of peoples and goods, we see Kazakhstan providing an important road and rail link between East Asia, Russia and Europe.”57 Of course, seventeen years later, Xi would announce the BRI’s overland dimension during a visit to Kazakhstan.
But even before the BRI was announced, Chinese officials were talking up their role in supporting the pan-Asian railway. In 2006, one official predicted that the eastern route would be complete in 2010.58 A year later, at the tenth ASEAN summit, China’s Premier Wen Jiabao cited the pan-Asian railway in his speech, and Chinese state media predicted completion of all three routes by 2015.59 Despite missing these deadlines, China has made the pan-Asian railway an even more central part of its regional engagement. From time to time, new officials rekindle the effort. The idea of a pan-Asian line remains powerful, diminished only for those who can recall the undelivered promises of earlier efforts.
“Old-Fashioned Incompetence”
Under the BRI banner, China has made the effort its own. In 2016, China’s ambassador to ASEAN stated that BRI projects would “promote the construction of the pan-Asian railway, increasing connectivity and the exchange of goods and people.”60 As China touts the importance of rail connectivity, it is also financing dozens of power plants, roads, and several ports across Southeast Asia. But it is the railways that best capture the scale of China’s infrastructure ambitions and the limits of its power.
Can China achieve what the United Nations was unable to achieve multilaterally and what ASEAN has been unable to achieve regionally? It brings mountains of money to the table, and its bilateral deal making offers more flexible terms. But the same basic challenges that have limited the pan-Asian railway’s expansion, the political challenge of coordinating the routes and the financial challenge of paying for them, remain.
Limits to China’s power are already evident. As China pushes south, it faces less resistance in the region’s smaller economies than among the larger economies. In 2009, following the financial crisis, China announced a large aid package to Southeast Asia. Much of this aid targeted infrastructure projects and required recipients to use Chinese contractors, effectively serving as an extension of China’s own $500 billion domestic stimulus package.61 Chinese offers are difficult to refuse, but Southeast Asian countries are not without options. Although many deals are made, few are truly ever done, leaving room for renegotiation in the future.
It was during this period that China began negotiations to build a railway from its border to Vientiane, the capital of Laos. Among Chinese railways in the region, the China-Laos railway has the dual distinction of being the furthest along and the furthest behind. Stretching some four hundred kilometers, the railway is estimated to cost $5.9 billion, more than a third of Laos’s GDP. China has provided financing for 70 percent of the project, and Laos’s 30 percent contribution will cover payments to its citizens for relocation. But the agreement’s ink had barely dried in 2011 when a dispute about lending terms arose. Studies examining the project’s environmental and social impacts had not been completed.62 It would take another six years for the sides to reach an agreement.
The project is technically challenging as well. Of the pan-Asian railway’s missing links, some of the most difficult stretches run through Laos. Filled with mountains and rivers, the landlocked nation is a hiker’s dream and a railway engineer’s nightmare. The route includes 72 tunnels and 170 bridges, covering more than 60 percent of its total length.63 To make way for the railway, the Lao government has relocated over 4,400 families, and it will be on the hook for relocation costs that could reach $300 million.64 Many families are still waiting for compensation.
China has aggressively marketed the project as a “win-win” benefiting the people of Laos as well as its own companies, but the deal seems slanted toward the latter. “Without a formal job, Bounmy once struggled to make a living,” a YouTube video produced by New China TV, a state media outlet, says. “Things changed when Power Construction Corp. of China came to build the China-Laos railway.”65 Bounmy, a Lao mother, has found work as a kitchen assistant, the video explains. It does not explain whom she is assisting or serving, but the odds make it easy to guess. China is bringing twenty thousand to fifty thousand of its own workers for the project, as compared to seven thousand local workers from within Laos.
The basic economic case for the railway is weak. It is designed to handle both cargo and passenger trains, but Laos has little of either. Much of Laos’s limited manufacturing is concentrated in Savannakhet Province, where the railway will not run.66 With incomes among the lowest in the world, few Laotians will buy tickets for the train. It would be safer financially, and smarter practically, to scrap the railway and invest a fraction of its multibillion-dollar price tag in better roads.67 All of this suggests a project molded more in China’s short-term interests than in Laos’s long-term interest.
Laos has not been willing to walk away from the project, but it has renegotiated slightly be
tter terms.68 Citing debt risks, Laos convinced China to increase the size of its stake and waive its requirement for a government guarantee. After learning that China offered Thailand a 2 percent interest rate for its railway loan, Laos bargained for similar terms, down from 3 percent. China ended up with less land alongside the railway, which could be developed for retail and tourism. The experience demonstrates that even when China is dealing bilaterally with a much-smaller economy, it cannot dictate terms or expect its partners to ignore other deals.
Rather than Southeast Asia marching to China’s tune, Beijing is being forced to dance as it auditions for new projects, especially in the region’s largest economies. When Indonesia’s President Joko Widodo, popularly called Jokowi, took office in 2015, his first two foreign visits were Tokyo and Beijing. Having made infrastructure a signature issue on the campaign trail, Jokowi was eager to attract the foreign investment needed for a major building spree. Indonesia’s infrastructure gap is $1.5 trillion a year, by far the largest in the region.69 The trips were successful and smartly timed. Jokowi bagged investment promises and sparked a competition for future projects.
No project in the region has generated as much competition as Indonesia’s Jakarta-Bandung high-speed railway. Jokowi discussed it with Abe and Xi during his visits to their capitals, and while he left Tokyo with an expression of interest, Jokowi extracted even more from Beijing. Among the deals he signed in Beijing was an agreement to start feasibility studies for the railway between Indonesia’s capital and its fourth-largest city. China also agreed to create a $50 billion joint loan facility, of which it would provide the lion’s share.70
A month later, Tokyo responded with an offer of its own to build the railway. It would provide a loan for 74 percent of the project costs with a very low interest rate and long repayment and grace periods. Japan’s shinkansen, or bullet-train, technology was already used in China, Taiwan, and the United Kingdom, and Japanese diplomats like to remind foreign audiences that the trains’ safety record is unparalleled.
Chinese firms had built more kilometers of high-speed railway than anyone else in the world, but their experience abroad was still limited. They were building a slower, medium-speed railway in Kenya, and they had participated in different phases of high-speed rail projects in Russia and Thailand. The Jakarta-Bandung railway would be China’s first high-speed rail project for which it took the lead role throughout the process.71
That might be why Beijing was willing to offer two things that Tokyo did not. First, even though China’s loan rates were higher, it was not requiring the Indonesian government to make a direct contribution to the project or provide a state guarantee. That was attractive to Jokowi’s bottom line, which would allow him to pursue more projects in the short term rather than lock up a large chunk of government funding for the railway project. Second, Beijing was willing to commit to a shorter timeline. It promised that construction would be completed in 2018 and the project would begin operating in 2019. Not coincidentally, that was just in time for Jokowi’s reelection.
When Jokowi went with China’s offer, he triggered a regional reaction. He insisted that the project was not part of China’s BRI and, as a consolation prize, offered Japan a metro project in Jakarta. But Japanese officials felt they needed to sharpen their toolkit. Abe responded by rolling out the “Partnership for Quality Infrastructure” in September 2015, and the following year, Japan increased its foreign aid for the first time in seventeen years. Along with additional funding for infrastructure and several new investment vehicles, the Japanese government expedited its lending procedures and loosened some borrowing requirements. To compete, Tokyo recognized that it needed to become faster and more flexible.72
Despite the fierce competition leading up to the project’s announcement, progress has been slow. What Jokowi intended as a reelection boost became a liability on the campaign trail during 2019. His challenger promised to review the railway deal and accused Jokowi of favoring China.73 Jokowi prevailed, but the project has crept along. “It’s not geopolitics or politics or policy or ideology. It’s just good, old-fashioned mismanagement and incompetence,” Thomas Lembong, Indonesia’s state investment chief, said in 2019.74
So far, the railway’s biggest impact has been outside Indonesia. China’s offer to Indonesia reset expectations in other Southeast Asian capitals. In Bangkok, Thai officials have pressed their Chinese counterparts to improve their terms for a high-speed line between Bangkok and Nong Khai, a city of fifty thousand on the border with Laos. The proposed route misses most of Thailand’s population centers, and an existing narrow-gauge railway that runs from Bangkok to the Laos border is being expanded.75 The new Chinese line is expensive, duplicative, and commercially uncertain, even if the China-Laos railway is successfully completed.
The project’s fate remains uncertain, but it is more compelling as a bargaining chip than as a commercial endeavor. Killing the Bangkok–Nong Khai high-speed railway makes economic sense. The project does not address an urgent need or even a foreseeable one. It is an unnecessary luxury, grafted awkwardly onto a railway system with clearer and more pressing needs. Getting rid of it would allow Thai officials to concentrate on other priorities and could even push Chinese officials toward supporting more viable projects.
But in political terms, it is better for Thailand that the high-speed rail project dies a slow death. By keeping Chinese and Japanese officials engaged, Thailand is able to extract better offers from both sides for future projects. As Indonesia’s Finance Minister Sri Mulyani Indrawati said in 2017, “This is a good competition. You do not want to build infrastructure, high quality but [that the] people cannot afford and [the] country cannot afford. . . . With the combination of pressure which is coming from China, [and] many other players, that creates a competition that will reduce the cost.”76 Hedging helps protect each country’s independence, and it is good for business.
Playing this game requires an ability to attract competing offers and bargain effectively. It is risky, given the strong incentives for green-lighting questionable projects and the large price tags that come with high-speed rail projects. Missteps can be measured in the billions of dollars, not a trivial amount even for the region’s largest economies. The stakes are even higher for smaller economies.
Missing Billions
Malaysia’s experience reveals the dangers of overindulging at the region’s infrastructure buffet. Najib Razak, who served as prime minister from 2009 to 2018, aggressively courted Chinese investment. By 2015, China was providing about half of all foreign construction in Malaysia, but Najib was eager to deepen ties.77 When he visited Beijing in 2016, he announced a package of deals reportedly worth $47 billion, including the East Coast Rail Line, Melaka Gateway, and a steel plant in Sarawak.78
Najib even published an op-ed in China Daily, a state-owned outlet. He tried to showcase a growing partnership between Malaysia and China, but his effusiveness hinted at desperation. In the piece, Najib takes a swipe at the West, noting that “former colonial powers” should not “lecture countries they once exploited on how to conduct their own internal affairs today.” He praises Xi and calls the BRI “visionary.” He mentions a port project under way at Melaka and a “futuristic underground metropolis” that would be developed in Kuala Lumpur.79 Both projects promised large infusions of cash, and Najib was running out of money.
Privately, Najib was struggling to contain one of the largest corruption scandals in recent history.80 He had used a state-owned investment fund, 1MDB, to siphon off public funds. The cash was intended to keep his patronage network happy and his political future bright, but it was also a family affair. Najib’s wife received $30 million in jewelry, his son started a movie production company, and the family bought multimillion-dollar properties in Los Angeles, New York, and London. The fund’s problems first came to light in 2015, when the Wall Street Journal reported that $700 million was directed into Najib’s personal bank accounts.81 Najib denied any wrongdoing, and the
Malaysian attorney general, whom he appointed, issued a statement clearing him of any association with the accounts.
But 1MDB’s financial distress was real, and Najib’s associates were scrambling for new investments that could be diverted to help avoid further scrutiny. Naturally, large infrastructure projects were an attractive target. Transactions related to the fund are still being investigated, but reporting and a former aid’s testimony allege that Najib wanted to inflate the cost of two pipelines and a railway, the East Coast Rail Link, and divert Chinese investments to help bail out 1MDB.82 The $20 billion contract for the railway was awarded to China Communications Construction Company (CCCC), which the World Bank blacklisted in 2009 for fraud.
The East Coast Rail Link was intended to connect to Bandar Malaysia, the “futuristic underground metropolis” that Najib had promoted during his 2016 visit to Beijing. A joint venture between Malaysia’s Iskandar Waterfront Holdings and state-owned China Railway Engineering Corporation had purchased a 60 percent stake in the Bandar Malaysia project from 1MDB. The plan was to turn the site into a global business district, complete with retail stores, restaurants, and other attractions.83
Najib was scheduled to visit the site in early May 2017, but hours before his visit, the deal fell apart.84 The Malaysian government blamed the joint venture, which it claimed had missed payment deadlines. The failed project was another easy target for Najib’s critics. “The new season of the blockbuster 1MDB political drama thriller could not have kicked off on a more suspenseful note,” wrote Tony Pua, a member of Malaysia’s parliament and spokesperson for one of the main opposition parties.85
A week later, Najib lashed out in an opinion piece timed to coincide with the Belt and Road Forum in Beijing. “It may seem ridiculous to readers in China or other visitors at the forum, but there are some opposition politicians in my country who say we are selling our sovereignty by agreeing to such projects,” he wrote in the South China Morning Post. “But I make no apologies for wanting to build world-class infrastructure for Malaysia that will, with local ownership being preserved, open up huge swathes of our country, bringing more trade and opportunity to our people, thousands of new jobs, improved living standards and prosperity.”86
The Emperor’s New Road: China and the Project of the Century Page 13
