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High-speed diplomacy: Exporting China’s train technology

AS little as a decade ago, the construction of high-speed rail was far from one of China’s strengths. But now, it definitely is.

China and Thailand came to an agreement five months ago on a planned high-speed railway project, the first phase of which costs US$5 billion, and that is only the beginning for the 873-kilometer rail line that will link the Chinese border with Laos and ports on Thailand’s coast.

The project epitomizes China’s efforts in recent years to export its high-speed rail to the world. In Turkey, China helped link the capital Ankara with the country’s largest city, Istanbul. In Indonesia, the construction on the Jakarta-Bandung high-speed railway line will begin this year. Also, China has announced it will build a high-speed railway to connect Singapore and the Malaysian capital of Kuala Lumpur.

Domestically speaking, China secured a leading position in the world’s high-speed rail development in the space of a just decade. Its network, already more than 20,000 kilometers and still growing, is longer than the rest of the world’s high-speed rail tracks combined.

The year 2006 was a transition when the Chinese government decided to indigenize. The country mobilized more than 10,000 rail experts, researchers and engineers, setting out to build a 1,310-kilometer high-speed rail line connecting Beijing and Shanghai, with trains to average 350 kilometers per hour. Within just five years and with the US$33 billion investment, the line opened and became the most successful railway line in China by far: it is ridden by 130 million passengers last year, or one tenth of the entire national population.

“In the past, traveling on trains could take days,” says Wu Shengtao, who works in the finance industry in Wuhan, a major city in central China. “But now, I can go to Beijing or Shanghai, from almost all the major cities by high-speed rail within half a day. Air travel is now my second choice.”

Trains going out

Now China is targeting the overseas market as the development of faster and greener transportation systems has become the common goal of both developing and developed countries, although the ability to construct such systems is possessed by only a few countries, specifically China, Japan and Germany. As countries map out plans for high-speed railways, there is a growing market for China’s cutting-edge technology. It is estimated that the global high-speed rail market will grow at a five-year compound annual growth rate of 3.6 percent to reach US$133.4 billion in 2019.

“Lower-emission and high-speed travel resulting in shorter transportation time will drive the high-speed rail market in the future,” BCC Research analyst Aneesh Kumar wrote in a report.

A coordinated push from the central government, including investment, was a key for success. “Our political and institutional advantages allow us to mobilize nationwide resources to accomplish large undertakings like this,” said Jia Limin, a professor at Beijing Jiaotong University, who now heads China’s high-speed rail innovation program.

“We have the ability, they have the need,” Jia said, “That’s why we have to go out.” He believes China has several advantages over competitors in terms of exporting high-speed rail, including price. According to a 2014 report from the World Bank, the cost of building high-speed rail in China is one-third lower than in other regions.

And the economic benefit of selling high-speed rail is more than the railway itself. The business model was first developed in Japan with the famous Bullet Trains, where rail companies usually own or operate shopping centers, hotels, tourism businesses, and construction companies. It is a captive audience that China can capitalize on.

“One thing that usually comes with high-speed rail is that China can attach more economic projects and cooperations, increasing the chances of China’s going out (policy) in general,” said Agatha Kratz, an Associate Policy Fellow at the European Council of Foreign Relations and a specialist on China.

China Railway Rolling Stock Corporation, for example, has already established a facility in India that may handle the local production of parts or whole trains in the future. Kratz also believes China is selling high-speed rail as a flagship product to inform the world of its capabilities in terms of building high-technology products.

“The going out of China’s high-speed rail is not only the export of technology and devices,” Jia said. “It is also the spread of our culture and influence.”

More widely, China has been pushing for the development of a comprehensive rail network in Southeast Asia, the key area of its “Belt and Road” initiative — a huge infrastructure investment program aimed at integrating China with Asia and Europe. As part of this diplomatic strategy, China’s policy banks will play a role in filling the financing gaps for infrastructure construction in developing countries. The project in Thailand is one of them.

“China’s railway plan in the region will help its landlocked inner western provinces to gain access to the sea, linking from Yunnan via Laos to Thailand and hope to link with other parts of ASEAN region as well,” Phanishsarn of Thammasat University said.

But given the costs and complications of building a high-speed railway, signing an agreement is nowhere near the time to celebrate. It is reported that China has had as many failures as successes. Also, it is not a surely profitable business. Due to vast investment, only three high-speed lines in the world have been shown to be profitable — Paris-Lyon in France, Tokyo-Osaka in Japan, and the Beijing–Shanghai line in China’s system. The majority still require large government subsidies.

“High-speed rail can only transport people, not goods,” said Zhao Jian, an economics professor at Beijing Jiaotong University. “Profitable high-speed rail usually requires very large and stable passenger traffic.”

Zhao believes that the countries for which China is planning to build high-speed rail projects mostly fall short of the population density and market needs for profitability.

“They only have the need to build high-speed rail if China offers the investment,” he said.

This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business (CKGSB). For more articles on China business strategy, please visit CKGSB Knowledge (http://knowledge.ckgsb.edu.cn/).


 

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