China’s plans for high-speed rail move at two different paces: steaming ahead at home, but frustratingly start-stop overseas.
Consider the news that another Rmb4.7 trillion ($980 billion) in transport investment has just been announced on the domestic front. The 21CN Business Herald says that much of the funds are destined for 86 railway projects across China.
Yet China is desperate to win more international business for its high-speed rail sector too. Hence the frustration when the Chinese partner for a high-profile railway between Los Angeles and Las Vegas was turfed out of the project last week.
The tie-up between XpressWest and China Rail International (CRI) – a consortium made up of China’s leading rolling stock maker and its largest railroad construction and engineering firm – was one of the headline announcements of Xi Jinping’s visit to the United States last September (see WiC299). Just a few months later, XpressWest says it is now calling off the partnership because of “difficulties associated with timely performance and CRI’s challenges in obtaining required authority to proceed with required development activities”.
The Nevada-based firm blamed policy constraints, particularly that the venture wouldn’t get federal funding unless its bullet trains were built in the United States.
“As everyone knows, there are no high-speed trains manufactured in the United States,” XpressWest lamented. “This inflexible requirement has been the fundamental barrier to financing high-speed rail in our country.” CRI was furious, describing the announcement as “premature and irresponsible”, and state news agency Xinhua slammed the explanation as “unconvincing” in a commentary.
“The Chinese side understands [the American side’s] urgent desire to build the high-speed rail and is actively supporting such a construction project… but [sincerity in this] does not mean agreeing to any price without preconditions,” it said.
Both parties must have been aware of the policy challenges when they announced their partnership last year. The Chinese seem to have felt that there was more room to negotiate. Nonetheless, it looks like another case of their high-speed ambitions hitting the buffers.
Few of China’s high-speed trains have come close to leaving the station overseas. There was some success in Turkey, with the launch of a high-speed line between Istanbul and Ankara two years ago. But the Chinese are chasing the government for compensation in Mexico following the breakdown of a similar project (see WiC270) and work stopped on a bullet line in Venezuela last year.
The building of a link between Jakarta and Bandung in Indonesia came to a shuddering halt in January within a week of the ribbon cutting on construction, although work has now restarted on the contract (which the Chinese won in a bidding war against a consortium from Japan).
But progress on another high-speed link south from Yunnan into Laos has been painful amid a row over funding. Similar disagreements on financing an express line through Thailand saw the dropping of a deal to be part of the same network.
Now the Thais have announced that they will finance their own bullet line instead, although it seems set to finish 400 kilometres short of the Thai-Laos border. Chinese firms still look likely to win many of the contracts for the Thai railway, but Bangkok has shredded Beijing’s blueprint, refusing to meet Chinese requests to be allowed to develop land along the route to make the original project more commercially viable.
“I have said since day one with China, that there will be no offer on land rights,” Thai Transport Minister Arkhom Termpittayapaisith told Reuters during the earlier negotiation.
The delays in the railway deals are frustrating for Beijing, which sees the sector as a showcase for higher-value exports from China’s manufacturing economy. The country is now home to more than 19,000km of high-speed line – some 60% of the world’s total – which gives it know-how that none of China’s rivals in high-speed rail could have predicted just a few years ago.
In fact, the challenge of delivering a few hundred kilometres of track across the California desert might have seemed relatively trivial compared to the plans for the latest railway into Tibet, following the opening of the first high-altitude link between Lhasa and Golmud in Qinghai 10 years ago. The second line – this one originating in Chengdu – looks set to become a greater engineering marvel, traversing even higher mountains, and running through tunnels and across bridges for nearly half of its proposed 1,600km length.
He Huawu, the chief engineer at China Railway Corp (CRC), the state firm set up to replace the Ministry of Railways, has stepped up the rhetoric on the technical prowess of high-speed rail too, arguing that China’s fastest trains should be allowed to run closer to their 350km/hour limits if the economics allow it (maximum speeds have been capped at 300km/hour after a serious accident in Wenzhou five years ago).
The call was treated cautiously in the domestic press though, with Zhang Guifeng, a columnist at Beijing Youth Daily, wondering whether the higher speeds might be used as a pretext for a hike in fares. Others took more of a marketing stance, including Zuo Dajia, an associate professor at the Southwest Jiaotong University, who supported the idea as a “strategic move” to demonstrate that China’s trains are safe and reliable at the higher speeds for which they are designed.
Perhaps the more pressing question is whether the railway builders can replicate their domestic model in other markets, especially in places where the mandating of equipment and design to Chinese standards is more of a challenge.
A study from the World Bank has suggested that the Chinese have built their high-speed network for about half the price of their competitors in Europe, for instance. But the railway firms have spent relatively little on purchases of land and they have benefited from low-cost funding from the state banks.
The same conditions don’t always apply in the overseas projects. Countries like Thailand and Laos are also trying to drive a harder bargain for Chinese projects on their soil, knowing that Beijing needs a breakthrough to prove itself beyond its national borders.
All the same, the partners need to be careful or they might miss out on the pipeline of investment in the ‘One Belt, One Road’ initiative: China’s plan for a vast new transport network stretching out across Central Asia into Europe as well as Africa.
Some of this spending will go on freight lines and urban metros, including projects like the Addis Ababa Light Rail Transit system, the first railway of its kind in Africa. “It’s a good start to build ordinary railways. Then China will have more opportunities to talk to other countries about building high-speed railways,” Wang Mengshu, a respected railway expert, told the Global Times.
Yet it’s hard to avoid the conclusion that high-speed is the Holy Grail for China’s railway engineers as ‘One Belt, One Road’ spending spreads westwards. Chinese firms have the contract to build a faster line between Budapest and Belgrade in Europe, for instance, and an express link between Moscow and the Russian city of Kazan is going through the design phase, with the Chinese reported to be providing $6.2 billion in loans for its construction.
There is speculative talk of high-speed track between more of the cities along the 7,000km route between Moscow and Beijing as well, cutting the journey time on the Trans-Siberian Railway from six days to two. The Russians will struggle to fund their share of the plan unless the oil price improves.
But Jia Limin – a professor at Beijing Jiaotong University – says that the Chinese have already developed a next-generation train to run at 400 km/hour on routes like Moscow-Kazan and that newer trains will have wheels that adjust to fit the gauges on different tracks, to avoid the current situation in which trains need to have their wheels changed before crossing borders.
In the meantime, another consortium led by CRC visited Malaysia last month to push for the contract for a high-speed rail link between Singapore and Malaysia’s capital, Kuala Lumpur. The deal is said to be worth $10-15 billion.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.