How Are Foreign Rail Construction Projects Advancing China’s Interests?

How Are Foreign Rail Construction Projects Advancing China’s Interests?
How Are Foreign Rail Construction Projects Advancing China’s Interests?
How Are Foreign Rail Construction Projects Advancing China’s Interests? Top

    Railways facilitate the movement of people and goods around the world, which can enhance market activity and drive economic development. China’s wide-scale support for rail infrastructure development across the globe provides a unique opportunity for Beijing to drive regional connectivity and reap the resulting economic and political benefits. Much of this effort is linked to the broader Belt and Road Initiative (BRI), a flagship effort aimed at positioning China at the center of global trade and commerce. While there have been some successes, many rail projects remain unfinished, and some face major challenges.

    Chinese Rail Goes Global

    China’s presence in railway construction projects abroad is rooted in the rapid expansion of China’s own domestic rail network. Between 2008 and 2019, China built an average of 5,464 kilometers (km) of railway track per year, which is nearly equivalent to the distance between New York City and London. Roughly half of the new track added was high-speed rail. At 35,388 km, China’s high-speed rail network is the largest in the world.1 Combined with non-high speed railways, China’s entire rail system stretched 139,800 km in 2019, making it the second-largest in the world after the US’ rail system, which spanned 202,600 km.

    China’s rail system is the product of a patchwork of state-owned enterprises (SOEs). Massive conglomerates, such as China Railway Construction Corporation and China Railway Engineering Corporation, have constructed much of the tracks and other physical infrastructure that make up China’s rail network. Meanwhile, companies like China Railway Rolling Stock Corporation – the largest rolling stock manufacturer in the world by revenue – have produced the locomotives and rail cars that run on those tracks.

    These SOEs (and others) gained significant industrial capacity and know-how through the construction of China’s rail network, and they have increasingly sought to export this capacity abroad. According to the China Global Investment Tracker (CGIT), Chinese companies signed $61.6 billion worth of rail construction contracts from 2013 to 2019 – more than double the value of the previous seven-year period (2006-2012).2 This uptick coincided with the launch of China’s Belt and Road Initiative in 2013.3 Of the 34 countries that signed rail construction contracts with China, 29 are involved in the BRI.

    Tracking China’s Rail Construction around the World

    Middle income countries have attracted most of China’s rail construction contracts since 2013. Lower middle-income countries took in 41.7 percent (or $25.7 billion) of all contracts, while upper middle-income countries took in 29.1 percent (or $17.9 billion). The remainder was split among other economies.4

    Disaggregated by regions, about 46.9 percent ($28.8 billion) of China’s rail construction contracts were concentrated in Asia. Within the region, the lion’s share (61.1 percent) of contracts went to nine Southeast Asian countries. In Malaysia, the top recipient in the region, China is constructing the East Coast Rail Link, which will stretch some 640 km and cost a total of $10.6 billion.

    Africa received the second-highest amount of rail contracts from 2013-2019. At $20.8 billion, this accounted for 33.8 percent of the total. Similar to Asia, the largest contracts in Africa are concentrated in a few countries. About $7.5 billion worth of rail-related construction contracts (36.1 percent of the amount in Africa) were signed with Nigeria, where China is constructing a series of lines that comprise the 1,300 km-long Lagos-Kano Railway Modernization Project. This massive undertaking has made Nigeria the world’s top recipient of Chinese rail construction contracts during the 2013-2019 period.

    China is not the only country helping to construct rail infrastructure abroad. Japan has been an important player in building infrastructure in Southeast Asia for decades. In 2017, Japan won a bid to upgrade a 750 km route connecting Indonesia’s two largest cities, Jakarta and Surabaya. In 2020, Indonesian officials expressed interest in merging that with an ongoing Chinese project. The combined project would be constructed by a consortium of Chinese and Japanese companies.

    In Africa, France inked a 2 billion euro ($2.3 billion) deal with Kenya in 2019 to construct various infrastructure projects, including a railway line from the capital Nairobi to Jomo Kenyatta International Airport. The move came as part of a broader push by French President Emmanuel Macron to boost France’s economic, military, and cultural ties with East Africa.

    Rail Construction Projects as a Key Element of the Belt and Road Initiative

    Chinese leaders have made rail projects an important element of the BRI. In a 2014 speech, Chinese President Xi Jinping stated, “China attaches great importance to the railway and highway projects linking China to… neighboring countries,” and added, “These projects will enjoy priority consideration in the planning and implementation of the ‘Belt and Road’ Initiative.”

    China attaches great importance to the railway and highway projects linking China to… neighboring countries. These projects will enjoy priority consideration in the planning and implementation of the ‘Belt and Road’ initiative.

    Xi Jinping

    Initially styled as “One Belt, One Road,” the BRI is President Xi Jinping’s signature foreign policy aimed at strengthening China’s economic, political, and cultural linkages with partner countries around the world. As of 2020, the BRI includes 138 countries with a combined GDP of some $29 trillion and 4.6 billion people.

    The BRI specifically emphasizes the importance of enhancing connectivity through the expansion of hard infrastructure like railways, roads, and ports. In much of the developing world, existing rail networks were historically built by European powers for the purpose of transporting extracted resources back to Europe. Over time, these rail networks have aged and failed to keep up with demand. Through the BRI, China is pushing to address these gaps by upgrading existing rail networks and building new rail lines.

    BRI

    As of 2020, China’s Belt and Road Initiative includes 138 countries with a combined GDP of $29 trillion and some 4.6 billion people. Learn more about the BRI and how it will advance China’s interests.

    In Pakistan, China is poised to significantly revamp the country’s rail network as part of the China-Pakistan Economic Corridor, a flagship project of the BRI. In August 2020, the Pakistani government approved a $6.8 billion project to upgrade 2,655 km of the country’s existing railway lines. Reports indicate the project would double the maximum speed of trains to 165 km per hour and nearly quintuple the capacity of the lines from 34 trains (each way) per day to over 150.

    In Southeast Asia, China is pursuing one of its most ambitious BRI projects, the Kunming–Singapore Railway (also known as the Pan-Asian Railway). If completed, the railway would consist of three major corridors extending some 3,000 km from the southern Chinese province of Kunming down to Singapore, passing through Laos, Thailand, and Malaysia.

    Successful completion of these and other rail construction projects would significantly deepen connectivity between China and its neighbors, potentially boosting Beijing’s geopolitical and geoeconomic clout while shoring up China’s domestic economy. For example, once completed, the Kunming-Singapore line is expected to increase two-way trade and tourism flows between southern China and mainland Southeast Asia. This would leave Southeast Asian countries more economically reliant on China, providing Beijing with additional leverage in the region. At the same time, increased cross-border activity would promote economic growth in China’s less-developed border regions – a key goal of the BRI.

    Importantly, railway construction projects also help to open up new markets for Chinese companies. According to CGIT data, two Chinese SOEs in particular have benefited from rail construction projects abroad. China Railway Construction Corporation signed 21 rail construction contracts worth $19.3 billion, accounting for nearly one-third of the global total during the 2013-2019 period. China Railway Engineering Corporation signed 19 contracts worth $12.9 billion, amounting to roughly one-fifth of the value of all contracts.

    Breakdown of Chinese Rail Construction Contracts by Company (2013-2019)
    Company Value (Billions of US$) Share of Total Value (%)
    China Railway Construction Corporation 19.3 31.4
    China Railway Engineering Corporation 12.9 20.9
    China Communications Company 7.4 12.0
    Other 22 35.7
    Source: AEI and Heritage Foundation, China Global Investment Tracker
    Note: Values for the three companies exclude contracts involving multiple Chinese companies

    Challenges and Mixed Responses

    While rail construction projects could benefit Beijing politically and economically, some projects have faced setbacks and criticism. Surveys indicate that rail and other infrastructure projects have had mixed impacts on China’s international image. Beijing appears to be taking steps to fend off criticism.

    During the 2013-2019 period, several Chinese rail projects hit insurmountable problems. The CGIT lists seven Chinese rail projects from this period in its database of “troubled transactions.” This includes projects that have been cancelled or put on hold indefinitely due to serious political or economic problems. Together these seven projects were worth nearly $15.1 billion. The largest was a $7.5 billion contract with Venezuela to construct the 468 km Tinaco-Anaco high-speed railway. Work on the project was started but eventually trickled to a stop as Venezuela’s economic condition declined rapidly over the past decade.

    “Troubled” Chinese Rail Projects (2013-2019)*
    Country Value of Contracts
    (Billions of US$)
    Venezuela 7.5
    Mexico 3.7
    Ethiopia 0.99
    Myanmar 0.76
    Kazakhstan 0.35
    Bolivia 0.25
    Total 15.05
    Source: AEI and Heritage Foundation, China Global Investment Tracker
    *”Troubled” contracts include those that are cancelled or stalled indefinitely.

    Other rail projects have come close to cancellation due to concerns about a lack of transparency. In Malaysia, the East Coast Rail Link (ECRL) has been linked to a major corruption scandal. In 2015, then-Prime Minister of Malaysia Najib Razak was charged with embezzling money from 1Malaysia Development Berhad (1MDB), a state-run development fund. Najib was accused of seeking major investments at inflated costs from China, including the ECRL, to pay off 1MDB’s debts. Najib’s successor Prime Minister Mahathir Mohamad had planned to cancel the ECRL and only reversed the decision when China agreed to lower the cost from roughly $16 billion down to $10.6 billion.

    Several rail projects have also been criticized as instruments of “debt-trap diplomacy,” wherein China purportedly seeks to gain leverage over developing countries by burdening them with unsustainable debt. The China-Laos Railway, which is currently under construction, has faced such accusations. In total, the project is slated to cost $6.2 billion, with the Chinese government paying about 70 percent of the total, and Laos paying the remaining 30 percent with loans from Chinese financial institutions. At $1.9 billion, this amounts to about 10.6 percent of the country’s entire GDP (in 2019).

    Other developing countries, including Zambia, Mali, Sudan, and Senegal, have likewise signed rail contracts that are substantial relative to their respective economies. However, there is no conclusive evidence indicating China is intentionally engaging in “debt-trap diplomacy.”

    Comparison of Rail Construction Contracts to Economic Size
    Country Value of Contracts, 2013-2019
    (Billions of US$)
    Ratio of Contracts to GDP (%)
    Laos 1.9 10.6
    Zambia 2.3 9.8
    Mali 1.5 8.3
    Sudan 1.5 7.7
    Senegal 1.3 5.3
    Source: AEI and Heritage Foundation, China Global Investment Tracker; World Bank

    The multitude of issues surrounding China’s international infrastructure construction appears to have had mixed impacts on China’s international image. In Nigeria, there is evidence that completion of segments of the Lagos-Kano Railway – a major BRI project – has increased favorable perceptions of China. A Pew Research Center study found that, among people living within 150 km of a Chinese-built rail line, the share of people with positive views toward China increased from 62 percent during construction to 72 percent after construction was completed.

    Nevertheless, concerns about indebtedness appear to be negatively impacting views of China. A 2019-2020 survey by Afrobarometer found that a majority of African respondents who were aware of Chinese loans and development assistance to their countries were concerned about indebtedness to China. Notably, when respondents were asked to evaluate the influence of Chinese economic activities in their country, the proportion of people saying Chinese activities have “some” or “a lot” of influence declined in 17 of 18 countries surveyed, relative to the previous 2014-2015 survey.

    China appears to be trying to address some of these concerns – especially those relating to debt. At the 2018 Beijing Summit of the Forum on China-Africa Cooperation, Xi announced that all intergovernmental zero-interest loans would be forgiven for least-developed African countries that have diplomatic relations with China. Amid the Covid-19 pandemic, China joined other G-20 countries in April 2020 in suspending debt payments through the end of 2020 for the world’s poorest countries. One month later, Xi announced China would forgive African countries’ interest-free loans. While interest-free loans account for less than 5 percent of Africa’s debt to China, the move was seen as an important signal of support. ChinaPower

    1. There is no single internationally recognized definition for high-speed rail. The International Union of Railways includes lines with maximum speeds of at least 160 km per hour.
    2. CGIT includes only contracts worth about $100 million or more.
    3. The plan was first launched as “One Belt, One Road.” China later changed the name to the Belt and Road Initiative.
    4. Including low-income, high-income, and OECD high-income countries. OECD high-income economies are those that are classified by the World Bank as high income and that are members of the Organisation for Economic Co-operation and Development (OECD), a grouping of major advanced economies.