China’s Railway Diplomacy (Part I)
Over the past few years, in tandem with China’s speedy mastery of high speed rail (HSR) technology and phenomenal growth of the HSR network throughout the country, along with the accolades have sprung up a multitude of criticisms from various quarters and over a wide range of issues.
Japan’s Kawasaki Heavy Industries has accused its Chinese counterparts of stealing technology and the Western press has disparaged China’s HSR safety record on account of the 2011 fatal collision in Wenzhou. Some international affairs commentators have even described the export of China’s HSR technology and construction of rail lines abroad as clear manifestation of China’s geo-political expansionist ambitions.
In a little more than a decade since China’s first HSR line between Qinhuangdao and Shenyang that ran at 200 km/hr (now considered ‘dongche’ speed (sub-high speed), China’s HSR network has extended to over 12,000 km, about four times as long as nearest rival Spain and more than half of the world’s total. By 2020, the Chinese Ministry of Railways wants to more than double that length to 25,000 km and connect all major cities. (Following the Wenzhou crash, train speeds were reduced from 350 km/hr to 300 km/hr but the Ministry has indicated it may raise it back up to 350 km/hr when deemed prudent.)
This two-part post focuses on the surge in expansion of China’s HSR overseas as the result of a unique mix of state strategy, financial wherewithal, centralized ownership of technologies, low cost construction, and offers of technical assistance that will assure China’s success in winning bids throughout the world, including in the developed world. So much so that foreign industry insiders complain their companies are ill-equipped to compete with China Railway Construction Corporation (CRCC) on cost and state support.
An article in Railway Technology (railway-technology.com) ascribes to the recently inaugurated 250 km/hr 533 km line between Istanbul and capital Ankara in Turkey, China’s first major completed HSR line abroad, as displaying the basic contours of China’s HSR export model – CRCC working in conjunction with the China National Machinery Import and Export Corporation (CMC) and Turkish firms Cengiz Construction and Ibrahim Cecen Ictas Construction. It represents China’s “deep commitment to cracking into and dominating the global high speed construction and rolling stock market”, wrote the author．
Last year, CRCC’s total revenue closed in on $95 billion but the company wants to greatly up the foreign share from 4% to 30%, reported Reuters. In the first nine months of 2014, CRCC has signed 115 billion RMB (US$18.7 billion) in worldwide contracts, roughly 1/5 of all new deals during that period. In May, the company created a unit to manage and coordinate its foreign operations. In addition, in preparation for better accessing international markets, China’s two domestic railcar makers, China Southern Railway (CSR) and China Northern Railway (CNR) Corporations have filed with the government to merge as the China Railway Transportation Co. with a combined market capitalization of $26 billion.
The Chinese government presides over project negotiations, leveraging the country’s centralized ownership of technologies that allows it to offer attractive export terms. The China Economic Review cites Ji Jialun, a professor at Beijing Jiaotong University’s School of Traffic and Transportation as saying it’s a luxury that few if any rival European and Japanese companies can afford since different technologies are controlled by different companies.
Much lower production and construction costs add to the attraction of Chinese bids. According to a World Bank study, based on cost efficiencies achieved at home, CRCC can build systems at US$17 to $21 million per kilometer, much cheaper than the $25-$39 million price range of European and Japanese companies. Most important, to attract developing countries that otherwise would balk at pricey HSR schemes, China is able to provide a very competitive financing regime. On the Turkish project, for example, the Chinese helped finance it with US$750 million in loans, including $500 million enjoying very favourable terms.
This is not to mention other well endowed funding channels like the China Development Bank and the Export-Import Bank of China that can coordinate support for the investment and trade activities of China’s state-owned enterprises abroad. China has also set up the BRICS bank with $50 billion to start as well as its most recent Asian Infrastructure Investment Bank (with China contributing more than half of the funding) and the $40 billion Silk Road fund envisaged by President Xi, all of which are geared toward infrastructural development and mitigating transport and other bottlenecks across Asia and the developing world. China surely doesn’t lack funds to back projects as its foreign exchange reserves have swelled to US$3.888 trillion as of the end of September.
Part II will look at other key projects the Chinese have won, actively bidding for, or interested in building.
The (British) Empire is No More: Guardian commentator
The Western, especially British, press has been in a knot over the non-visas for British MPs wishing to “investigate” the handling of dwindling Hong Kong student protests. But, Guardian commentator Mary Dejevsky, in stark terms, reminds Britons Hong Kong is no longer a colony and that Britain should know its diminished place in the international political-economic pecking order. So, get a grip Brits, the empire is long gone!
…Some have argued that in banning the British MPs, Beijing is not only reminding Hong Kong who is boss, but acknowledging the UK’s continuing influence and standing. According to this logic, a bunch of high-minded MPs is too dangerous to be let loose in the former colony. The opposite, I fear, is true.
Beijing feels it can swat away what it sees as a minor irritant at no cost to itself – reputational or economic. The UK is neither a major trading partner nor, in China’s eyes, a diplomatic heavyweight. The Westminster parliament can huff and puff, but – as visits to China by the prime minister, the chancellor and the mayor of London all show – we need them more than they need us.
The harsh truth is that for all practical purposes, the UK’s influence in Hong Kong died as the royal yacht sailed away. Thereafter, “one country two systems” meant only what Beijing was prepared to let it mean – and as much as Hong Kong, with its commercial clout, was able to insist.
The UK can, and should, treat democracy-minded envoys from Hong Kong with the respect they deserve. But if there is to be political change there, it is the people of Hong Kong who must press their case – as, perhaps, a new generation is starting to do.
In the light of this, some of what Ottaway told the BBC in response to the ban was simply abject. He said, among other things, that he and his colleagues would have “refrained from making any public comment while there”. (Er, they would clam up to save China’s face?) Then he suggested that the visit, “far from doing damage, would help in raising understanding of … the UK’s legitimate interest in Hong Kong’s future”. Oh dear, oh dear.
When will the penny finally drop? Hong Kong as a British colony is no more. The UK has no “legitimate interest” there beyond a natural concern for human rights. Its MPs can go around the world advocating “values” but they have no special hotline to Beijing, and any preaching about “democracy and the rule of law” from the former colonial power is unlikely to convince.
The UK may have a particularly guilty conscience about Hong Kong – as indeed it should have. But if it wants to influence what happens there, staking a claim to almost proprietorial privilege is not the way. Indeed, if Zimbabwe, South Africa or Kashmir are any sort of precedent, attempts to lay down the law as the former colonial power only fuel resentment.
The British empire is over. For a medium-sized country, the more productive course is to seek allies, and for the UK the ideal source of support over Hong Kong is the EU, whose economic clout at least is more equal to Beijing’s. As so often, too, a little more self-knowledge would not go amiss. It is not only Russia that finds it hard to let go.
The full piece can be read at: http://www.theguardian.com/commentisfree/2014/dec/01/britain-hong-kong-no-longer-colony-empire-china#start-of-comments
Mahbubani is Right on the Money on Asia and China
Kishore Mahbubani, former long-serving diplomat and Permanent Secretary at the Singaporean Foreign Ministry, briefly as the President of the UN Security Council during a stint as Singapore’s Permanent Representative to the UN, and now Dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, has been right on many issues concerning the rise of Asia and his views on China are also spot on. He authored The Great Convergence: Asia, the West and the Logic of One World and is a member of the World Economic Forum’s Global Agenda Council on China.
Here are some excerpts (further condensed) from a recent keynote address at the Straits Times Global Outlook Forum: (This author particularly appreciates his exhortations against swallowing the ideological tenets and mantras of the Western media although not so sure the Singapore Straits Times (for which this author has worked) is the best positioned to become the voice of Asia as he asserts.)
Asia will experience a new golden era of peace and prosperity over the next 10 years.
The export-led growth model of the past will no longer work for the major Asian economies. Hence, we are unlikely to see a return to double-digit growth. If the major Asian economies, especially China, India and Indonesia, are able to maintain growth rates of around 7 percent a year, this will be a major achievement. Fortunately, this is within their reach.
Three factors will drive this. – The first factor is an almost unbelievable accident of history. It is truly remarkable that the three most populous Asian countries, namely China, India and Indonesia, have simultaneously put in place dynamic and reform-minded leaders who can be expected to transform their countries over the next decade.
– The second factor is the consolidation of the “Deng Xiaoping-Lee Kuan Yew consensus” on national development. We have just seen three remarkable back-to-back leaders’ meetings in East Asia: APEC in Beijing, East Asia Summit in Naypyidaw and the Group of 20 in Brisbane. An amazing number of new agreements were signed.
There was also a historic (albeit unsmiling) handshake between President Xi Jinping of China and Japan’s Prime Minister Shinzo Abe, laying to rest fears of a China-Japan war. What was the key underlying factor that explains the success of these meetings?
The simple answer is that, North Korea excepted, there is a remarkably wide and deep consensus among regional leaders that they should focus on modernization and pragmatic development. This explains why East Asia is functional while the Middle East remains dysfunctional. Our region has been infected by a silent, healthy virus of modernization. Because it is silent, the Western media has not noticed and continue to predict doom.
– The third factor is the explosion of the Asian middle-class population from 500 million in 2010 to 1.75 billion in 2020. Multinational corporations have spotted this trend. Many of these MNCs are ahead of their governments and have stepped up their presence in the region. Singapore has the potential to be the biggest beneficiary of this big shift to Asia.
Pessimistic Western consumers will not drive global demand. Instead, optimistic Asian consumers will gradually pick up global demand. It would be foolish to pretend that all will be rosy in the region.
Several geopolitical clouds will continue to affect the region. Five deserve mention.
BUT THERE ARE CLOUDS
The most important geopolitical relationship is always between the world’s No. 1 power (now the U.S.) and the emerging No. 1, now China. In theory, U.S.-China relations should hit a new peak of rivalry in the next decade, because, this year, China will surpass the U.S. and become the world’s biggest economy in purchasing power parity terms.
Curiously, the U.S.-China relationship is remarkably stable. Indeed, there is even some sun showing through what should be the darkest geopolitical cloud, as demonstrated by the extraordinary climate change agreement reached between Mr. Xi and U.S. President Barack Obama.
The most dangerous relationship this year was that between China and Japan. Many feared that they would go to war. Instead, they shook hands. If Mr. Abe can restrain his nationalistic tendencies and focus on firing economic arrows to jumpstart Japan’s economic growth, this troubled relationship can remain under control. Several Chinese leaders may have also realized that China went overboard in browbeating Japan in recent years.
The most important future geopolitical relationship is between the world’s next No. 1 and No. 2 economies, namely China and India. When Mr. Narendra Modi became prime minister of India, there was hope of a major breakthrough. However, the border issue continues to bedevil this relationship. The world will look upon Mr. Modi and Mr Xi. to wisely overcome this nagging issue.
Logically, Russia should have been drifting closer to Europe and the West to balance a rising China. Instead, the opposite has happened. The accident in Ukraine disrupted geopolitical logic. If Western leaders were as pragmatic as Asian leaders, they would have found a compromise.
Instead, the West went back to its usual self-righteous tendencies and imposed sanctions on Russia. This geopolitical loss by the West has been a gain for Asia, as seen by the U.S. $400 billion (S$520 billion) Russia-China energy deal.
Finally, the Islamic State group emerged as a complete surprise. It would have been ignored if innocent Westerners had not been killed. The decapitations forced the West, especially the U.S., to react. However, ISIS does not pose a great global threat. It is an isolated tumor.
DON’T BELIEVE THE ANGLO-SAXON MEDIA
To understand how these five geopolitical clouds will affect Asia, please do not rely on the dominant Anglo-Saxon media. Some of their editors are trapped in a narrow and often ideological Anglo-Saxon mental universe. For example, the Anglo-Saxon media has been predicting the collapse of the Chinese Communist Party for almost 25 years. I predict that they will continue to do so in the next 10 years. I also predict that the CCP will last the next 10 years.
There is a great global demand for an authoritative voice on Asia’s resurgence. When the British Empire reigned supreme, the Times of London served as the newspaper of record. When the American century began, the New York Times emerged as the newspaper of record.
As the Asian century unfolds, The Straits Times is well poised to be the newspaper of record for the Asian century. Fortunately, The Straits Times already has a group of excellent Asian correspondents in place. It has the product. All that the ST has to do is to create a new package of news on Asia for the rest of the world.
Further excerpts, on the role of ASEAN, can be read on: http://www.huffingtonpost.com/kishore-mahbubani/asia-golden-era_b_6219866.html?utm_hp_ref=world
ADB Willing to Work With AIIB: ADB President Nakao
Despite naysayers and China poopers arguing the Asian Development Bank (ADB) must not collaborate with the newly founded China-led Asian Infrastructure Investment Bank (AIIB) for a plethora of ‘issues’ and ‘concerns’, it looks like the ADB is gearing up to hop on the bandwagon. The South Koreans and the Aussies are on the verge of joining (albeit the latter wanting some assurances on governance etc.) and World Bank President Jim Yong Kim said he’s gung-ho on cooperation. So, it looks like the China-bashers will be eating some bitter words in the offing!
The head of the Asian Development Bank said Wednesday he is ready to work with China on a new infrastructure investment bank proposed by Beijing, despite fears it could undermine his institution.
The Manila-based ADB is too large and established to be threatened by the proposed lender, Takehiko Nakao told a foreign correspondents’ forum in the Philippines.
“If the AIIB (Asian Infrastructure Investment Bank) is established, we are very happy to have the appropriate collaboration,” Nakao said, adding the banks could potentially co-finance projects.
Last month China and 20 other Asian countries signed a memorandum of understanding to establish the AIIB, an institution whose development has been driven by China and which will be based in Beijing, according to the Chinese state news agency Xinhua.
However the proposed lender is seen as a potential rival to existing Western- and Japanese-dominated institutions such as the World Bank and the ADB.
The Japanese government has expressed concern, while the United States is reportedly fiercely opposed to the AIIB, which some analysts see as a venue to expand Chinese influence at their expense.
Nakao stressed there had been “no contact” yet between the ADB and the AIIB, although Chinese officials had discussed the matter with him when he was in Beijing.
He added that it was “understandable” that Asian countries would want such an institution because of the region’s huge need for infrastructure financing.
He said Asia needed $800 billion a year in funding for infrastructure, particularly for energy and ports. Of the 20 other countries that signed the AIIB memorandum, only India and Singapore are considered large economies.
However Nakao stressed that the ADB had always been active in infrastructure, even as it also supports social services as part of its mission of poverty-reduction.
“The ADB’s focus has always been infrastructure,” he said. “China has always been very supportive of the ADB so Chinese authorities have been saying (the AIIB) will be complementing and supporting the work of the ADB instead of challenging and going to be a rival,” he added.
“There is no real issue about it. We can work with the Chinese authorities and the new bank if they do regional cooperation,” he said.
Despite its rapid economic growth, China still needed the ADB’s help in areas such as environmental protection, he said.
ADB officials later told AFP the lender was supporting a project to revive an overland “silk road” between China and Europe via Central Asia and the southern Caucasus in support of regional cooperation.
China is also proposing a “maritime silk road” link to Europe that goes through Southeast Asia and Indian Ocean states.
– AFP
Furor Over the Fiery Cross Reef
A report by IHS Jane’s Defence Weekly last week on the building of a suspected airstrip on Fiery Cross Reef has stirred up an international uproar over China’s intentions in the Spratly Islands chain in the South China Sea.
Lying southwest of the main Spratly island archipelago, Fiery Cross Reef, otherwise known as Yongshu Reef in Chinese, is a group of three reefs controlled by China as part of its Sansha Island chain. In 1988, the People’s Liberation Army Navy (PLAN) built a UNESCO Marine observation station there and has since stationed around 200 troops on the reef. 
China has been at a disadvantage compared with other claimant countries in the Spratlys as it is the only one without an airfield on an occupied island. Taiwan possesses Itu Abu (Taiping) Island, the Philippines has Thitu (Pasaga) Island, Malaysia occupies Swallow Reef (an airstrip was built on reclaimed land) and Vietnam took Southwest Cay.
Airbus Defence and Space satellite images of the island taken on August 8th and three months later on November 14th indicated Chinese dredging had resulted in a new island more than 3,000 meters long and 200-300 meters wide, big enough for a runway and an apron. Along with the runway was a harbor toward the east of the island that looked large enough to take tankers and major war vessels. 
According to IHS Jane’s, this land reclamation project is the fourth undertaken by the Chinese in the Spratlys over the past year to 18 months following similar efforts on Johnson South Reef, Cuateron Reef, and Gaven Reefs, none of which were big enough to accommodate an airstrip. The Fiery Cross Reef construction brings China parity with other claimants but also likely considerable concern among them, analyzed Jane’s.
The journal was quite alarmist in suggesting, “given its massive military advantage over other claimants in terms of quantity and quality of materiel, this facility appears purpose-built to coerce other claimants into relinquishing their claims and possessions or at least provide China with a much stronger negotiating position if talks over the dispute were ever held.”
This latest installment of the ‘China threat’ story got further traction when Jin Zhirui, a colonel with the Chinese Air Force, speaking to reporters at the sidelines of the Xiangshan Forum, China’s answer to other regional defence dialogues, declined to confirm the activities on the reef but nevertheless remarked, “we need to go out, to make our contribution to regional and global peace. We need support like this, including radar and intelligence.”
Almost immediately, the Americans obligatorily called on China to halt the project: “We urge China to stop its land reclamation program, and engage in diplomatic initiatives to encourage all sides to refrain themselves in these sorts of activities, US military Spokesman Lieutenant Colonel Jeffrey Pool urged (quoted by the South China Morning Post). To which Chinese Foreign Ministry spokeswoman Hua Chunying retorted, “I think anyone in the outside world has no right to make irresponsible remarks on China-related activities.”
Air force Colonel Jin pointed to other claimant countries making significant military advances in the area ahead of China. “Although there are 50 islands and reefs in the Nasha Islands, those belonging to China are the fewest in number and China was the last to make advances there”, he said. Interviewed by the Global Times, PLA Major General Luo Yuan added, “The US is obviously biased considering that the Philippines, Malaysia, Vietnam have already set up military facilities….China is likely to withstand the international pressure and continue the construction since it is completely legitimate and justifiable”.
In addition to its occupation of and construction of facilities on Thitu Island, in 1999, the Philippines deliberately ran aground a tattered navy ship, the Number 57 – BRP Sierra Madre, near the Second Thomas Shoal, establishing it as an ‘outpost’ on which troops have been stationed ever since. And numerous flare-ups have occurred between Chinese navy and other ships and their Vietnamese counterparts.
Interestingly, following the disclosure, during a recent round of constitutional arguments on the Philippines’ Enhanced Defence Cooperation Agreement (EDCA) with the US, Associate Justice Antonio Carpio, an ardent anti-China hawk, grilled acting Solicitor General Florin Hilbay to admit that even if EDCA were considered constitutional, there is no guarantee that the country’s protector would come to its aid in case of an external attack. The Aquino government has been trying hard to convince political elites and the public that the country would be protected should push comes to fisticuffs in a showdown with China over the Spratlys.