Long an importer of technology, China’s railways are now rolling out to the world
In September, after two years and 14 rounds of ministerial meetings, China and Thailand finally came to an agreement on a planned high-speed railway project, the first phase of which will cost $5 billion. But for the 873-km rail line that will link the Chinese border with Laos and ports on Thailand’s coast, that is only the beginning.
“It is an ongoing and delayed process, as the construction would not be able to start as planned this year,” says Aksornsri Phanishsarn, economics professor at Bangkok’s Thammasat University, noting unresolved issues ranging from operation and technical challenges to financial aspects.
The project in Thailand is one of many of 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 largest city, Istanbul. In Indonesia, the construction on the Jakarta-Bandung high-speed railway line will begin this year. This year the government also announced it will be building a high-speed railway to connect Singapore and the Malaysian capital of Kuala Lumpur.
Domestically speaking, China secured the leading position in world’s high-speed rail development in the space of a just decade. Its network, already more than 20,000 km and still growing, is longer than the rest of the world’s high-speed rail tracks combined. China’s home-grown CRH380A engine can top 380 km/h.
Now China is targeting the overseas market for both economic and political reasons. As countries map out plans for high-speed railways, there is a growing market for China’s cutting-edge technology. BCC Research projects the global high-speed rail market will grow at a five-year compound annual growth rate of 3.6%, to reach $133.4 billion in 2019.
“Lower-emission and high-speed travel resulting in shorter transportation times will drive the high-speed rail market in the future,” BCC Research analyst Aneesh Kumar wrote in the report.
Exporting high-speed rail is also a form of diplomacy, and deals usually include substantial support and preferential financing from the Chinese government. But given the costs and complications of building a high-speed railway, signing an agreement is nowhere near the time to celebrate. So far, China has had at least as many failures as successes, if not more. But once a train gets rolling, it has a lot of momentum.
Made in China
As little as ten years ago, high-speed rail was not one of China’s strengths. Lacking the basic know-how, trains were imported or built under agreements with foreign train-makers, including Siemens from Germany and Kawasaki Heavy Industries from Japan.
“We couldn’t achieve anything without them,” says Jia Limin, a professor at Beijing Jiaotong University, who now heads China’s high-speed rail innovation program. “[But] they wouldn’t share any core technology with us.”
In 2006 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 km high-speed rail line connecting Beijing and Shanghai, with trains to average 350km/h.
Just five years and $33 billion later, the line opened. By far the most successful railway line in China, it was ridden by 130 million passengers last year, or a tenth of the entire national population. The change is palpable.
“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, almost all the major cities by high-speed rail within half a day. Air travel is now my second choice.”
A coordinated push from the central government, including investment, was a key for success.
The development of the high-speed rail network was a prominent part of the 11th Five-Year Plan, adopted in 2006. That year, China spent RMB155 billion on rail network development, a figure that ballooned to RMB800 billion by 2015 as China continued the expansion of the vast system.
“Our political and institutional advantages allow us to mobilize nationwide resources to accomplish large undertakings like this,” Jia says.
But the breakneck speed of the growth of China’s high-speed rail network came with undeniable costs. In February 2011, Railway Minister Liu Zhijun was removed from office on charges of corruption, accused of accepting millions of dollars in bribes. Months later in July, two high-speed trains collided near the city of Wenzhou south of Shanghai, killing 40 people and raising serious doubts about the quality and safety of China’s railway system.
Jia Limin lays blame for the tragedy on operational and management failings. “The accident wasn’t caused by technology issues,” he says.
Needless to say, the incident cast a dark shadow over the industry for some time. But things turned around rather quickly, with strong continued growth of the domestic network. But with China’s economic growth slowing down, and most major lines already in operation, China’s large-scale rail industry had to find other ways to keep the speed up. Exports were a natural choice.
Over this same period, 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.
“We have the ability, they have the need,” says Jia, “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,” says Jia. “It is also the spread of our culture and influence.”
But that may be a bit optimistic. More than 20 countries are currently negotiating with China on building high-speed rail, according to a government statement, but to date, China has only actually completed one. In 2014, the rail line linking Turkey’s capital of Istanbul and the largest city Ankara was opened up—and it has not been a smashing success. The ostensibly high-speed train usually travels mostly at 60 km/h with a top speed of 110 km/h, around the same speed as a motor car.
Kahar Tursun, a software developer from Turkey, says he believes the quality of the train is much inferior to the ones in China and in Europe.
“From my experience, it is not a high-speed rail. It is just a fast train rail, and the seats are not comfortable.” Tursun says. “The Turkish government wants to have a high-speed train system for a cheap price, so the quality is proportional to the amount of money they invested.”
Other projects are going even less smoothly. China has experienced setbacks in the US, Mexico and Venezuela, where initial agreements on constructing high-speed rail have been either held up or terminated by a mixture of technical, political and financial problems. Last June, US railway firm XpressWest ended its joint venture with the China Railway International (CRI) due to difficulties related to timely performance and CRI’s challenges in obtaining the required authority to proceed with necessary development activities, according to the company’s website.
Jia Limin doesn’t buy that explanation, however.
“The real challenge for exporting doesn’t lie in technology, cost or our management ability,” he says. “What really matters here is the political relationship among countries.”
Above all, selling high-speed rail to other countries may not be a 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 require large government subsidies.
“High-speed rail can only transport people, not goods,” said Zhao Jian, 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 says. “To us, it’s a deal that we are sure to lose money on.”
But given that high-speed rail has significance beyond profit for China, the government has thrown its weight behind the effort regardless. And in a highly competitive market, one of China’s secret weapons to win bids is flexible funding policy and low-interest loans.
One example is how China beat Japan in the bid for the Jakarta-Bandung high-speed railway last year. Because Japan required a government guarantee, Indonesia awarded the $5.5 billion project to China Railway International Co. Ltd., a subsidiary of China Railway Group Ltd., which didn’t require such a provision.
More widely, China has been pushing for the development of a comprehensive rail network in Southeast Asia, the key area of its One Belt One 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 would 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 says.
Zhao Jian is not convinced.
“This will result in a more severe debt burden on the central government,” says Zhao. He doesn’t believe that many developing countries such as Thailand and Indonesia will be able afford the construction and operation costs of high-speed rail. “It’s a time bomb for the One Belt One Road initiative.”
Agatha Kratz also observed that the Chinese government is beginning to change its strategy after realizing that economic generosity doesn’t always guarantee political return, as has been shown in China’s relations with Myanmar, where economic aid and investments have so far not borne much fruit.
“The commercial liability is taking a bigger part [in the thinking],” she says. “China realizes it can’t just give the money away.”
The Future Rival
While the marketing of China’s high-speed rail is still being explored, Jia and his colleagues have already begun working on a new generation train to solve the problem of cross-border transportation. It will run at a top speed of 400 km/h and have the advantage of being able to handle cross-border changes in gauge—the distance between the two rails.
“The train we’re now developing will have wheels that can be adjusted to fit various gauges on other countries’ tracks,” Jia says. “It can travel from Singapore to Spain, crossing countries without changing wheels.”
The US, perhaps because it is so behind the rail curve, is working on another innovative transportation system, known as Hyperloop. The concept entered public awareness when Elon Musk, the CEO of SpaceX and Tesla Motors, first proposed it in July 2012. In Musk’s vision, the Hyperloop would be designed as a bullet train in a vacuum tube, which could accelerate safely to 1,225 km/h. Some companies based in Los Angeles are currently competing to make the idea feasible, and they already have their eyes on overseas markets, partly because of the political issues and expensive land in the United States.
One of the companies is the Hyperloop Transportation Technologies, which has been in negotiation over the past year with the Slovakian government to build hyperloop routes from Bratislava to Vienna and Budapest. Dirk Ahlborn, the head of Hyperloop Transportation Technologies said during a presentation that he expected to see stage one built by 2020.
But some experts are not as optimistic.
“I would estimate 10 to 20 years after Hyperloop’s ‘Kitty Hawk’ moment, that some sort of evacuated tube transportation can come into service, ” says Alina Alexeenko, an astronautics professor. She has taught a hyperloop design class at Purdue University since last year. Alexeenko also believes hyperloop will co-exist with high-speed trains rather than replacing them, serving instead as a super-fast cargo transport.
At least for now, China seems to be safe from competition from speculative technologies. And meanwhile Professor Jia and his team haven’t slowed down their efforts to make China’s trains more appealing to international markets. They have a lot of help as well—government support remains strong in high-speed train technology innovation, and they are working towards a train system with a top speed of 600 km/h, according to the next Five-Year Plan drawn up the central government.
Kratz is more measured in her predictions.
“I don’t think the overseas market will have explosive growth as China is hoping for, it won’t be 20 countries building China’s high-speed rail at the same time,” says Kratz. “[But] it will get there.”