High-Speed Trains and the New Silk Road
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The construction of the Jakarta-Bandung high-speed railway, which began in early 2016 and was inaugurated by President Joko “Jokowi” Widodo, has been widely discussed and debated, not only with regard to the projects’ pros and cons, but also its development progress.
I, for one, don’t agree with the construction of this project in the current configuration. However, that is not the subject of this article, but rather the development of the rapid railway system itself as part of China\'s ongoing New Silk Road -- One Belt One Road(OBOR)program, or Belt and Road Initiative (BRI).
The Silk Road terminology used to refer to the Asian-European economic, trade and cultural links during theHan Dynasty (207 BC-220 AD). President Xi Jinping plans to build an Asian-European relationship using centuries-old ties as a guide, reactivating the old trade relationship, both on land and at sea.Therefore, this program involves the construction of infrastructure facilities, including seaports, docks and supporting facilities along the route.
The land transportation system is spearheaded by a rapid railway network. However, the program is not going as smoothly as expected and propagated by China and some of the other countries involved.
The Chinese government under President Xi Jinping is determined to increase trade and economic ties between Asia and Europe using the old concept of trade and economic relations between Asia and Europe during the Han Dynasty.
The economic trade relationship that was also connected to cultural links between East and West and stretched from the Korean peninsula and Japan to the Mediterranean, was called the Silk Road after German expeditionist Ferdinand Richthofen introduced the name in 1877. Meanwhile, the concept and program of President Xi has been named the New Silk Road.
The New Silk Road was launched by the Chinese government in 2013 and was inaugurated more officially during a summit on the BRI in Beijing last May. The conference was attended by representatives from more than 60 countries, with the presence of 28 heads of state or government, including Russian President Vladimir Putin, Turkey’s Recep Tayyip Erdogan and Joko Widodo. The president of the World Bank and managing director of the IMF were also present.
Its success in building rapid railway systems at lower costs than other countries has encouraged China to let fast trains spearhead the New Silk Road program. In 2015, when China hosted a meeting with 16 European leaders, Chinese Prime Minister Li Keqiang took his guests on a rapid train ride from Suzhou to Shanghai. During the trip, Li said China was ready to share the rapid railway development technology with countries participating in the project. Li emphasized that China\'s relationship with all these countries was like the train they were traveling on: fast, convenient and safe.
During Xi Jinping\'s state visit to countries on the route, including Indonesia, Pakistan, Iran, Egypt and the countries of Eastern Europe, he never forgot to mention the history of when the Chinese fleet visited the ports of far-away countries to establish economic, trade and cultural relations.
It is clear that the purpose of China using this fast train diplomacy is to build relationships with 65 countries on the Silk Road. Rapid railway network construction was originally planned in Africa, the United States (US) and Latin America. The New Silk Road program supports China\'s ambition to become a world leader, which was recently helped by the US leadership\'s resignation from the world scene, with US President Donald Trump emphasizing an America First policy and at the same time withdrawing from the Trans-Pacific Partnership (TPP), the Paris Agreement and not always coming across as a world leader.
Between concept and implementation
The development of the rapid railway connection between Jakarta and Bandung, as we gather from the news, is not proceeding as originally promised. Since its inauguration, numerous problems have affected the implementation of the project and forced changes from the initial plan.
It appears that differences between original planning and actual implementation are not limited to the Jakarta-Bandung rail project.
According to research conducted by the Washington DC-based CSIS and the Financial Times, the implementation of rapid railway construction in the BRI framework is far from the expectation, with many of the projects being abandoned.
According to the report based on the results of a study, the number of rapid railway projects under the OBOR program initially reached 18 at a total cost of US$143 billion, with China to invest or partly finance the construction. However, not all projects are being executed smoothly. A number of projects have been canceled or are stagnant (Financial Times, 17/7/2017).
The details are as follows. First, there are five ongoing projects:
The Moscow-Kazan connection in Russia with a length of 770 kilometers and at a cost of $21.4 billion is in the early stage.The Budapest-Belgrade connection with a length of 350 km from Hungary to Serbia at a cost of $2.89 billion is still having problems due to potential violations of EU rules. The Mecca-Madinah rapid railway in Saudi Arabia has a length of 453 km and is estimated to cost $12.3 billion. China-Laos, from Kunming in Yunnan Province to Vientiane, with a length of 417 km, including the construction of 75 tunnels and 167 bridges at a total cost of $5.8 billion, started in 2016. The 142-km Jakarta-Bandung line with a cost of $5.5 billion is partly financed with$4.5 billion in loans from China Development Bank.
Second, 12 projects at a total cost of $ 114.1 billion are in the planning stage. Third, five projects at a total cost of $47.5 billion have been canceled. These involved rapid railway development in Myanmar (Yangon-Mandalay), Libya (Tripoli-Sirte) the US (Los Angeles-Las Vegas), Mexico (Mexico City-Queretaro), and Venezuela (Tinaco-Anaco). Fourth, the only project that has been completed is the Ankara-Istanbul line in Turkey.
Judging from the halting of projects due to the collapse of governments (such as in Libya) or economic crises (Venezuela) or those that are still in process but lack certainty (Hungary-Serbia) or the Jakarta-Bandung connection and the project in Laos, it seems thatBeijing is not aware of the differences in political conditions and administrative systems between participating countries and its own country.
The financing of the development of these projects has also not been carefully calculated or is too optimistic, including promises of assistance or unrealistic loans. For example, Laos, which has a gross domestic product of $12.3 billion, will have to raise $5.8 billion in debt for the long-term financing of a project with still unclear economic value for the country. That is certainly not realistic.
It also seems there is a lack of calculation of the risks that can disrupt the smooth implementation in the projects in the host countries. For example, the use of large numbers of Chinese workers, which can affect social stability, as we observe in Indonesia, Laos and elsewhere, certainly hinders the smooth implementation of the program. Of course, for China, development of the rapid railway projects helps solve its domestic economic problems.
The construction of the railway projects uses capacity no longer needed in China, because after more than a decade the development of infrastructure has generated surplus supply throughout China.
The use of that the idle capacity in these countries is a solution to local oversupply – which otherwise would lead to unemployment.
Domestic elements
The various obstacles in the implementation of the New Silk Road construction partly stem from domestic elements of the countries that are involved in the railway development, and partly from China itself. In terms of financing, China is facing the implications of high leverage, which reached a rate of 260 percent in 2016.
The problems are partly caused by a rise in non-performing loans and the weakening of its ability to be a major supporter of such costly project financing. The total cost of the BRI is $900 billion, of which about $143 billion will be used to finance the rapid railway system.For the receiving countries, the increase in debt as a result of financing the construction of the rapid railway network projects has become a serious problem.
In addition, socio-political issues associated with the use of Chinese labor in each project in receiving countries should also be considered. In fact, the use of loans as a source of financing also faces constraints due to the increasing amount of debt that could jeopardize monetary stability in the participating countries.
All these problems indicate that the implementation of China\'s rapid railway development as part of the implementation of the New Silk Road project is not progressing as smoothly as planned.
For Indonesia, of course, these problems have become a government issue, not only in the rapid development of railway network, but also in the construction of a number of seaports as part of the BRI network.
In the production process, supply chains and production chains, the countries participating in the BRI network will certainly benefit from the program. However, I do not think so in the OBOR program. In this case we must always put forward the national interest, looking at what will be obtained for the national economy before we accept offers that are not always sweet.
J SOEDRADJAD DJIWANDONO
Professor Emeritus of Economics at University of Indonesia and Professor of International Economics at S Rajaratnam School of International Studies, Nanyang Technological University, Singapore
