Editors Introduction

Construction of high speed railway has been one area where China has domestically outstripped the
rest of the world several times. No country can have built so many links so quickly, serving so
many people, nor made so much investment. It is unsurprising therefore that China has been looking
over the last few years to use this new found area of expertise to become one of the main tools of its
overseas investment and diplomatic strategy. For once, it is able to viably compete against longer
established players like Japan or France and claim some international attention and space.
Despite the flurry of interest, however, as Agata Krantz and Dragan Pavlievi make clear in this
succinct and timely overview, part of the Kings College Lau China Institute new series of
Working Papers, there are plenty of challenges. According to one Chinese source they cite, in the
whole world at the moment, only two high speed links are profitable one of them in Japan, and
one of them serving 100 million people between Shanghai and Beijing. So far, China has only
succeeded in successfully gaining one project in Turkey. And in India, a hugely important
potential market, it is the Japanese who are still winning bids.
This is not due to any lack of effort by China. It evidently, according to this paper, sees high
speed rail involvement as part of a holistic diplomatic-economic push, linking it to the use of its
foreign reserves by offering soft loans, development assistance, and new ways to try to innovate
by taking available technology and then deploying it outside China in ways that might give it
competitive edge. Recently, offers to build high speed railways abroad has been married to the
ambitious `One Belt, One Road rubric, creating another plank in an attempt to integrate a vast
area around it with greater infrastructure and economic commonalities. There is, inevitably, a
security angle too because the closer China is tied to neighbouring critical infrastructure and
financing systems, the more difficult it will be to ignore its other suggestions and ideas. This is a
tension that many in the Asian region and the wider world are well aware of now. No one,
however, has come up with an easy solution of how to solve this quandary economic and
investment links dominated by China, but security and political links stronger elsewhere.
The two authors of this paper have chosen a very tangible area, and write about and deal with it
in a highly concrete way. They show a story which is in the midst of developing, rather than one
which has easy set narratives. In the coming years, there is every possibility that it will be
Chinese high speed trains that will be the face of Chinese industrial and economic development
as it looks abroad which is amongst the most prominent and visible. This paper helps us get to
grips with this emerging story early on, one that promises to be immensely important and
significant for China and the world.
Kerry Brown
Director, Lau China Institute

Chinas High-Speed Rail Diplomacy: Riding a Gravy Train?

Agatha Kratz and Dragan Pavlievi
In late September 2015 the Indonesian Government announced that China had won the bid to
build the countrys first high-speed rail line from Jakarta to Bandung.1 This announcement was
viewed as yet another successful illustration of Chinas High-Speed Rail Going Out Strategy
which, based on a mix of technical proficiency, price and time competitiveness, and readily
available financing on favourable terms, aims to export Chinas High Speed Rail (HSR)
throughout the world. Since 2013, HSR has acted as the business card for Chinas economic
diplomacy, promoting Chinas industrial and technological achievements. However it has also
raised economic and geopolitical concerns both within China and internationally.
Although China-backed overseas HSR projects have increasingly attracted the attention of both
Chinese and overseas media, this interest has not been matched by substantial academic or policy
level research and analysis.2 The precise nature of China's overseas HSR initiatives and the
implications of its HSR diplomacy remain obscured. In this working paper we aim to address this
gap by providing a panoramic view and analysis of the strategy. First we will describe the basic
modalities and key success factors of China's HSR diplomacy. We then move on to investigate
what China gains from its strong international HSR push and the implications of this new type of
economic diplomacy. We hope that this research will lay the groundwork for further in-depth
and nuanced research into Chinas HSR diplomacy.

1.

Two Waves of High-Speed Rail Going Out

Chinas international HSR strategy emerged in two separate waves.3 The first began in 2010
during Liu Zhijuns leadership of the Chinese Ministry of Railways.4 Liu Zhijun promoted HSR
domestically as a new paragon of Chinas development and also started pushing its development
abroad as a symbol of Chinas technological advancement.

Kyodo, China wins Indonesia high-speed rail project as Japan laments extremely regrettable U-turn, South
China Morning Post, 29 September 2015.
2
Gerald Chan, Chinas High-speed Rail Diplomacy: Global Impacts and East Asian Responses, EAI Working
Paper, East Asian Institute, February 2016.
3
The two waves of HSR development are detailed further in Hua Lu, The challenge of HSR going abroad,
Caijing, 13 October 2014.
4
Liu Zhijun, a Chinese politician and senior bureaucrat who spent his career working at Chinas Ministry of
Railways, was Chinas Minister of Railways from 2003 until his arrest and expulsion from the CCP in February
2011 following allegations of corruption.

Investment in domestic HSR declined significantly following what became known as the 7.23
Accident 5 but picked up again quickly in late 2013 in conjunction with a strong overseas push.
This second (current) wave of HSR Going Out is characterized by its strong political backing
from high-level Chinese leaders. Wen Jiabao was the first Chinese leader to act as Chinas highspeed rail representative abroad during an official visit to London and was soon followed by the
new generation of leaders. By the end of 2014 Li Keqiang had clearly referred to Chinas HSR in
four out of five official visits as had Xi Jinping during his visits to Europe, Latin America, and
India.6 This trend continued well into 2015 with Xi Jinping promoting Chinese HSR during state
visits to the UK and Iran, and Li Keqiang praising Chinese HSR proficiency in Malaysia and
during the December 16+1 Summit.7
With Chinese leaders acting as its global salesmen, HSR also acquired a national significance
(guojia yiyi) as a symbol of Chinas global industrial competitiveness.8

2.

Chinas Explosive Growth in Overseas HSR Markets

China has actually completed just one HSR project to date - the Ankara-Istanbul high-speed rail
line in Turkey that opened to the public in 2014. However, as a result of Chinese high-level
leaders actively promoting Chinas HSR expertise on the global stage, both developing and
developed countries have become increasingly inclined to consider constructing or upgrading
their domestic railways with the help of Chinese funds, companies and technologies.
In particular China has been one of the main initiators and bidders for HSR projects in SouthEast Asia. As part of Chinas One Belt, One Road (OBOR) initiative a multi-annual
infrastructure investment programme aimed at better linking and integrating China with the rest

On 23 July 2011 two high-speed trains travelling on the Yongtaiwen railway line collided on a viaduct in the
suburbs of Wenzhou (Zhejiang) killing 40 people and injuring 192. The accident and the official handling of the
rescue operations and related communication were widely criticised and had a profound impact on the development
of high-speed rail in China. It is seen as one of the reasons (along with Liu Zhijuns arrest in February 2011) for the
2 year pause in HSR development in China.
6
Hua Lu, The challenge of HSR going abroad, Caijing, 13 October 2014.
7
The so-called 16+1 grouping is a China-led multilateral forum that includes China and 16 states of Central and
Eastern Europe (CEE). Focussed on economics, it promotes avenues for increased trade and investment between
China and CEE countries. Sources: Wang Cong, Chinese firms eye UK high-speed rail project, Global Times, 14
October 2015, Xinhua, November 24, 2015; China to help Iran build high-speed rail as part of One Belt, One
Road strategy, South China Morning Post, 24 January 2016.
8
Zhao Jian, High-speed Going-Out: a cold-headed consideration within the heat, Dongfang Zaobao, 25 November
2014.

of the world 9 and in response to a proven infrastructure need and financing gap in Asia,10
China has been pushing for the development of a comprehensive rail network in South-East
Asia, part of which would involve high-speed rail lines. By proposing cutting-edge technology
and massive, low-interest financing, China seems like the natural choice of partner.
So far, China has won two deals in the region: one in Indonesia, connecting Jakarta and
Bandung, and one in Thailand linking Map Ta Phut to Bangkok and Nong Khai.11 The Indian
government selected Japan over China to conduct the feasibility study for Indias first bullet train
project linking Mumbai to Ahmedabad. In future projects China will probably be selected to
construct Laoss and Cambodias new medium to high-speed lines, and will compete (against
Japan) for the Kuala Lumpur-Singapore rail network expected to be in operation by 2020.12
China is also engaged in a number of HSR projects beyond South and Southeast Asia. In Europe
a Chinese-led consortium has agreed to an estimated USD 3 billion contract to build the 350km
Budapest-Belgrade line, which will be China's first high-speed rail project in the European
Union.13 Bulgaria, Romania, Ukraine and Czech Republic also recently raised the possibility of a
partnership with China to construct domestic HSR lines although few details are currently
available.14 Finally, China made clear that it would be bidding for the UKs HS2 high-speed rail

Chinas One Belt, One Road (OBOR) initiative involves two main components: a land-based Silk Road
Economic Belt (SREB) aimed at linking China to Europe via Central Asia, and a sea-based 21st Century Maritime
Silk Road (MSR) that aims to link Chinas coast to the Mediterranean via the South China Sea and Indian Ocean.
For more information on Chinas One Belt, One Road initiative, see Vision and Actions on Jointly Building Silk
Road Economic Belt and 21st Century Maritime Silk Road, National Development and Reform Commission, 28
March 2015, available at: http://en.ndrc.gov.cn/newsrelease/201503/t20150330_669367.html.
10
For example the Asian Development Bank (ADB) estimates that Asia needs $8.2 trillion in infrastructure
financing from 2010 to 2020.
For more information, see: http://www.adb.org/sites/default/files/publication/159325/adbi-infra-asianconnectivity.pdf .
11
At the time of publication, the modality and extent of Chinas involvement in the Thailands high-speed railway
has not been conclusively defined. The Thai government had announced that due to its dissatisfaction with
financing terms offered by China - it would take over the financing of a shortened version of the project, but was
still planning to use Chinese technology for the line. See, for example, Thais to fund first phase of US$15b
Thailand-China railway project, South China Morning Post, 24 March 2015.
12
China wins Thai railway construction bid after tough negotiations, China Daily, August 28 2015; Kyodo, China
wins Indonesia high-speed rail project as Japan laments extremely regrettable U-turn, South China Morning Post,
29 September 2016; Sanjeev Miglani, Japan offers India soft loan for $15 bn bullet train in edge over China,
Reuters, 22 October 2015; Prashanth Parameswaran, China, Laos to Build $6 Billion Railway by 2020, The
Diplomat, 16 November 2015; Hafiz Noor Shams, China takes the lead in Malaysian mega-projects, Financial
Times, 9 March 2016.
13
Christian Keszthelyi, Belgrade-Budapest rail construction agreement signed, Business Budapest Journal, 17
December 2014.
14
China, Bulgaria vow more infrastructure, nuclear power cooperation, China Daily, 26 November 2015; Daniel
Stroe, Romania says high-speed train project ready by the end of the year, Balkan-EU, 20 January 2014; Chinese
investor to build high-speed railways in Ukraine, UA Wire, 16 April 2016;. Czech Republic the highlight of Xis
first CEE visit, Peoples Daily, 26 March 2016.

project between London and the West Midlands as well as for Swedens proposed inverse Y
high-speed network linking Stockholm with Gteborg and Malm.15
Beyond Asia and Europe a consortium of Chinese companies is leading the construction of the
471.5 km Tinaco-Anaco high-speed railway line in Venezuela although the project has been
held up by delays and financing issues.16 China is also part of the international consortium that
won Phase I Package 1 of the Haramain High-Speed Rail Project in Saudi Arabia - the Middle
Easts first high-speed rail line.17 In June last year, a consortium of Chinese and Russian
companies won a contract to conduct pre-construction surveys and design for the 770 km track
linking Moscow to Kazan.18 Perhaps more surprisingly a China Railway Group-led consortium
and XpressWest Enterprises LLC will form a joint venture to build a high-speed railway linking
Las Vegas and Los Angeles, the first Chinese-made bullet train project in the U.S.19 While the
future of the project was put in doubt in early June 2016, Chinese companies are reported to have
been participating in preparations for other HSR project in the US. 20 Finally, Beijing is also
currently in discussions with Turkey on the possibility of new HSR projects; with Iran for an
ambitious rail line linking Tehran to Mashhad, and further on to the city of Urumuqi in Chinas
Xinjiang; and with India for the countrys possible second HSR line linking New Delhi and
Mumbai.21
Overall, reportedly about 50 countries have already expressed interest in Chinese high-speed
railway of which more than 20 have engaged in talks about potential projects with Chinese
enterprises.22

3.

15

Explaining Chinas HSR successes

HS2: George Osborne urges China to pitch for 11.8bn contracts, BBC, 24 September 2015; Chinese
contractors eye Swedish high speed rail programme, Railway Gazette, 7 October 2015.
16
Simon Romero, Chinas Ambitious Rail Projects Crash Into Harsh Realities in Latin America, New York Times,
3 October 2015.
17
Chris Lo, China's fast track to high-speed rail exports, Railway Technology, 13 October 2014.
18
Zhao Lei, China's high-speed rail network is on the global fast track, Telegraph, 21 April 2015.
19
Brenda Goh, China firms sign deal for high-speed Las Vegas-Los Angeles rail link ahead of Xi's U.S. visit,
Reuters, 18 September 2015.
20
Robin Respuat, XpressWest, seeking to build U.S. high speed rail, ends deal with China group,Reuters, 9 June
2016
21
Rod Sweet, Turkeys new high-speed rail: victory for Erdogan and China, Global Construction Review, 29
July 2014; RPT-China firms push for multi-billion dollar Iran rail and ship deals, Reuters, 11 March 2016; Zhong
Nan and Xie Chuanjiao, China plans 'smart trains' to take on global rail companies, China Daily, 10 March 2016.
22
Note that it has not all been smooth sailing for Chinas efforts to market HSR overseas. Early in 2015, a $3.75
billion contract awarded to a Sino-Mexican consortium led by China Railway Construction Corp Ltd in Mexico was
revoked, reportedly due to suspicions about corruption (China Daily, May 6, 2015). Chinas HSR poses at Italys
Milan World Expo, 50 countries get in touch with China for HSR cooperation and projects, Global Times, 22 May
2015.

How has Chinas HSR overseas diplomacy achieved such rapid success in so short a time? To
become a successful player on the international HSR stage, Beijing has employed a mix of
domestic and foreign affairs measures including implementing far-reaching reforms and
technological upgrade of its state-owned railway sector, and mobilizing various institutional
actors to deploy substantial financial, diplomatic and industry-level resources. Such a
comprehensive approach, discussed in more detail below, reflects Chinas belief in the strategic
importance of its HSR exports.
Reaching technological proficiency
While Western and Japanese companies used to have the undisputed lead in HSR, dominating
both the international and domestic Chinese markets, 23 it has taken little more than a decade for
China to leapfrog to the forefront of international HSR technology. It achieved this by using a
mix of technology transfer through international partnerships and contracts, reverse engineering,
and alledgedly a certain degree of technology theft. In 2010 an article in the Financial Times
suggested that roughly 90 per cent of the high-speed technology used in China is derived from
partnerships or equipment developed by foreign companies.24 This has enabled Chinese
companies to deliver HSR projects that comply with international standards.25 Some have gone
further, developing existing technologies to create improved designs of their own - for example,
faster high-speed trains that run at speeds of up to 350km/h. To meet the demand of Chinas vast
and diverse domestic HSR market, they have also developed cutting-edge HSR technologies for
extreme conditions such as high altitude (Tibet), desert (Xinjiang), or intense cold.26
Chinas technological proficiency is now considered comparable to that of experienced world
HSR players. Chinese companies now produce almost all bullet train parts - although many
major technologies are still licensed from foreign railway giants.27 As a result, Chinese
companies have been able to supply as well as construct - domestic HSR projects. This gives
them a valuable proven track record of domestic operational projects that greatly enhances the
strength of their international HSR bids.
Corporate streamlining

23

Chinas first HSR line relied on Swedish-made X 2000 trains, and less than ten years ago all Chinas HSR
equipment was provided or built under technology transfer agreements with foreign partners such as Alstom,
Bombardier, Kawasaki Heavy Industries and Siemens.
24
Jamil Anderlini and Mure Dickie, China: A future on track, Financial Times, 23 September 2010.
25
While this is an assertion commonly made by recipient countries when accepting Chinese bids or by Chinese
companies representatives in speeches or interviews, a conversation we have had with an European trade
representative pointed to a more nuanced picture where security concerns still remain about Chinese HSR
proficiency and safety track records.
26
Zhao Lei, China's high-speed rail network is on the global fast track, Telegraph, 21 April 2015; Huang Jin, New
China-made high-speed train CRH5E developed for extreme cold, Peoples Daily, 4 March 2016.
27
Zhao Lei, China's high-speed rail network is on the global fast track, Telegraph, 21 April 2015.

Beijing has also moved to eliminate domestic corporate obstacles to stronger Chinas position in
the international HSR market. In 2015 China South Railway and China North Railway - the
worlds two foremost rolling stock manufacturers, and producers of all Chinas high-speed trains
- merged to form the single company, China Railway Rolling Stock Corporation, valued at over
$26 billion. The merger prevents doubling up on research and development expenditure and
reduces costs incurred by creating incompatible platforms and products. It also removes the
possibility of the two Chinese HSR companies competing against each other for international
contracts, a situation that had resulted in lower bids and reduced profits in the past. Through this
reform Beijing has aimed to improve the competitiveness of Chinese high-speed railway projects
in overseas markets.28
Financial largesse and flexibility
Chinas initial success in marketing its HSR overseas also relies in large part on Beijings
enormous financial resources that allow Chinas railway companies to package expertise and
products together with financial conditions that competitors find hard to match. In bids for the
Indonesian and Russian HSR projects, China edged out Japanese and German competition by
offering some combination of lower overall costs, lower interest rates and longer grace periods
on loans provided from Chinas policy banks, as well as fewer liabilities for the host government
and flexibility about the ownership structure.29
Such financial flexibility is one of the main factors in Chinas successes to date. In the case of
the Istanbul to Ankara line, the deciding factor in Chinas favour was its ability to offer part of
the price in the form of a $750 million mixed loan, including a $500 million soft loan issued at
favourable terms.30 In the bid for Mexicos HSR (which was eventually cancelled), China was
quick to offer soft financing conditions as well as direct loans through Exim Bank for up to 85%
of the project, without requiring a government guarantee.31 In the relatively limited and fiercely
competitive global HSR market China is often willing to go one step further to secure victory.
China also offers a great deal of flexibility regarding technology type and operational models. In
a number of cases China has been willing to scale up or down proposed projects as necessary;
readily shifting between high-speed and medium-speed railways to fit the desired budgets and
preferences of the host countries. For example, Beijing readily shifts between high-speed and
medium-speed railway projects to please potential customers as was the case in Thailand.32
28

Zhibo Qiu, Political Centralization Drives Upcoming Industrial Consolidation, China Brief, 3 April 2016.
Russian Railways prefers Chinese offer on Moscow-Kazan HSR construction to German one, TASS, 3
November 2016; Niniek Karmini, China, domestic companies to build Indonesia high-speed rail, The Jakarta Post,
16 October 2016.
30
Hua Lu, The challenge of HSR going abroad, Caijing, 13 October 2014.
31
Ibid.
32
Summary: Chinese companies seek railway cooperation in Thailand, Xinhua, 17 October 2014; China,
Thailand agree to speed up railway cooperation, China Daily, 9 October 2015.
29

HSR is therefore flexibly employed to spearhead more general negotiations, as a component in

broader efforts by Beijing to leverage Chinas railway industry to advance economic cooperation
with foreign partners.33
Contributing to local employment and skills
To support its railway projects abroad China has also made its HSR projects and providers more
acceptable by highlighting their contribution to local economies. For example it has committed
to building factories in Chicago and Boston to manufacture trains for their subway systems.34
Similarly China Railway Group is reportedly planning to build a regional headquarters in
Malaysia, while China Railway Rolling Stock Corporation has already established local factory
there that in the future may involve the local production of HSR parts or trains.35 China happily
includes local procurement in its offers and has learned the value of promising to employ local
staff in projects in Sweden, Serbia and Thailand although it is still frequently criticised for
creating insufficient jobs on the ground.36
China has also made knowledge transfer a big part of its bids promising to train Thai, Saudi
and Swedish engineers in fields including rail systems, train control and safety, track
maintenance and repairs. In the UK China may participate in a skill-swap programme at the HS2
High Speed Rail College that would lead to knowledge and expertise sharing between the two
countries.37
Political and diplomatic support
Chinas HSR diplomacy benefits enormously from being underpinned by strong political and
diplomatic support. In addition to the continued promotion of HSR through bilateral channels
and during Chinese high-level overseas visits, Beijing also uses China-led multilateral initiatives
to promote ambitious cross-border projects. For example, the 16+1 forum has been utilized to
push through the construction of HSR links between Macedonia, Serbia and Hungary, and to
advocate Chinas participation in realization of Rail Baltica, linking Poland with Finland through
three other Baltic states.38 In December 2015 Li Keqiang took sixteen Central and Eastern
European heads of state on board the Suzhou-Shanghai high-speed line during the 16+1 Summit.

34

Zhong Nan and Xie Chuanjiao, China plans 'smart trains' to take on global rail companies, China Daily, 10
March 2016; Brenda Goh, China's CRRC lands $1.3 billion Chicago rail car project, Reuters, 10 March 2016.
35
Zhong Nan and Feng Zhiwei, Rail firm on fast track to success, State Council, 26 November 2015; Associated
Press, China Railway Plans Regional HQ in Malaysia, Eyes High-Speed Rail, PDD, 21 March 2016.
36
See, for example, Pruga BeogradBudimpeta velika prilika za srpske kompanije, RTS, 22 December 2015.
37
11.8bn HS2 bidding process opens, Gov.org, 24 September 2015.
38
Wang Lin, Closer Look: China's High-Speed Rail Diplomacy Hits Full Speed, Caixin, 26 June 2014; Li
Keqiang: China wishes to participate in cooperation projects sur as Rail Baltica, Peoples Daily Online, 17
December 2014.

The seats next to him were reserved for the Hungarian and Serbian premiers who are currently
negotiating with China for the construction of the Belgrade-Budapest high-speed project, while
seats nearby were reserved for representatives from the Baltic States.39
Chinas HSR ambitions is linked with the OBOR (One Belt, One Road) initiative and the two are
also mutually reinforcing: the attractiveness of HSR spearheads Chinas OBOR campaign abroad
and in return the going out of HSR benefits from the support of the political and financial
commitment and vigorous public diplomacy promoting the OBOR initiative around the world.40
The Moscow-Kazan link, an offshoot of the planned Beijing-Moscow HSR, is just one of the
logistical corridors of the envisioned Silk Road Economic Belt that involve high-speed railways,
and the planned Kunming-Singapore HSR line constitutes an integral part of Chinas 21st
Century Maritime Silk Road. However, HSR diplomacy casts its net even wider, as projects in
the U.S. or Latin America, both of which do not belong to OBOR routes, are touted.
The link between Chinas international HSR development and OBOR is perhaps best illustrated
by the support provided to HSR and railway projects by Chinas policy banks, sovereign fund
and Beijing-backed multilateral funds and institutions. Another example of how railway exports
and OBOR are intertwined is offered by CRRC who, along with the new Silk Road Fund,
recently became a shareholder in China International Investment Corporation 41 which is looking
to expand its international operations within the OBOR framework and is expected to finance
HSR and railways projects.

4.

Whats in it for China?

Given the sheer scale of the financial and institutional resources China deploys in making sure
HSR does go out, it is only reasonable to assume that these efforts have larger significance
beyond the simple profit-seeking of Chinas HSR industrial cluster. Our understanding is that
Chinas push for HSR projects overseas addresses a whole variety of issues and drives forward a
reformist agenda both domestically and in terms of Chinas international relations.
A sensible economic enterprise
Chinas HSR diplomacy aims to have a positive impact on Chinas domestic economy through
increased investment and trade, technological upgrades and capacity utilization.
Increased investment and trade
China-CEE cooperation gets on fast track, Xinhua, November 25, 2015.
Nathan Beauchamp-Mustafaga, Rolling Out the New Silk Road: Railroads Undergird Beijings Strategy, China
Brief, 17 April 2015; Dragan Pavlievi, China, the EU and One Belt, One Road Strategy, China Brief, 31 July
2016.
41
Silk Road Fund to invest $100m in Chinese company's IPO, China Daily, 27 October 2015.
39
40

HSR can have strong positive externalities for Chinas economic diplomacy as well as for
Chinese companies. As a push for interconnectivity in Asia and throughout the world HSR
networks can, once built, increase Chinas trade in goods and services. This will benefit Chinas
manufacturing sector by cutting delivery times (and sometimes delivery costs) of Chinese
products, and providing easier access to new markets or increased access to existing ones. This
represents a valuable if limited - boost to some of Chinas industries when costs of production
are rising and the global economy is sluggish.
The countrys HSR development also facilitates Beijings plans to develop and substantiate its
bilateral relations through increased economic cooperation. By intensifying Beijings relations
with host countries HSR projects are often catalysts for a broader cooperation agenda. The cities,
ports and other locations connected by China-delivered railways offer new opportunities for
Chinese enterprises. Also, underwriting HSR projects facilitates Chinas policy banks access to
host countries, leading to consideration of new projects or deeper financial cooperation based on
loans and other forms of economic and technical exchange with host governments. 42
Technological upgrades
HSR diplomacy improves the overall strength and prospects of Chinese railway industry as it
opens up new international markets for Chinese railway companies that were previously focused
on and limited to China. In addition overseas HSR projects create long-term demand for related
services and maintenance. As a result, these projects contribute to the upgrade of Chinas goods
and services export mix in line with Beijings overarching goal of promoting technological
advancement and an innovation-based economy.
Frequent cooperation and interactions with international companies possessing superior
experience and networks fosters economic restructuring of Chinas companies and enables the
transfer of technological and operational expertise. This in turn can have a positive effect on
Chinas wider industrial fabric through increased industrial dynamism and spillovers from
technological acquisitions and proficiency.
Capacity utilization
Chinese HSR is seen as one tool for tackling Chinas mounting industrial overcapacity. Large
HSR projects can mobilize railway but also construction SOEs, most of which have taken a
sudden and violent hit as Chinas economic growth slows down. The production of equipment,
42

An excellent discussion of how on the back of strategic capital projects Chinas state-led integrated approach ensures
that banks and enterprises expand their overseas portfolios and ensure profit is presented in Sanderson, H., & Forsythe,
M. (2013) China's Superbank: Debt, Oil and Influence - How China Development Bank is Rewriting the Rules of
Finance. London: John Wiley & Sons.

infrastructure and rolling stock for HSR projects can use up some of the excess capacity in
Chinas heavy industrial sectors, particularly steel. While certainly not a cure-all, this contributes
to the overall solution to one of Chinas main economic headaches.
More than just business
Chinas HSR significance goes beyond the economic realm. As argued domestically by Gao Bai,
Professor at Southwest Jiaotong University and Director of its High Speed Rail Strategy
Research Centre, Chinas HSR diplomacy also comes with substantial, non-economic, positive
externalities and so should not be considered as simply an export product.43
Beyond direct economic advantages HSR diplomacy provides a valuable financial alternative to
foreign exchange investments as China often exports both HSR and related financing. This in
turn increases international liquidity and provides much needed infrastructure funding for
developing countries placing China in an international development role and raising its profile
as responsible power. Finally, by setting up dedicated institutions to channel those liquidities (the
BRICS New Development Bank, the AIIB, the Silk Road Fund, etc.) China increases its
financial influence internationally.
The HSR Going Out Strategy also has foreign policy and geopolitical motivations. Prospects of
HSR projects can advance a climate of friendship and joint interests that in turn provides a fertile
ground for widening the scope of bilateral cooperation. Indeed, agreements for deepening
cooperation in military affairs, culture, research and education, or other areas, are often
negotiated simultaneously with - or in the aftermath of - the railway deals. Additionally, given
the significant costs entailed, Chinas HSR projects are pushing up its ranking among trade
partners of host countries showing it to be both increasingly important and dependable, so
providing Beijing with some leverage in bilateral relationships with these countries.
Hence, the process of promoting, negotiating and delivering HSR projects greatly contributes to
Chinas growing global presence and influence. HSR strengthens Chinas soft power initiatives,
geopolitical positioning and strategic stature in Asia and beyond. As Gao Bai notes, the U.S.
might be gathering maritime forces in the Pacific and promoting an economic integration
partnership excluding China, but Chinas greater connectivity and infrastructure investment will
make it the stronger power in political and economic terms in Asia.44

43

Gao Bai, High-speed rail investment abroad should not only take profit into account, Dongfang Zaobao, 16
December 2014.
44
For some further discussion on the strategic value of increasing Chinas land-based connectivity to Eurasia with
high-speed railways and views different to Gao Bais, see Wu, Z. (2013) Toward 'Land' or Toward 'Sea'? The HighSpeed Railway and Chinas Grand Strategy. Naval War College Review 66, no. 3 (Summer 2013): 5366. Newport,
Rhode Island.

5.

Implications of Chinas HSR expansion

The impact of Chinas HSR diplomacy on Chinas domestic and international affairs will heavily
depend on the number of projects eventually implemented, their performance, and their
sustainability. However, even with only a few projects started to the date, there are already some
important observable and implications.
Between competition and cooperation
Chinas HSR push overseas has direct and somewhat contradictory consequences for countries
with HSR expertise and for the global railway industry.
China's rise to be a serious global HSR player presents challenges to other countries and their
HSR companies. Whether it resulted from technology transfer or, as some argue, from
technology theft to a certain extent, Chinas capacity to catch up with international peers on the
HSR technological frontier intensifies global competition in a limited market. For example,
Japan hopes to deploy its own railway industry as a breadwinner for its national economy and as
a tool for diplomatic influence. Relying, like China, on policy banks with the ability and
willingness to finance HSR projects, it has gone head-to-head with Beijing bidding for HSR
projects in the US, Thailand and Indonesia only to see Chinese enterprises win every single
contract. Tokyos success in India, however, proves that China has not yet driven all of its
international counterparts out of the market. But such competition is likely to continue as further
projects are considered.45 Increased international competition for HSR projects will also impact
countries such as France, Germany and Canada, all of which have bred strong HSR companies.
Securing access to markets, facilitating technology transfer and bridging gaps in expertise also
drives Chinese enterprises toward cooperation. China often welcomes international competitors
in project consortiums or hires them as sub-contractors, thus spreading the benefits from its statebacked HSR push and the market it creates.46 For example, the Sino-Russian Moscow-Kazan
HSR project is expected to see the consortium made up of three Russian and Chinese companies
joined by German company Siemens as a minor co-financier and implementer of the project.47 In
Saudi Arabia, China is bidding in a consortium with two Saudi companies and Frances
Alstom.48
45

Gerald Chan, Chinas High-speed Rail Diplomacy: Global Impacts and East Asian Responses, EAI Working
Paper, East Asian Institute, February 2016; Zhou Yu, Chinas intensive railroad deployment in Southeast Asia,
Beijing Youth Daily, 21 September 2015.
46
According to a recent study, China's HSR projects currently make up approximately one third of global HSR
market (See: Gerald Chan, Chinas High-speed Rail Diplomacy: Global Impacts and East Asian Responses, EAI
Working Paper, East Asian Institute, February 2016).
47
Russian Railways prefers Chinese offer on Moscow-Kazan HSR construction to German one, TASS, 3
November 2016.
48
Saudi Arabia's Haramain high-speed rail to begin operations by 2014, Railway Technology, 10 April 2012.

This mix of cooperation and competition is particularly well illustrated by the case of Canadian
company Bombardier. Its joint ventures in China hugely benefit from the stellar development of
the HSR market in the country and abroad that created market for Bombardier's products and
services but the company rejected repeated takeover enquiries and offers for its rail unit by
Chinese state-owned companies in late 2015.49
In a bid to acquire technology, Chinese railway enterprises are likely to launch further takeover
and equity investment bids within the industry as well as to explore joint ventures and overseas
greenfield and brownfield investment opportunities. To illustrate, in 2014, with a deal of around
$2.5 billion in place to revamp Argentinas state-owned rail network and rolling stock, CSR
agreed to establish an Argentinian plant to provide maintenance service and produce equipment
and train parts. In the US, CSRs successor CRRC has struck separate deals to build a plant to
assemble trains locally for its $566 million Boston metro order; to form a joint venture to
produce high-speed train cars in the revitalized site of a currently defunct crane factory in North
Carolina; and to build $1.3 billion worth of subway rail cars for Chicago Transit Authority at a
new $40 million factory built in the city. Such development may add to competitors worries
about Chinese domination over the market in the future. However, for developing and developed
countries alike it also means more opportunities to take part in the supply chain of Chinas
globalizing railway industry, including benefits from related investment and even know-how and
technology inflows.50
Self-interested promotion of HSR
Chinas HSR push also has important implications for destination countries. Based on
understanding that exporting HSR is significantly different from exporting other products
because of the high level of government involvement in such deals, China has developed a
refined and persuasive sales pitch to promote its HSR overseas. In particular, Beijing takes great
care to frame HSR projects attractively for developing countries, pressing right at the heart of
their concerns, perceptions and hopes. As well as being for profit enterprises, China presents its
HSR projects as unique opportunities for host countries to escape long-standing
underdevelopment which cooperation with other major countries and international institutions
has failed to address.51 Although Chinas public diplomacy is often seen as marred by the
49

Benjamin Kang Lim and Matthew Miller, Exclusive: Bombardier rejects Chinese offer for railway unit
documents, Bloomberg, 9 September 2015; World rolling stock market October 2015, Railway Gazette, 18
October 2015.
50
Exclusive: China Railway comprehensively occupies the Argentinan market, Peoples Daily, 20 August 2015;
Chinese manufacturer invests in US wagon venture, Railway Gazette, 6 July 2015; Groundbreaking ceremony for
CRRC's US assembly plant, Railway Gazette, 4 September 2015; Jad Mouawad, Chinese Rail Firm Makes Inroads
with U.S. Factory and Boston Transit Deal, New York Times, 3 September 2015.
51
Zhu Junqing, Commentary: China's railway construction helps Africa realize modernization, Xinhua, 21
September 2015.

clumsy, heavy hand of Chinese state propaganda machinery, in this situation it displays a solid
understanding of what pleases the ears of foreign countriesand works in its own interest.
Relying on such an approach means that China is sometimes pushing for HSR development in
those countries where financial and population conditions are not necessarily met. Even though
some studies suggest that Thailand does not have the critical mass to make an HSR project
profitable,52 China strongly lobbied for the construction of Thailands first HSR line - going as
far as to propose a financing scheme based on a swap for agricultural products.53 The same issue
of critical population mass arose with Venezuela, an already heavily indebted country, where
China nevertheless lobbied for a loan-for-fuel HSR project, raising questions about the ability of
Venezuela to support the project both short- and long- term.
Creating financial risks
Chinas approach has a number of inherent risks. As explained by Chinese HSR specialist Zhao
Jian, an HSR line can only break even if it meets a certain set conditions in terms of the size,
density and level of income of the population it serves. As a result, today there are only two
profitable HSR lines in the world: Japans East China Sea Line Shinkansen, transporting 149
million people a year, and Chinas Beijing-Shanghai axis, transporting 100 million people a year.
54

As almost none of Chinas current HSR projects abroad meet these three conditions, few of them
are likely to make a profit. To date there is an insufficient number of completed projects to allow
us to understand and map the exact levels of risks and losses involved, but it is possible to show
how and for whom they arise.
Risk borne by Chinas HSR companies
The projects are conducted and sometimes co-funded by Chinas HSR SOEs. Yet implicit state
backing with its extremely soft budget constraints often means inadequate risk assessments are
undertaken. Chinese companies also tend to submit low bids to secure contracts. While to a
certain extent these prices reflect domestic HSR costs, they do not hold abroad,55 as HSR price
competitiveness depends on factors that cannot be fully replicated outside Chinas borders.
Acquiring land is much pricier abroad where Chinas HSR players do not have the political
backing they benefit from in China. Besides, destination countries often require Chinese
companies to use local labour and materials. These increased construction costs make economic
52

Zhao Jian, High-speed Going-Out: a cold-headed consideration within the heath, Dongfang Zaobao, 25
November 2014.
53
Hua Lu, The challenge of HSR going abroad, Caijing, 13 October 2014.
54
Zhao Jian, High-speed Going-Out: a cold-headed consideration within the heath, Dongfang Zaobao, 25
November 2014.
55
Hua Lu, The challenge of HSR going abroad, Caijing, 13 October 2014.

considerations all the more crucial and increase the risk borne by Chinas HSR companies
undertaking new international projects.56
In most cases so far however, Chinas HSR companies have been contractors on a loan-and-build
model rather than investors in projects. Their fees are paid directly by the lending institutions,
rather than through the host government, further reducing the overall risks for them.57
Risk borne by Chinas policy banks
Most HSR projects are funded in part and often in majority by Chinas policy banks (most
often Exim or CDB) that therefore carry a huge proportion of the risk involved. Given the size
and number of HSR projects promoted to date the financial burden of this risk might eventually
prove significant, even for such robust institutions. In extreme cases such as Venezuela, policy
banks bear the entire risk of the borrower defaulting on their loans. For countries that have overestimated the returns and underestimated the real costs of an HSR line, this might involve long
repayment delays and painful renegotiations. However this risk is somewhat mitigated by the
fact that borrowers are usually governments or entities backed by government guarantees.
Yet even if a major deadlock were to happen, the risk China bears through its ownership of
policy banks would in theory be covered by the positive externalities accompanying such
projects. HSR deals often come along with other, potentially less risky infrastructure projects.
They also come with new lending opportunities for Chinas policy banks, increased trade or
economic cooperation, or even just more economic and strategic influence for China.
Additionally, by creating projects and therefore profits for SOEs, HSR projects ensure budgetary
income. Overall, this means that any under-performance of HSR projects is compensated for at
the aggregated level by the economic activity and revenues additionally generated.58
Risk borne by recipient countries
Although Chinas government, banks and SOEs seem to make up for their potential losses on
HSR contracts through intended or expected gains elsewhere, host countries bear the ongoing
risk of the projects. Convinced by Chinas high-level salesmen to take on costly HSR projects
with Chinese financing, they nevertheless are faced with the need to subsidize an HSR line
where population and income conditions are sub-optimal. The frequent downsizing of projects
56

Ibid.
For further insights about the tied-lending and other modalities of Chinese policy banks' loan provision please see:
Brutigam, D. (2010) China, Africa and the international aid architecture. African Development Bank; Grimm, S. et
al. (2011) Transparency of Chinese aid: An analysis of the published information on Chinese external financial flows.
Stellenbosch University: The Centre for Chinese Studies; Sanderson, H., & Forsythe, M. (2013) China's Superbank:
Debt, Oil and Influence - How China Development Bank is Rewriting the Rules of Finance. London: John Wiley &
Sons.
58
This assessment is also supported by the findings of the following research on China Development Bank, See:
Sanderson, H., & Forsythe, M. (2013) China's Superbank: Debt, Oil and Influence - How China Development Bank
is Rewriting the Rules of Finance. London: John Wiley & Sons.
57

reduces the financial burden but, even with costs pushed down, HSR projects weigh on host
countries budgets and increase their international debt exposure and dependency on China.
Conclusion
Through aggressive policies and heavy financial and diplomatic support, China has managed to
develop and internationalize its HSR sector within just a few years. Given current trends, highspeed rail projects are set to become an increasingly important segment of Chinas railway
equipment exports, already worth $4.36bn in 2014 - a year-on-year increase of 22.6%.59
Construction, rolling stock sales, replenishment, maintenance and other related services will
create healthy long-term demand for Chinas railway industry while also benefiting other
connected industries and Chinas overall trade volumes with the world, playing a positive role
for Chinas economy.
While it is still too early to give a definite assessment about the consequences of such
development for Chinas overall international position, our analysis shows that HSR diplomacy
undoubtedly has the potential to significantly strengthen economic and political ties between
China and the countries hosting and cooperating on Chinas HSR overseas projects, and to
increase Beijings global influence in both the short and long terms.
Chinas vigorous HSR diplomacy comes at a high cost to certain groups. Its international HSR
competitors are now - more often than not - being bid out of HSR projects or forced to take a
back seat in new projects. By providing financial support to Chinese HSR companies Chinas
policy banks are engaged in risky and possibly unprofitable enterprises. And some of the host
governments are engaging in potentially unsustainable financial projects that may affect the
long-term health of their budgets and increase the level of their economic and financial exposure
to China.
Yet, while Chinas HSR competitors and partner countries might have a hard time recovering
from Chinas HSR Going Out, Chinese HSR industry does not count profit as its only
aspiration. As our paper illustrates there are a number of grander underlying economic and
geopolitical motives for Chinas push. Therefore, Chinas HSR investment should be seen from a
long-term and strategic point of view. In this respect the potential returns for China, as well as
implications for Chinas international relations, are enormous.

Agatha Kratz is a PhD candidate at Kings College Londons Lau China Institute, working on
Chinese SOEs internationalization in the high-speed rail and nuclear power sector. She is also
an Associate Policy Fellow within the European Council on Foreign Relations (ECFR) Asia &
59

Zhong Nan, Belt and Road Initiative boosts rail tech exports, China Daily, 25 October 2015.

China Program, working on Chinas economic policies, outward investments, and reform
process.
Dragan Pavlievi is a Visiting Research Fellow at the East Asian Institute at the National
University of Singapore and will take up the post of Lecturer in China Studies at the Xian
Jiatong Liverpool University from July 2016. Dragan researches Chinas domestic politics and
foreign relations, and is also a contributing analyst at the geostrategic consultancy Wikistrat.
Note: The authors wish to thank Kerry Brown, Daniel Johanson, Emily Cloney and Peter Wood
for their valuable comments and suggestions on previous versions of this working paper. Any
further feedback is welcomed and encouraged.

Selected Bibliography
Brutigam, D. (2010). China, Africa and the international aid architecture. African
Development Bank Group.
Chan, G. (2016). Chinas High-speed Rail Diplomacy: Global Impacts and East Asian
Responses (EAI Working Paper). Korea: East Asian Institute.
Grimm, S. et al. (2011). Transparency of Chinese aid: An analysis of the published information
on Chinese external financial flows. Stellenbosch University: The Centre for Chinese Studies.
Sanderson, H., & Forsythe, M. (2013) China's Superbank: Debt, Oil and Influence - How China
Development Bank is Rewriting the Rules of Finance. London: John Wiley & Sons.
Wu, Z. (2013) Toward 'Land' or Toward 'Sea'? The High-Speed Railway and Chinas Grand
Strategy. Naval War College Review 66, no. 3 (Summer 2013): 5366. Newport, Rhode Island.