Commentary | 25 March 2017

Li’s pitch on high-speed trains part of China’s regional push

Originally published in The Australian. 

Originally published in The Australian. 

When the Chinese Premier Li Keqiang jets around the world, one of his favourite travel companions is CRH380A, a shiny high-speed train model. The urbane and English-speaking Premier likes to urge his hosts to think about buying the latest model of the high-speed train, the pride and joy of Chinese engineering achievement.

If Li’s host struggles to afford the expensive toy, he is always happy to offer a financing deal if they agree to adopt Chinese engineering and technical standards in building the rail. Given his obsession with selling the high-speed rail, he has earned the moniker “super salesperson for high-speed rail”.

Selling China’s high-speed trains is at the heart of Beijing’s One Belt, One Road initiative, which is an ambitious program of transcontinental infrastructure building connecting China with other countries stretching from Indonesia to Europe. The initiative is as much about geopolitics as economics. This is China’s bid to become the new economic leader in the region.

One of the least appreciated goals of the Belt and Road initiative is Beijing’s attempt to spread its technological and engineering standards throughout the region. If Apple and McDonald’s are symbols of the American economic muscle, China wants high-speed rail, bridges, harbours, tunnels and airports to become the new monuments of Beijing’s new imperium.

It is more than just about concrete and steel; it is about how you build them and according to what standards. In the corridor of powers in Beijing, policymakers strongly believe that China must capture the higher end of global value chain at a time when its traditional comparative advantages such as low labour costs are disappearing fast.

The Ministry of Industry and Information Technology has drafted the Made in China 2025 strategy, inspired by Germany’s “Industry 4.0” Plan. Its primary goals are to make the country’s manufacturing industry more innovation driven, emphasise quality over quantity.

The Chinese government expects the Belt and Road initiative to play an important role in helping the country to spread its engineering and technological standards. This focus on exporting Chinese technological standards must be understood in terms of Beijing’s broader ambition to become an innovation-based economy and a leader in research development. “Chinese policymakers see development of technology standards as central to realising these objectives”, says a research report published by the US-China Economic Security Review Commission.

There is a popular saying in China that “Third-tier companies make products, second-tier companies make technology and first-tier companies make standards.” This sums up the popular belief among the country’s policy elites.

Premier Li’s high-octane marketing campaign for high-speed rail is the best example of how he intends to use Belt and Road initiative to upgrade China’s industry. China considers its high-speed railway technology as one of the crown jewels of its advanced manufacturing industry. Beijing has mobilised 10,000 scientists and engineers to incorporate imported foreign technology as well as developing the country’s own indigenous technology. The result of this effort is evident in the breathtaking development of China’s high-speed rail sector with the country now home to more than 60 per cent of the world’s total constructed high- speed rail.

Premier Li has personally marketed it to Thailand, India, Indonesia, Malaysia and a host of European countries with some success. The Chinese government successfully lobbied Indonesian President Joko Widodo to award it the right to build the 142km high-speed railway line connecting Jakarta and Bandung in West Java. The most significant part of the deal for Beijing is Jakarta’s decision to adopt Chinese technology.

The Xinhua newsagency reported with a sense of joy that the project would “adopt Chinese standards, Chinese technology and Chinese equipment” and that a Chinese engineering company would be involved in every aspect of construction, from the initial land survey to the management of the railway.

Beijing believes if countries around the region accept Chinese high-speed rail technology as their national standard, it could become the de facto standard across a vast geographical area. This means Chinese manufacturers and suppliers would enjoy a strong first mover advantage over other competitors, especially the Japanese who are competing strongly against Chinese train makers.

This push for other countries to adopt Chinese engineering standards is taking place in other industries apart from rail transport. Ru Quan Lu, an executive from PetroChina, a state-owned energy giant, argues China should use its extensive investment in oil and gas projects in Central Asian states to promote Chinese oil industry standards.

“Based on the experience of American and European energy majors, controlling standards means having an upper hand in negotiations, more bargaining chips and better profitability; to control standards is more important than anything else,” he opined in a magazine article.

Apart from exporting Chinese hi-tech goods and standards, one of the most important objectives of the initiative is to reboot China’s stagnant inland and rust belt provinces. After three decades of breakneck economic growth, there is a growing gulf of regional disparity in China. For example, the coastal mega-metropolis of Shanghai is five times wealthier than the inland province of Gansu, which is part of the old Silk Road.

Respected analyst Guan Youqing from Minsheng Securities believes close to 70 per cent of Belt and Road initiative budget will be spent inside China, boosting infrastructure projects connecting underdeveloped parts of China with the country’s neighbours. Beijing believes this offers the best chance for those provinces to escape stagnation.

China’s Belt and Road initiative is the country’s most audacious bid for regional economic leadership yet. Its vast scheme of infrastructure programs will certainly appeal to many countries that have infrastructure deficits. But governments and companies need to understand the initiative is intimately linked with Beijing’s industrial policy of boosting China’s advanced manufacturing industry.

While people are fretting over submerged reefs and rocks, Chinese engineers and construction workers have already started their world conquest by laying down train tracks, building electricity generation stations and constructing roads throughout the region. It seems Beijing is determined to transform the region brick by brick.