The Railroad Economic Belt: Grand strategy,economic statecraft,and a new type of international relations

Abstract

China’s grand strategy is evolving towards greater activism under Xi Jinping – from ‘keeping a low profile’ to ‘striving for achievement’. New initiatives such as forging ‘a new type of international relations’, ‘a community with a shared future for mankind’, and the Belt and Road Initiative have become marked features of the ‘Xi-change’ in China’s grand strategy. From an economic statecraft perspective, this article hypothesises that the Xi-change led to a power centralisation in the implementation of the Belt and Road Initiative and the Railroad Economic Belt. To support its geopolitical and geoeconomic objectives, the Chinese state has replicated the domestic state-industrial complex. In the context of the Jakarta–Bandung High-speed Rail Corridor, the domestic roles of the National Development and Reform Commission and the China Railway Corporation have been internationalised to ensure the globalisation of China’s high-speed rail industry could be conducted in a concerted and choreographed fashion.

Keywords

a new type of international relations Belt and Road Initiative China economic statecraft high-speed rail export

Introduction

The call for a healthy external environment has been the objective of Chinese foreign policy since the 1970s. While Chinese leaders in the past had been committed to ‘keeping a low profile’ (韬光养晦 in Chinese), the Xi Jinping-led Party-state adopted a new grand strategy of ‘striving for achievement’ (奋发有为in Chinese). This Xi-change called for the building of a ‘new type of international relations’ (新型国际关系 in Chinese) and ‘a community with a shared future for mankind’ (人类命运共同体 in Chinese). In Xi’s report to the 19th National Party Congress, those two foreign policy goals were enshrined as the historical missions of the Chinese Communist Party (CCP). In the same speech, Xi (2017) also announced the Belt and Road Initiative (BRI) as a national strategy and the ‘coordination of the domestic and international situations’ (统筹国内国际两个大局 in Chinese, or the ‘two coordinations’ in short) as an important way to achieve those international objectives.

In 2015, the National Development and Reform Commission (NDRC), the Ministry of Foreign Affairs (MOFA), and the Ministry of Commerce (MOC) jointly published the Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road. The document explained the purpose of the BRI as the promotion of win-win co-operation, common development, and prosperity. To achieve those lofty goals, Xi Jinping told his comrades at the 19th National Party Congress that China must ‘give equal emphasis to “bringing in” and “going global” . . . [and] . . . make new ground in opening China further’ (Xi, 2017). Prior to Xi’s (2017) speech, the Chinese state had already begun to use its powers to create opportunities for its centrally owned state enterprises (SOEs) to penetrate foreign markets. By December 2014, China had recentralised the export of its high-speed rail (HSR) industry by internationalising the domestic coordinating capacities of the NDRC and the China Railway Corporation (CRC). The choreographing of HSR export, along with the China Railway Express and other overseas railway projects, culminated in the coining of the Railroad Economic Belt (REB).¹

This article tries to answer the following analytical questions. First, why did the Chinese state decide to recentralise the export of China’s HSR industry, and who were the main drivers behind this round of recentralisation? The absence of a central coordinating body between 2011 and 2014 allowed SOEs in the railway non-transport sector to export China’s HSR industry in a decentralised manner. Second, what was the new structure of China’s HSR export? And third, how was the new structure put in motion? This article adopts the economic statecraft perspective to answer those questions.

The Jakarta–Bandung HSR project was chosen to be the case study, among other similar cases. It was the flagship project as Indonesia became the first country to adopt all aspects of the ‘China Standard’. Despite China’s global reach in the export of its HSR industry, the same export structure has been applied consistently, including the Bangkok–Nong Khai project and the Vientiane–Boten project. Therefore, selecting this flagship project has the potential to generalise the roles, responsibilities, and actions of major stakeholders across China’s overseas HSR projects. This choice fits with the methodological orientation of matching politics on the ground with theories of economic statecraft.

In addition to primary and secondary sources, 14 interviewees were recruited through the snowball method during my fieldwork in China, Japan, and Indonesia between 2017 and 2019. Some of them served in Indonesian and Japanese government agencies, and Chinese, Indonesian, and Japanese railway operators and research institutes. Most of the interviewees were directly involved in the development and export of HSR in those three countries. Interviews are coded throughout the text. For example, SN22TF18 indicates an interview conducted with TF on 22 November 2018.

There have been several studies on the Jakarta–Bandung project, as scholars have highlighted the significance of railroads from the perspectives of geopolitics and hegemony. For example, Wu and Chong (2018) examined the implications of ‘developmental railpolitics’ and concluded that the Jakarta–Bandung project aimed to improve Sino-Indonesian economic ties. Similarly, Yu (2017) argued that Southeast Asia served as an anchor for the implementation of the BRI. Scholars also situated the project in the broader context of Sino-Japanese competition in Southeast Asia. Although such competition could benefit recipient countries (Jiang, 2019; Zhao, 2018), unchecked competition might lead to a race to the bottom (Pavlicevic and Kratz, 2017). In light of geopolitical and geoeconomic rivalry, there could be space for co-operation between China and Japan (Yoshimatsu, 2018). Pavlicevic and Kratz (2018; Kratz and Pavlicevic, 2019) also examined China’s HSR export vis-à-vis changes in the extant international order and developmental norms. They concluded that the China threat theory was insufficiently grounded, and ‘meeting halfway’ could be the likely outcome in the context of normative shifts. This article adds to this body of literature by highlighting the structure of China’s HSR export, which has been largely overlooked or insufficiently explained (see Kratz and Pavlicevic, 2016).

This article is divided into five sections, inclusive of the introduction and conclusion. The following section sees Xi Jinping’s ‘new type of international relations’ as an essential part of China’s grand strategy. It also discusses the BRI as a form of economic statecraft. Section ‘Institutional changes resulting from the Xi-change’ analyses the actors and factors behind some of the ensuing policy and institutional changes. The fourth section explores the effects of institutional and policy changes on the implementation of the Jakarta–Bandung HSR project. The concluding section discusses some international implications of Chinese economic statecraft.

Chinese economic statecraft

Economic statecraft is a practice through which noneconomic ends are achieved through economic means, such as a state’s use of economic tools to achieve geopolitical and security objectives (see, for example, Baldwin, 1985; Drezner, 1999; Kelton, 2008; Kunz, 1997; Mastanduno, 1998). Scholars such as Alves (2013), Brautigam and Tang (2012), Gallagher and Irwin (2015) and Zhang and Keith (2017) have applied the concept in their examination of China’s pursuit of geopolitical and geoeconomic goals. Chinese economic statecraft could result in increased geopolitical influence and interference in other countries’ domestic structures (Reeves, 2015; Urdinez et al., 2016). Norris (2016: 13) links economic statecraft with a state’s grand strategy and does so by operationalising China’s mobilisation of its commercial actors to ‘capitalise on, reinforce, or reduce the associated strategic externalities.’

Norris (2016) posits two explanations on how the Chinese state controls a monopoly: goal compatibility and direct central attention. This article operationalises the latter explanation by unpacking the hierarchy of policy actors and examining the implementation structure in motion. By doing so, this article helps understand the unfolding processes behind the implementation of the BRI from a state-centric perspective. The main argument is that the Xi-change in grand strategy, with a focus on the two coordinations, led to the recentralisation of decision-making in the export of China’s HSR industry. Recentralisation was achieved through a careful replication of the state-business relations found in the domestic railway sector. Senior Chinese leaders lamented the cut-throat competition between Chinese SOEs in the international market and, therefore, jettisoned the decentralised style of HSR export. In the process, the CRC regained its coordinating capacity in the export of the ‘China Standard’ (中国标准 in Chinese) of HSR development.

The domestic sectoral structure has been characterised as ‘vertically integrated’ (网运合一 in Chinese) and ‘construction-operationally integrated’ (建运合一 in Chinese), and it consists of three levels of actors. On top, the NDRC serves as the macro decision-maker responsible for approving national railway planning, including HSR development, and the sectoral multi-year programme. The sectoral Medium- and Long-Term Railway Programme ‘rarely changes once approved’ as the central commission integrates it with the state’s broader development strategies (Lawrence et al., 2019: 2). In the middle, the CRC, a statist monopoly in the transport sector, serves as the sectoral coordinator in executing national plans. The central corporation drafts national development plans, establishes technical specifications, and coordinates the construction, maintenance and operation of China’s HSR network. At the bottom, non-transport SOEs, such as the CRRC Corporation, the largest rolling stock manufacturer in the world, the China Railway Engineering Corporation (CREC), and China Railway Signal and Communication Corporation (CRSCC) are mere implementing agents. The CRC utilises both organisational and market leverage to overcome principal–agent frictions. Indeed, the central corporation could ensure compliance by threatening to suspend the procurement of services from those non-transport SOEs.

In the export of China’s HSR industry, senior state leaders, such as Xi Jinping and Li Keqiang, act as ‘global salesmen’ to create opportunities by establishing bilateral developmental projects (Kratz and Pavlicevic, 2016). The NDRC then moves to settle framework agreements with foreign countries. Finally, the CRC implements those framework agreements through its international arm – the China Railway International Corporation (CRIC). This hierarchy allows the NDRC to interface with and manage the CRIC to implement the state’s agenda, without the need to go one level down and negotiate with several non-transport SOEs.

It is also worth highlighting the difference between HSR export with the export of high-speed trains and railway civil engineering. China’s HSR industry and the ‘China Standard’ consist of six interoperable engineering platforms: civil engineering, rolling stocks, traction and electrification, signal and telecommunication, operation and dispatch, and passenger services. Thus, HSR export refers to the export of those six engineering platforms as one package. Recentralisation in HSR export does not mean that SOEs in the non-transport sector cannot continue to export parts of the system in a decentralised manner.

Building a new type of international relations

Goldstein (2005: 19) sees grand strategy as a ‘central logic that informs and links those policies [military, economic, and diplomatic], the regime’s vision about how it can most sensibly serve the nation’s interests (goals) in light of the country’s capabilities (means) and the international constraints it faces.’ Chinese foreign policy from the late 1980s to the early 2000s anchored on the grand strategy of ‘keeping a low profile’. Terms such as ‘peaceful rise’ and ‘peaceful development’ were coined to describe China’s international behaviours – increase China’s global presence without being viewed as a ‘revisionist’.

The Xi-change occurred as China began to pursue a more assertive foreign policy stance (SN22TF18). Under Xi Jinping’s leadership, China adopted a ‘comprehensive, multilevel, multidimensional foreign policy outlook to create a healthy external environment for China’s development’ (Yi, 2017). As early as March 2013, Xi expressed his intention for China to become an active participant and a constructive reformer of the existing global governance system. Xi reiterated this stance at a politburo’s collective study session on the structures and orders of the existing global governance system in October 2015. At the session, Xi argued that China should play a leadership role in ‘promoting a more just and fair global governance system’ (Xinhuanet.com, 2015).

Cultivating ‘a new type of international relations’ gradually became a prominent feature of the Xi-change. According to Xi Jinping, the new type is different from the existing international order. The new type aims to achieve peace, development, co-operation, and mutual gain by coordinating the domestic and international situations, development and security, and by following the path of peaceful development and the great rejuvenation of the Chinese nation (People.cn, 2014). In his speech at the 19th National Party Congress, Xi (2017) asserted that the CCP had a historical and abiding mission to ‘strive for human progress [, and] make new and greater contributions for mankind’. Xi’s speech signalled that China would and could play a mobilising role in international affairs.

At the Third Plenum of the 18th National Party Congress, Xi Jinping officially elevated the BRI as a national strategy. The BRI was also promoted as the primary carrier of ‘a community with a shared future for mankind’ at the 19th National Party Congress. The Vice Minister of Finance, Zou Jiayi, defined the BRI as a developmental initiative based on market mechanisms with a focus on infrastructure development, at the 2018 World Bank and International Monetary Fund Annual Meetings. As an initiative that links domestic economic (over)capacity with international markets, the BRI entails domestic economic achievements as well as the fulfilment of China’s role as a responsible great power.

On 7 January 2018, a front-page editorial of the Guangming Daily described the BRI as the culmination of China’s outlook on development. The BRI converges with China’s ‘new type of international relations’ on the aspects of peace, development, co-operation, and mutual gain (Yu and Cao, 2018). The initiative also bears important domestic implications as many changes have been promoted by the Chinese central planners to better coordinate domestic production and international competition. The overarching theme of those changes could be broadly described as ‘coordinating the domestic and the international situations’ (Xu, 2015). Indeed, the NDRC’s Chairman Xu (2015) argued that the BRI could open up China and Belt and Road countries by promoting common development.

The two coordinations and the BRI

In the politburo’s third collective study session in 2013, Xi Jinping emphasised that China’s development and global development must be linked together. Xi also stressed the importance of keeping domestic development and opening to the outside abreast and argued that the ‘two coordinations’ was the bedrock of Chinese foreign policy. Domestic coordination must serve to realise the ‘China Dream’ and the ‘Two Centenary Goals’, and international coordination must strive to establish healthy external conditions against which China can steadily develop (People.cn, 2013). Coordination has been practised in three aspects. First, China has allowed neighbouring countries to free-ride on its economic development. Second, China has shared its development experiences with the global south. Third, China has used its comparative advantage to open up international markets (W24ZSJ18). Thus, the ‘two coordinations’ became a salient way to solve China’s industrial overcapacity by linking domestic economic actors with international markets.

In 2015, the concept of the ‘two coordinations’ became a guiding practice for the building of a moderately prosperous society and promoting sustainable economic growth. It was also integrated into the 13th Five-Year Plan (FYP), which argued that China must keep in mind the connectivity between the domestic and the world economies, respond proactively to changes in the external environment, and make better use of both domestic and international markets and resources. This line of thinking was emphasised again in Xi Jinping’s report to the 19th National Party Congress.

The CCP’s Party Central Committee and the State Council also published a document on the establishment of a new open economic system in 2015. Senior leaders believed that such a new system was an inevitable requirement for sustainable growth. They also argued that ‘the mutual promotion of coordinating domestic development and participating in global governance’ was an overall requirement in a globalised world (Gov.cn, 2015). Therefore, the domestic economy must borrow, co-operate, and interact with the global economy to meet (1) the new demands of globalisation, (2) the new requirements and norms of economic development, and (3) the expectations of the international society (Han, 2015). Against this backdrop, coordination was defined as the careful management of four sets of relationships: between the domestic economy and opening to the outside, China’s advantage and international conditions, self-management and fulfilling international responsibilities, and domestic development and the common development of the world (Han, 2015).

According to Xu (2015), the ‘two coordinations’ manifested in China’s actions to improve the existing global governance system, accelerate the implementation of the BRI, and foster regional economic co-operation. The ‘two coordinations’ emphasises on the capacity of the Party, which plays a centralising role to strengthen and coordinate the opening of China, including the CCP, various levels and organs of the Chinese government, and non-government actors, to the outside (Yang, 2019). The BRI was thus promoted as the practical culmination of Xi Jinping’s understanding of China’s relationship with the world.

As early as 2013, Xi Jinping was already looking for ways to promote sustainable economic growth by investing in international markets (SN22TF18). Norris (2016) correctly pointed out that Chinese SOEs became important actors of Chinese economic statecraft. Under the arrangements of the BRI, the control of SOEs, especially their overseas business activities, became a priority for the Chinese state (SR18NM18). Indeed, the export of the ‘China Standard’ of HSR development became a hallmark of China’s diplomatic missions to Belt and Road countries and other parts of the world. Terms such as ‘railway diplomacy’ were coined to highlight the prominence of the railway sector as Chinese leaders actively sought to globalise its HSR industry. China sees such globalisation as ‘a matter of political and economic policies of national governments’ carrying geopolitical and geoeconomic implications (Wu and Chong, 2018: 508). Geopolitically, HSR export could help forge durable bilateral relationships. Geoeconomically, standard-setting could externally legitimise a state and liberalise trade (Eroglu, 2017; Mattli and Buthe, 2003; Simmons, 2001).

Against this backdrop, the Chinese state prioritised the export of the ‘China Standard’ over high-speed trains and railroad infrastructure. The export of the latter means compliance with the established technical specifications of the recipient country at a higher cost. For example, the Inonu and Pendik Railway, a part of the Ankara–Istanbul High-speed Railway, took the China Railway Construction Corporation (CRCC) and its three additional partners 8 years to complete. A majority of the time was spent on harmonising all aspects of China’s railway civil engineering with technical specifications outlined by the European Union, including signal and telecommunication and tracks and track bed (Xu, 2016a). Contrastingly, standard-setting could ‘lock in favourable technological condition to thwart competition from others’ (Wu and Chong, 2008: 508). The application of the ‘China Standard’ in Indonesia could establish China’s position as a rule-maker in the country’s HSR system. As a result, China’s peer competitors from Japan and Europe must comply with its operating standards if they wish to connect with the Jakarta–Bandung corridor. Thus, a consensus has been reached among senior Chinese leaders and commercial actors, that the commercial activities of the latter must serve the developmental and international strategies of the former (Vantuono, 2019).

In an attempt to organise the railway sector’s overseas HSR activities, the state merged two domestic rolling stock manufacturers and created a separate platform-building SOE – the CRIC. The once decentralised arrangement in China’s HSR globalisation was recentralised to foster a concerted effort in penetrating international markets. Such a ‘concerted effort’ has become a marked feature of Chinese economic statecraft, as it entails the state’s active alignment of interests and goals with its commercial actors. In the Jakarta–Bandung case, it appeared that implementing agents were held on a short leash as they had limited space to deviate away from the NDRC’s directives. The commission carefully scrutinised the implementation process.

Since the introduction of the BRI, the Chinese railway sector, under the sectoral coordinator, the CRC, has been aggressively expanding its overseas activities. More impressively, Chinese consortiums, led by the CRIC, have outbid international competitors on the global HSR market. Since the Reform and Opening, the Chinese HSR industry ‘could be considered as the only strategic industry, based upon indigenous innovation, that had the potential to change the international and domestic political-economic landscape of the 21^st century’ (Xu, 2016b). The newly developed China Standard Electric Multiple Unit (CEMU) has become the leading fleet of high-speed trains demonstrating China’s technological prowess.

Institutional changes resulting from the Xi-change

Although the idea of ‘the two coordinations’ had appeared in Hu Jintao’s speech to the 17th National Party Congress in 2007, profound institutional and organisational changes only took place under Xi Jinping. Under the Hu-Wen administration, governmental coordination focused on five areas – urban development, regional development, socio-economic development, the domestic and international situations, and the harmonious development between humanity and nature. Yet, under the Xi administration, coordinating the domestic and international situations became the main driver of a new open economic system and the BRI (Xu, 2015). Several institutional changes were made to strengthen ‘top-level design’ and the central government’s control over its SOEs. At the state level, those changes were mainly reflected in the internationalisation of the NDRC. In the railway sector, the CRC regained its coordinating capacities in the export of the Chinese HSR industry.

At the 2013 Central Economic Work Conference, the top leadership requested the drafting of a strategic plan concerning infrastructure and maritime connectivity and the implementation of the BRI (Gov.cn, 2013). Together with the Ministry of Finance (MOF) and People’s Bank of China, the NDRC submitted a report to the Central Economic and Financial Leading Group in November 2014. At the eighth meeting of the leading group, commenting on the report, Xi Jinping called for a greater opening to the outside and argued that the Chinese economy was undergoing a significant transformation from ‘bringing in’ to ‘going global’. More importantly, Xi asserted that the central government must also maintain its coordinating capacity to manage its relationship with commercial actors (Gov.cn, 2014). As a result, the BRI’s Steering Group was created in February 2015 to supervise and guide the implementation of the initiative. Senior leaders also decided to place the group’s Executive Office in the NDRC and appointed the commission’s Chairman, Xu Shaoshi, as the Managing Director. The office oversees and coordinates the implementation of the BRI with relevant ministries.

The establishment of the Steering Group was one of the three national initiatives created to coordinate the BRI. The second initiative internationalised the NRDC’s coordinating capacities. In the 13th FYP, the commission was tasked to ‘promote mutual gain in neighbouring countries’ and create a platform on which eastern and western parts of China could connect with foreign countries via land and sea (NDRC, 2016). The third initiative redesigned the ‘going global’ of Chinese SOEs. To better serve the BRI, China has streamlined the application and administrative processes for SOEs to invest overseas. Prior to the streamlining, application to and approval from the MOF, MOFA, and MOC, and State-owned Assets Supervision and Administration Commission (SASAC) had to be obtained before engaging in overseas business activities. Under the BRI, this process was streamlined so that an SOE would only need to apply to the NDRC for funding approval. Additional applications could be made to other relevant state ministries for record-keeping purposes (SR18NM18). For example, the China Energy Engineering Corp’s US$1.87 billion thermal power plant project in Hai Duong, Vietnam, was sanctioned by the NDRC while also kept on file in the SASAC, the MOF, and the MOC (Yan, 2018). The NDRC and the SASAC are also working on a new evaluation scheme to tighten the regulation of SOEs’ overseas business activities (SR18NM18).

The commission’s role in guiding, supervising and serving overseas investment has been institutionalised under the Administrative Measures for Approval and Record-filing on Overseas Investment Projects. In the 2014 version, the NDRC has the power to approve overseas investments worth more than US$1 billion. Projects worth more than US$2 billion need to be approved by the State Council under the commission’s recommendation. Overseas investment between US$300 million and US$1 billion must be kept on the NDRC’s files. In addition, overseas investments in sensitive industries, such as telecommunication, cross-border water resource development, and large-scale land development, must apply for the commission’s approval regardless of the amount. In the most recent version, the commission no longer needs to report to the State Council concerning overseas investment, as it can make the appropriate approval by itself, regardless of the amount. The commission’s Foreign Capital and Overseas Investment Department is responsible for directing both the inflow and outflow of capital under the BRI (Investment in China, n.d.; NDRC, n.d.).

In partial fulfilment of those tasks, in 2015, the NDRC mandated its administrative departments, bureaus, and subsidiary work units to co-operate on the implementation of the ‘three big strategies’ (三大战略 in Chinese), which included the BRI. The other two strategies were the integration and coordinated development of Beijing, Tianjin, and Hebei and the development of the Yangtze River Economic Belt. The move to place those strategies under the commission, together with a changed mandate and a newly gained role as an ‘export coordinator’, signalled the state’s commitment to developing the Chinese economy through the expansion of the BRI.

In 2018, the State Council announced a restructuring programme that left the NDRC bereft of its micromanaging capacities. Notable transfers of authorities include price supervision and anti-monopoly law enforcement to the new State Administration for Market Regulation and emission reduction oversight to the new Ministry of Ecological Environment (Yong, 2018). However, despite those changes, the commission’s core functions as a macroeconomic manager and medium- and long-term planner were not eroded. The off-loading of those microeconomic responsibilities could be viewed as a way to concentrate the commission’s efforts in managing the two coordinations and pay greater attention to overall planning.

These initiatives are broadly in line with what other scholars have observed in the implementation of the BRI under Xi Jinping – a disposition towards ‘top-level design’, if not power centralisation (He, 2019; Pauls and Gottwald, 2018; Rolland, 2019; Wong, 2019). Admittedly, provinces and commercial actors do play important roles in the process (see Jones and Zeng, 2018; Wong, 2018). Power concentration under Xi remains irrepressible as senior leaders called for a top-down process in connecting the domestic economy with peripheral countries, at the Third Plenary of the 18th National Party Congress.

In addition to the internationalisation of the NDRC, senior leaders also made significant changes to the railway sector. After the reform of the Ministry of Railways (MOR) in 2013, the central government drafted two strategies to strengthen the said sector’s international competitiveness (L27HA18). The first strategy called for the establishment of a unified and centralised SOE dedicated to facilitating the export of China’s HSR industry. By merging existing state firms, the new SOE could strengthen sectoral competitiveness through economies of scale. Under this arrangement, the central government would play a crucial role in overcoming the fragmentation of interests and herding actors towards a common direction. The second strategy called for the creation of a sectoral association responsible for (1) helping the state negotiate with SOEs and (2) assisting SOEs to serve the state’s bigger developmental agenda. Regional and local railway associations could be merged into one national programme, which would play a similar role to that of the Japan Overseas Railway System Association (L27HA18).

The destructive events in Argentina in 2013 provided the crucial catalyst as Chinese leaders reinstated a monopolistic structure in the export of China’s HSR industry. Before recentralisation, between 2011 and 2014, HSR globalisation had been done in a decentralised manner. The fall of the Minister of Railways, Liu Zhijun, in 2011, resulted in the dismantling of the MOR’s International Project Coordination Teams. Sixteen teams were established in 2009 to coordinate the ministry’s overseas HSR activities, including the building of three HSR corridors in Central Asia, Europe, and Southeast Asia (Lu, 2016). Each team was assigned to facilitate HSR export in one particular region, including the United States, Brazil, Venezuela, India, Iran, and Pakistan (Lu, 2016). Those teams were also established to curb internal competition over international projects as the MOR divided the international market among non-transport SOEs. Under this centralised arrangement, Argentina was awarded to China North Rolling Stock Corporation (CNR) (Sina, 2013).

The dismantling of those international teams resulted in a power vacuum. Non-transport SOEs looked to globalise China’s HSR industry independently and aggressively. Vicious and excessive competition between rolling stock manufacturers and civil engineering firms became egregious for Chinese leaders. Disaffected by China South Rolling Stock Corporation’s (CSR) ‘invasion’ into Argentina, the CNR formally complained to the China Chamber of Commerce for Import and Export of Machinery and Electronic Products. In the letter, the CNR reproached the CSR for engaging in cut-throat competition and highlighted that the CSR’s proposal to the Argentinian government had included a large price-reduction from the original of US$2 million per train to US$1.27 million (PeopleRailcom, 2014).

In light of vicious internal competition, the central planners decided to merge the two rolling stock manufacturers to create the CRRC Corporation. Premier Li Keqiang asked Vice-Premier Zhang Gaoli to study the CNR’s complaint. Zhang then assigned the task to the NDRC. In light of the Made in China 2025 Programme, the top-level design concerning the merger ‘became connected with the national strategies’ to facilitate the globalisation of the HSR industry (Huang, 2018: 160). Concurrent with the announcement of the merger, on 30 December 2014, the commission also announced the creation of the CRIC. The role of the new corporation is to facilitate and coordinate HSR export. Institutionally, the new corporation represents the CRC in international negotiations, and acts as the platform builder and organiser for overseas HSR projects. Administratively, it supervises and coordinates non-transport SOEs’ global HSR activities. The CRIC’s legitimate leadership comes from the duo appointment of its Chairman, who also serves as the CRC’s Associate Chief Engineer. The vertically integrated model of the domestic railway structure allows holders of this position, such as the ‘Father of Chinese HSR’ Zhang Shuguang, to coordinate sectoral production. Thus, internationalising the position warrants effective control of overseas actors, some of which are of higher administrative ranks.

With the creation of the CRIC, the Chinese state has effectively replicated its domestic railway development structure in the globalisation of China’s HSR standards. As the domestic macro decision-maker, the NDRC’s international role focuses on settling framework agreements with foreign countries concerning the contents of HSR export. Those framework agreements include the degree of technology transfer and terms of Chinese loan. The domestic coordinating capacity of the CRC has been extended to organise HSR export and execute those agreements through its international arm. Several departments of the commission, such as the Department of Basic Industries and its Railway Division, also work with the central corporation for project implementation.

In 2017, the NDRC, the Ministry of Transportation (MOT), the National Railway Administration (NRA), and the CRC jointly published the Railway Developmental Plan during the 13th FYP. The plan saw the sector as a national priority promoting the BRI (NDRC, 2017: 6). The plan also reemphasised centralisation and coordination. Three strategies were identified to improve infrastructure connectivity and overseas railway construction, under the BRI. First, the sector must continue to coordinate the domestic and international markets and resources. The ‘going global’ of the sector must be comprehensive and all-encompassing and focus on climbing the global value chain. Second, the sector shall increase its international influence by setting and amending international standards in railway logistics and HSR. Finally, the sector must improve the service quality of and transform the China Railway Express into an important platform of the BRI (NDRC, 2017: 18–20).

The internationalisation of domestic economic planners’ coordinating capacities could be argued as a form of economic statecraft. The reorganisation of HSR export and the strengthening of the CRC’s international coordinating capacities show that senior leaders have entrusted the central corporation to pursue the state’s geopolitical and geoeconomic interests. As a result, the corporation has fully utilised its monopolistic market position in the domestic economy to manage the ‘going global’ process. In an internal meeting in 2017, high ranking cadres from the CRC congratulated themselves as they ‘had achieved new developments’ in their service to the BRI.

The Jakarta–Bandung HSR project

‘Making more friends’ in Southeast Asia and connecting Southeast Asian countries via the BRI have become China’s foreign policy priorities (SR13CBL18). However, China’s limited influence in the region has also been controversial. Some states, especially those with territorial disputes with China, became restive as a result of China’s increasingly assertive posture. Therefore, Indonesia became an ideal breakthrough for China to expand its sphere of influence through infrastructure financing. The Jakarta–Bandung project also marked the beginning of Sino-Indonesian co-operation on railway development (SR17CJY18). China hoped to forge a durable bilateral relationship and turn Indonesia into an exemplar for other Southeast Asian countries who might be interested in joint infrastructure development. In addition to foreign policy considerations, this project also marked the beginning of a centralised organisation and supervision in China’s HSR export. As the flagship project for China’s HSR export and the BRI in Indonesia, the Jakarta–Bandung project has received special attention from CCP’s Party Central Committee, and the NDRC and the CRC’s general Party committees (SR19KCJ18).

The Indonesian leadership also welcomed China’s infrastructure financing. Since the beginning of his presidency, Jokowi has been searching for ways to improve connectivity and realise the goal of becoming a major maritime power (SR17CJY18). After winning the election, Jokowi published the Nawa Cita programme, which called for an upgrade of Indonesia’s decrepit railway infrastructure. The Indonesian president believed that an HSR corridor between Jakarta and Bandung could become an important part of his long-term plan, as the project was about ‘vision looking far ahead beyond the condition today’ (SR19KCF18).² Jokowi also believed that the project could become the ‘backbone for industrial development, trade, supporting human movement, and tourism [. . .] that enables the optimal mobilization of people and goods’ (SR19KCF18).

Thus, the two developmental strategies, the BRI and Indonesia’s Global Maritime Fulcrum, converged (Damuri et al., 2019). The newly created Indonesian Maritime Ministry undertook the responsibility to coordinate projects that fall under the BRI in Indonesia (SR17CJY18). Such convergence also led to the decision to import the complete package of the ‘China Standard’. All six interoperable platforms of China’s HSR industry would be applied in the construction and operation of the Jakarta–Bandung corridor. Despite being a business-to-business project, the Sino-Indonesian consortium responsible for the project, the Kereta Cepat Indonesia China (KCIC), has been under heavy scrutiny from both governments. The consortium provides monthly reports and regular updates to the Indonesian Ministry of State-Owned Enterprises (MSOE), the NDRC, and the CRC. The KCIC operates under consistent governmental pressure to accelerate the construction process, as Jokowi has sacked two KCIC president directors due to slow progress (SR19KCJ18).

Indonesia’s HSR programme began in 2008 when the Japanese government was invited to conduct a feasibility study on a possible corridor between Jakarta and Surabaya. However, the Japan International Cooperation Agency (JICA) and the Japanese Ministry of Land, Infrastructure, Transport, and Tourism’s (MLIT) feasibility study concluded that a 700-km corridor between the two largest Indonesian cities was neither suitable nor feasible. State intervention and budget guarantee up to 2.1 trillion JPY would be needed to complete the project. As a result, the Indonesian government ‘requested the Japanese government to conduct [a] more practical study’ on two alternatives: Jakarta to Bandung and Bandung to Cirebon (Yachiyo Engineering Co., Ltd., 2012).

In 2012, Japan’s Ministry of Economics, Trade, and Industry (METI) proffered another feasibility study to the Indonesian government. The METI’s study drew inspiration from the Master Plan for Acceleration and Expansion of Indonesia’s Economic Development, which focused on building economic corridors on Java and improving road and railroad connectivity between the metropolitan areas of Jakarta (Jabodetabek) and Surabaya (Gerbangkertosusila). However, the METI prioritised the development of Jabodetabek and nominated to construct an HSR corridor between Jakarta and Bandung. According to the study, the cost of the Jakarta–Bandung–Cirebon corridor would be 726.37 billion JPY. In light of the high cost, the estimated economic internal rate of return was 13.6% – a favourable rate that could benefit the Indonesian national economy (Yachiyo Engineering Co., Ltd., 2012). The Indonesian government once again delayed the project as a national debate took place concerning the necessity of an HSR programme in Indonesia, in light of the high cost.

After winning the 2014 election and unsatisfied with the previous studies, Jokowi decided to put the Jakarta–Bandung HSR project on the fast track and invited China for help. On 6 March 2015, Xi Jinping met with Jokowi in Beijing. Xi expressed China’s interest as an active participant in Indonesia’s infrastructure development. In their conversation, Jokowi also invited Chinese companies to invest in Indonesia’s HSR programme. After the meeting, Xi and Jokowi witnessed the signing of the Memorandum of Understanding on Co-operation on the Jakarta–Bandung High-Speed Rail Project between the NDRC and the MSOE. The two state organs agreed to co-operate on the construction of an HSR corridor between Jakarta and Bandung. The NDRC pledged to allocate US$5 million to complete a feasibility study of the project before 20 July, while the MSOE would supply all the necessary information to facilitate the drafting process.

On 22 April, Xi Jinping visited Jakarta and witnessed the signing of a US$6 billion project on Sino-Indonesian railway co-operation. On the same day, the NDRC also signed another co-operation framework on the Jakarta–Bandung project with the MSOE. Immediately after, the NDRC requested the CRC to draft a feasibility study to be presented to the Indonesian government. To facilitate the process, the NDRC commissioned a 90-day research trip in Jakarta so that engineers from the central corporation’s Third Railway Survey and Design Institute (CRDC) could conduct the necessary fieldwork (Wang and Li, 2018).

The NDRC’s Planning Department and Foreign Capital and Overseas Investment Department worked with the CRC and the CRDC in preparing the final version of the feasibility study (W25JW18). After 3 months of evaluation and fieldwork, the aforementioned parties drafted a proposal that included a comprehensive transfer of the ‘China Standard’ to Indonesia (An, 2015). The Planning Department approved to purchase local construction material and employ local staff up to 60% of the entire operation. The CRRC was also asked to probe the possibility of establishing a rolling stock plant in Purwakarta, a town located between Jakarta and Bandung. The ultimate goal of the project was to access the Indonesian market and develop the Association of Southeast Asian Nations (ASEAN) market with Indonesia (An, 2015).

In August, the NDRC’s Chairman Xu Shaoshi revisited Indonesia and proffered the feasibility study to Jokowi. Xu also met with several key stakeholders in the Indonesian government, including Vice-President Jusuf Kalla. After his meetings, Xu held three press conferences and presented the study to the Indonesian press. Those moves were designed to lobby key Indonesian stakeholders and influencers by highlighting the socio-economic benefits of HSR development. After Xu’s visit, the CRC also held a weeklong exhibition in Jakarta to showcase China’s technological competence. Such efforts were engineered to assuage opposing politicians, academics, and reporters’ negative beliefs on Chinese overseas infrastructure financing (Zhao, 2016). Those beliefs reputed that Chinese firms only closed the deal with Indonesia without taking profit margin, technology, and local environment into consideration (SN2MS17).

After Xu’s visit, the NDRC mandated the CRIC to create a Chinese consortium to interface with the Indonesians. Upon receiving the request, the CRIC, based on the instructions from its parent company, handpicked four additional SOEs to participate – the CREC, CRRC Sifang, Sinohydro, and the CRSCC (SR19KCJ18). As the organiser and platform builder, the CRIC has the most voting power and a dominant number of shares and is responsible for leading, pushing, and supervising the entire project, despite limited monetary investment (SR19KCJ18). At the same time, an Indonesian consortium, PT Pilar Sinergi BUMN Indonesia, was created under the leadership of PT Wijaya Karya (Persero) Tbk. The Indonesian consortium helped facilitate the bidding process and prepared the Chinese consortium on the Indonesian market and its competitors (SR19KCF18).

On 16 October, the Sino-Indonesian consortiums signed a formal agreement to establish the KCIC and proceed with the Jakarta–Bandung project. Upon hearing this news, Japan expressed its deep frustration and disappointment, as some Japanese railway engineers threatened to sever railway co-operation with Indonesia altogether (SR17YR18; SR19KCF18). Indeed, while poised to win this project from the Chinese, Japanese railway operators were left chagrined as they stood firm and pushed for government-to-government co-operation. The Chinese side did not succeed with ease. The NDRC had significantly altered the traditional Chinese practice of infrastructure export – seeking profit from infrastructure building without considering the broader economic impacts. As a result, the NDRC and the CRIC pushed to co-share the HSR corridor with the Indonesians for 30 years. The Indonesians would hold 60% of the shares, while the Chinese held 40%. This meant that the Chinese team was willing to share the risks and operate the corridor with the Indonesians by forming ‘a community bound by interest and fate’ (Zhao, 2016).

Concerning the smooth transfer of the ‘China Standard’, the NDRC organised three training sessions at Beijing Jiaotong University between 2016 and 2019. The commission asked the CRC to manage those sessions and invite Indonesian engineers, technicians, and staff to participate (SR19KCF18). The shared focus of those training programmes was on the application of China’s HSR standards in Indonesia. The first session focused on familiarising the Indonesian delegation with the technological, operational, and legal aspects of China’s HSR industry. The delegation split time between course work at Beijing Jiaotong University and fieldwork in the MOT, the NRA, and the CRC. The second session was oriented around network construction and rolling stock manufacturing. Indonesian contractors visited non-transport SOEs such as the CREC and CRRC. The third session focused on passenger service and ticketing (SR19KCF18).

In addition to monthly reports, the NDRC monitored the implementation process by parachuting work teams to Jakarta, from Beijing. Between 2016 and 2019, the commission sent four delegations, all accompanied by the president of the CRIC, to investigate project implementation and push for orderly construction. In 2017, Li Xuedong, the Associate Director of the commission’s Department of International Cooperation and the Director of the Steering Group’s External Affairs Team, met with relevant implementing agencies in Jakarta. Li reminded those agencies that the project ‘had caught the attention of the world [so they] must work to garner support from the Indonesian society’ (Power China International Group, 2017). In 2019, Associate Director Li Bin, from the same department, also visited Jakarta to ‘coordinate and solve implementation problems’ and accelerate the pace of construction (Li, 2019).

The Indonesian case showed a clear chain of command and demarcated responsibilities in China’s export of its HSR industry. First, the NDRC pushed HSR export through government-to-government meetings – which resulted in the signing of two framework agreements with the Indonesian MSOE. Second, the CRC and the CRIC, with the commission’s policy support and China Development Bank’s financial backing, negotiated with its Indonesian counterparts on detailed implementation (Shi and Wu, 2017: 137). While the commission remained focused on facilitating HSR export and establishing government-to-government frameworks, it is up to the two sectoral organisers to herd the non-transport SOEs during the implementation phase. This very same structure has been applied in the Lao, Malaysian, and Thai cases. In 2016, the NDRC and Thai Ministry of Transportation signed two agreements concerning HSR co-operation. Similarly, the commission also established and tried to establish framework agreements with the Lao and the Malaysian governments. In the Lao and Thai cases, the CRC and the CRIC played a coordinating role in ensuring that proper domestic firms could be matched with international projects. While the CRIC picked the CREC for the Indonesian project, the Thai HSR project was awarded to the CRCC.

Conclusion and discussion

Under ‘striving for achievement’, Xi Jinping’s externally driven economic statecraft – ‘coordinating the domestic and international situations’ – resulted in a proclivity towards ‘top-level design’ in the implementation of the BRI. As a result, the NDRC has been internationalised to connect domestic economic actors with the international market. The state also used its powers to create opportunities for its commercial actors to win contracts abroad and internationalised the domestic railway structure to choreograph the globalisation of the Chinese HSR industry. The Jakarta–Bandung HSR Corridor was emblematic of China’s new centralised style of HSR export. In the process, the NDRC settled framework agreements with the Indonesian MSOE. The CRC and its international arm served as project managers that oversee and coordinate implementing agencies, including non-transport SOEs such as the CRRC Sifang.

Chinese economic statecraft has been successful in its approach to recentralise the railway sector to serve the needs of the state. Such recentralisation was both archetypal and atypical of China’s management of its SOEs. It was archetypal because of the broader trend in the tightening of control over SOEs’ overseas activities. The concentration of power in the NDRC has also been a dominant theme under the two coordinations. Recentralisation was atypical because of the sectoral structure, which consisted of three levels of actors and a statist monopoly, the CRC, at the second level.

Recentralisation effectively curbed cut-throat competition between Chinese SOEs in terms of HSR export. In addition, by effectively controlling one SOE, the Chinese central planners simplified the internal decision-making, negotiating, and bargaining process. Indeed, the NDRC does not have to interface with other HSR actors individually other than the CRIC, which was created to be the platform builder, organiser, coordinator, and project leader in overseas HSR projects. The CRC’s domestic and the CRIC’s international coordinating capacities allow the NDRC to interface with foreign governments with greater advantage. For example, the commission was able to push to include technology transfer and localisation as parts of the winning bid. These decisions were then implemented by the two sectoral coordinators as they leverage their organisational and market advantages over those implementing agencies.

Chinese economic statecraft, through the Jakarta–Bandung project, aimed to expand China’s geopolitical and geoeconomic influence in Indonesia and Southeast Asia by enhancing inter- and intra-regional connectivity and economic co-operation (Butt, 2016; Shao, 2017). Under this light, China’s ‘high-speed rail investments carry far-reaching implications for the politico-economic development’ along with Belt and Road countries (Chan, 2016: 5). The globalisation of the ‘China Standard’ cannot be viewed independently from China’s active efforts in striving for industrial upgrades, maintaining domestic industrial growth, and expanding its geopolitical and geoeconomic influence. Unlike conventional methods of power diffusion, through formal or informal international institutions, China has been building the sinews of regional hegemony through novel economic means such as infrastructure financing to improve connectivity (Butt, 2016; Chan, 2016).

The Jakarta–Bandung project was designed to be the beginning of durable and comprehensive co-operation between China and Indonesia. However, recent trends might suggest otherwise. Indonesia awarded the Jakarta–Surabaya Medium-Speed Train project to Japan, to ease Japan’s disappointment over losing the Jakarta–Bandung project. This action indicates a kind of economic hedging on the Indonesian part. The broader story of China’s HSR export has not been an optimistic one, as many projects were restricted in Southeast Asia. China’s entry to developed markets has met considerable backlashes from traditional HSR actors from Japan and Europe. The Japanese government, especially, revamped its infrastructure export capacities to respond to China’s growing influence in Southeast Asia. The Japanese government bolstered the role of the Prime Minister’s Office and the Cabinet Secretariat, as they joined Japanese railway operators, suppliers and civil associations to globalise the Shinkansen. For example, the Management Council for Infrastructure Strategy was established to serve as a platform for information exchange and coordination. The Japan Revitalization Strategy and the Partnership for Quality Infrastructure could be viewed as strategic responses to China’s BRI.

Footnotes

Acknowledgements

The field interviews could not have been done without the generous support in providing field contacts from the Indonesian Parliament, South and Southeast Asia and Oceania Bureau from Canada’s Department of Foreign Affairs, Trade and Development, Canada’s Missions to ASEAN and Indonesia, Chinese Missions to ASEAN, China Railway Corporation, China Railway International Corporation, Bank of China (Indonesia), Chinese Chamber of Commerce in Indonesia, Kereta Cepat Indonesia China, Centre for Strategic and International Studies, Guangzhou Railway Group, and Global China Research Foundation. Many thanks to Gregory Chin for introducing the Special Issue as well as Shaun Breslin, Victor Falkenheim, Gregory Moore, Jeremy Paltiel, Jack Snyder, Oliver Turner, and the two anonymous reviewers for their generous comments and feedback. Special thanks to Shaun Breslin and Zhongqi Pan for setting up the Special Issue. All mistakes are my own.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

ORCID iD

Karl Yan

Notes

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