The Politics of Vexed Capital: China’s Railway Projects in Southeast Asia

Alvin Camba develops a conceptual model to explain why certain Chinese overseas projects progress while others get stalled

By Alvin Camba

Why do some Chinese large-scale projects progress while others have been unable to do so? By interviewing political elites, Chinese officials, and members of various social movements, my ongoing research is currently examining four comparable cases of Chinese railway projects in Southeast Asia: South Rail in the Philippines (2017-), Sino-Thai high-speed railway (2013-), High-speed rail (HSR) in Indonesia (2016-), and the East Coast Railway in Malaysia (2016-2018). My preliminary research finds that the continuation or progression of China’s major railway projects depend on the coalition that Chinese actors form with host state actors. The success of these coalitions depend on (1) whether or not they hold the power resources to implement the project, which depend on the institutional structures of the state; (2) or how immediately vulnerable to electoral cycles or political turnover they are, which could usher in a new regime that reneges on the previous agreement with China.

To demonstrate the framework, this blog post focuses on the East Coast Rail Link (ECRL) case in Malaysia, which was started by former Prime Minister Najib Razak, suspended by the new Prime Minister Mahathir, and recently resumed ahead of the 2nd Belt and Road Forum in Beijing. The case is for critics a classic example of a developing country “pushing back” against China’s debt-driven Belt and Road Initiative. But my analysis will show that it is more of a case where a recipient country tries to leverage the BRI for economically viable and politically strategic projects that are with international credibility and domestic legitimacy.

ECRL-Malaysia
The ECRL will link the wealthier Malaysian states to the developing eastern regions. Source: Alvin Camba

In the ECRL case, a political elite coalition between Najib Razak and the Chinese firm (China Communications Construction Company, CCCC) was initially formed, which concentrated power resources in the hands of the United Malay National Organization (UMNO). Even though the project only began in 2016, it has made substantial gains in terms of land acquisition, rail track construction, and project coordination with state governments. Due to the centralization of power in the hands of the federal and state governments, the ECRL has made great progress relative to projects that have started earlier, such as Indonesia’s HSR and Thailand’s Sino-Thai Railway. Some officials of the “Alliance of Hope” (Pangkatan Harapan) attempted to derail the project but Najib’s power resources and UMNO’s control of the government limited these contentious activities.

Nonetheless, since the ECRL started seven years into Najib’s term, the project became very vulnerable to electoral turnover. This made Mahathir and the Alliance of Hope concentrate their efforts on winning the national elections, which capitalized on the 1MDB scandal, and the complicity of Chinese firms to corruption.

Numerous Chinese-financed projects were later linked to a massive rent-seeking venture for Najib. For instance, the MPP Malacca-Johor pipeline and Trans-Sabah Gas Pipeline (TSGP) were most likely used to illicitly transfer funds into the 1MDB fund by overpricing the project cost, which would have burdened Malaysia’s coffers, constraining medium- to long-term benefits and limiting welfare gains.

When Mahathir won the election, the state’s juridical power and political power resources were transferred to the new government. This led to the cancellation of both pipeline projects. However, the Malaysian government needed to compensate the contractors $2 billion USD or 88 percent of the total worth of both projects for just 15% of project’s completion rate.

The ECRL was more difficult to scrap because of the actual economic need to link the wealthier Malaysian states to the developing eastern regions. Furthermore, the Kuantan Industrial Park, which houses the Chinese firm Alliance Steel’s investment that employs locals and generates a multiplier effect on the state’s local economy, stands to benefit from the ECRL’s construction.  These considerations led to the negotiations to bring down to cost by roughly one-third. As of April 2019, the project is back on track.

AlvinGame2
Alvin Camba develops a conceptual model to explain why certain China-financed rail projects progress when others get stalled

The fates of rail projects in three other Southeast countries are all different depending on how a coalition between China and host state actors negotiate their way through political dynamics involving multiple obstructing and rent-seeking local elites. In Indonesia, Jokowi Widodo’s Jakarta-Bandung High-Speed Railway (HSR) started early in his term and China offered better project terms in order to win the deal over Japan. Project timing, limited geographical coverage, and Jokowi’s political position enabled the project to progress. In the Philippines, the project started at the beginning of Rodrigo Duterte’s tenure, forming a coalition between the Duterte administration and the Chinese firm. However, regional-local elites lobbied the Duterte government for train stops in their own provinces. For the elites, economic activity and political gain will cluster cities or province who receive the stop. The Duterte government and the Chinese firm mediated these conflicts, promising livelihood projects and electoral support in return. In Thailand, a coalition between the Yingluk Shinawatra and the Chinese state agreed on a train project in 2013. However, Thailand’s internal political dynamics, particularly Prayut Chan-o-Cha’s coup and the emergence of the military regime, effectively deposed Yingluk and delayed all the major projects. The Chinese government was willing to renegotiate with Thailand, but Prayut wanted better term than the ones that Yingluk acquired. Recently, new terms are being renegotiated.

In sum, the progression and delays of these major railway projects depend on the coalitions that the Chinese government and firms form with host state elites. Contrary to perceptions of China “dictating” tough terms, host countries do have some agency to decide which projects to finance, terms to accept, and conditions to execute.

Alvin Camba is a China Initiative Fellow at the Global Development Policy Center and a Ph.D. Candidate at Johns Hopkins University. He works on the political economy of Chinese foreign capital and elite theory. His works can be found at alvincamba.com

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