Beware Chinese rail companies offering half-price HS2

Hot on the heels of Huawei comes another Chinese offer to help “level up” British infrastructure. Late last week the Financial Times and the magazine Building broke the story that the China Railway Construction Corporation had offered to build HS2 in five years, and at a far lower cost.

What a steal! Or is it?

On Sunday the Transport Secretary Grant Shapps said that the government had not been involved in these discussions. The offer had been made to the company in charge of delivering the new rail network HS2 Ltd.

Given the persistent delays and spiralling costs that are plaguing HS2 the government may well feel tempted to take up CRCC on its offer. After all the company did play a key role in building China’s vast high-speed rail network. It might also be tempting to curry a little favour with China as Britain casts around for new trade opportunities post-Brexit.

Nevertheless, accepting this offer would be a profound mistake. A great deal of ink has already been spilled about the sinister aspects of China’s push to involve itself in infrastructure building across the world – mainly focused on the issue of “debt-trap” diplomacy. While the UK is much less vulnerable to this than say Sri Lanka or Kenya the government should bear in mind that Chinese deals that seem like a bargain often come with hidden costs.

Much more relevant for the UK here is not the issue of debt, but the fact that Chinese companies working on overseas infrastructure projects have a track record of promising the moon, and then failing to deliver. This pattern is particularly pronounced when it comes to rail.

The clearest example of this is in Indonesia. In 2015 the freshly elected President Joko Widodo launched a major infrastructure push. Central to this was a high-speed rail network that would span Java with the first line to run between Jakarta and Bandung. After some fierce bidding the $6 billion contract was awarded to China Railway Group Limited, and was to be funded with Chinese loans. Immediately, delays engulfed every part of the project from land acquisition to the disbursement of the promised loans.

Now five years later construction has just started to get underway, and with the rest of the planned high-speed network cancelled the project will never pay for itself. What was supposed to be a crown-jewel for the government has become an embarrassment ministers avoid discussing. It is no coincidence that for  the next major rail project – a medium-speed railway running between Jakarta and Surabaya – the Indonesian government has decided to work with Japan, Japanese companies having a successful local track record.

The Philippines has a remarkably similar story. In 2016 Rodrigo Duterte swept to power promising not just to murder drug dealers and feed them to the fish of Manila Bay but also to expand the Philippines inadequate infrastructure. Chinese companies, backed by the state, quickly stepped in with a variety of enticing offers. However, come 2020 none of the ten major Chinese-backed infrastructure projects, including the Mindanao Railway and the Subic-Clark cargo train flagship projects, have moved beyond the preliminary stages. Even prominent supporters of China’s investment push have begun to complain. Speaking in New York last year Foreign Secretary Teodoro Locsin complained “We signed up this and that agreement, but they hardly materialised.”

Indeed, not only can contracts with Chinese companies in fact only inaugurate further negotiations they can also suddenly become very inflexible when it suits China. In Pakistan, Prime Minister Imran Khan came to power demanding a review of all the projects associated with the costly China-Pakistan Economic Corridor. Beijing proved profoundly reluctant to countenance renegotiations – and was only willing to review projects which had not yet been started. Many of them have now been cancelled.

Even if the projects are completed that is not necessarily the end of the story. The CRCC built a railway running between Addis Ababa, Ethiopia and Djibouti which was completed despite accusations of land grabs, and China calling in the loans before the project was finished. After all the drama the new trains seem not only to attract relatively few passengers but also function somewhat sporadically.

In every single one of these cases one can plausibly argue that local factors – be they political, economic, bureaucratic, etc – hobbled the projects. Certainly, this is part of the problem.

Yet taken together there is undeniably a pattern of Chinese companies apparently underestimating the difficulties of operating in an environment where opposition to major building projects can’t simply be bulldozed out of the way, sometimes literally. As a result, they have repeatedly over-promised and under-delivered. The British  government must bear this in mind if it finds itself at all tempted to reach for an apparently quick fix.