Hi-Speed Rail Diplomacy: China vs. Japan

Coming to an Asian country near you...or will that be the Chinese equivalent?

With China eclipsing Japan as the world's second largest economy in 2007, the latter has been keen to maintain its global influence and prestige--especially here in Asia. While both countries compete in nearly all things that are even remotely exportable, the competition has been particularly fierce in infrastructure. Obviously, the Chinese see foreign markets as outlets for expertise gained in constructing massive domestic infrastructure projects, especially now that grandest ones at home are becoming fewer due to the PRC slowing down economically. Meanwhile, the Japanese have massive expertise and a desire to use this industry to build goodwill.

A few days ago, the Japanese were dismayed about losing out in constructing a high-speed railway line in Indonesia to the Chinese who offered highly concessional financing to go with the construction:

Jakarta dropped both Chinese and Japanese high-speed railway construction proposals early this [October], citing the high cost of each, and offered to consider instead a cheaper medium-speed railway. But [Indonesian planning minister Sofyan Djalil] told Suga that China recently submitted a new proposal to build the high-speed rail link between Jakarta and the West Java provincial capital of Bandung without requiring Indonesian fiscal spending or government debt guarantees.

Sofyan was visiting Japan as a special envoy of Indonesian President Joko Widodo...Suga doubted the feasibility of the Chinese proposal to build the railway without Indonesian funding. It is estimated to cost 78 trillion rupiah ($5.3 billion).

Cost estimates aside, the larger point is that China and Japan have been made to pony up considerable vendor financing as well in their efforts to outdo each other in selling high-speed rail.

Another case in point is that with Indian President Najendra Modi being keen on improving infrastructure for development like his Indonesian counterpart, the Japanese are now offering massive concessional funding again to pre-empt the Chinese this around for a Mumbai-Ahmedabad rail link:

Japan has offered to finance India's first bullet train, estimated to cost $15 billion, at an interest rate of less than 1 percent, officials said, stealing a march on China, which is bidding for other projects on the world's fourth-largest network. Tokyo was picked to assess the feasibility of building the 505-kilometre corridor linking Mumbai with Ahmedabad, the commercial capital of Prime Minister Narendra Modi's home state, and concluded it would be technically and financially viable.

The project to build and supply the route will be put out to tender, but offering finance makes Japan the clear frontrunner. Last month China won the contract to assess the feasibility of a high-speed train between Delhi and Mumbai, a 1,200-km route estimated to cost twice as much. No loan has yet been offered. Japan's decision to give virtually free finance for Modi's pet programme is part of its broader push back against China's involvement in infrastructure development in South Asia over the past several years.

"There are several (players) offering the high-speed technology. But technology and funding together, we only have one offer. That is the Japanese," said AK Mital, the chairman of the Indian Railway Board, which manages the network. 

The way things are going these days, just you wait for the Chinese counteroffer. At this rate they may be building high-speed rail for free as national pride is fierce in both countries not to lose out to each other.