China’s Sputnik Moment?
How Washington Boosted Beijing’s Quest for Tech Dominance
A sense of uncertainty hangs over American infrastructure, as the United States muddles through with its aging nuclear plants, careworn bridges, and potholed highways. In past eras, the United States excelled at building major projects; now, it lags behind other countries. That is particularly true in one area: building railroads. Even finding money for maintenance can be a problem. A few hours after a passenger train derailed near Philadelphia on May 12 last year, Congress voted to cut Amtrak funding by $252 million, further starving the nation’s beleaguered carrier.
Today, China dominates the railway market, particularly for high-speed rail systems, which the Chinese are busily exporting to East Asia, Europe, and even the United States. China began to invest heavily in high-speed rail in 2007, seeking to create jobs and to improve the mobility of people and goods in its rapidly growing economy. Between 2008 and 2011, the Chinese government made use of its famed central planning, its easy access to credit, and its willingness to invoke eminent domain to seize land in order to build 6,000 miles of high-speed rail tracks, connecting most major cities in the country to each other.
Then, in 2011, Beijing launched a campaign of what observers—and eventually China itself—termed “high-speed rail diplomacy,” as government-controlled Chinese firms sold technology to Hungary, Romania, Serbia, and Thailand, among other places. Beijing hoped these trains would not just carry passengers but would also deliver Chinese influence. As one Chinese government press release put it, for Beijing, building and exporting a high-speed rail system represented a “strategy rather than just a normal project.” The trade with resource-rich neighbors like Kazakhstan and other central Asian nations could only enhance the stream of raw materials like oil and copper that China needs to meet its growth projections. High-speed networks that are extended into neighboring countries could, conceivably, serve a military purpose as well.
Beijing has also long wanted to add the United States to the list of places where it hopes to use high-speed rail to generate profits and spread China’s technological footprint and market share. After all, if the United States can’t muster the political willpower to build out its own network of bullet trains—and so far it has not—why not offer a helping hand?
Last year, a U.S.-based firm called XpressWest announced that it had reached a $100 million agreement with a consortium of Chinese investors to build a privately financed rail line that would traverse the Mojave Desert, beginning in Las Vegas and ending in Victorville, California, on the eastern edge of the Los Angeles metro area. Beyond distributing a press release describing the deal, officials from XpressWest have shied away from answering questions about specifics, and the firm declined multiple requests for comment for this story.
Xpress West’s vision was to save Vegas-goers the trouble of a four-hour car trip across the Mojave. Earlier bids to raise money for the project from U.S. private capital or government loans had been unsuccessful owing to doubts that a real market existed for this route, not to mention a federal mandate that high-speed rail train sets must be manufactured domestically. A big problem with this requirement is that no such factories currently exist.
This regulation may have been the sticking point that ultimately sunk the deal. On June 9, the company issued another press released announcing that its agreement with China Railway International had been terminated. The company wrote that the decision “was based primarily upon … CRI’s challenges in obtaining required authority to proceed with required development activities.” China’s official state news agency, CCTV, criticized the decision, saying that it “smell[ed] of protectionism” and set “a bad precedent that would retard bilateral cooperation in the area.”
XpressWest is not the only high-speed rail outfit looking to partner with Beijing. In 2008, California voters approved a plan to create and fund the California High-Speed Rail Authority, which would build a line connecting Los Angeles to the Bay Area. The state expects to complete a modest initial phase of the project by 2025. But it’s clear that California will need far more investment to finish the job. Two consortiums of Chinese rail builders submitted responses to a 2015 bid request issued by the California authority, and discussions about their potential involvement are still ongoing. California’s current plan, released in March 2016, calls for “continuing engagement with the private sector, including more than 50 world-class firms, soliciting their advice and expertise on project delivery.”
The plan makes no specific mention of China, besides including two Chinese consortiums in a list of 36 respondents to the call for bids. But there can be little doubt about what “world-class firms” means. In 2013, California Governor Jerry Brown traveled to China and rode on a high-speed train from Shanghai to Beijing, accompanied by a group of reporters and photographers. “People here do stuff,” Brown said. “They don’t sit around and mope and process and navel-gaze.”
Brown’s admiration for the Chinese way has clearly encouraged the state’s rail authority to look to Beijing for help. “The discussions with Chinese firms are about the best way to deliver high-speed rail in California and to see what we can learn from the vast experience that China has gained from the thousands of miles of high-speed rail that they have built in the last decade,” California High-Speed Rail Authority spokesperson Lisa Marie Alley wrote in an e-mail in response to questions about Chinese involvement in the project. “We have and continue to be in discussions with a host of other countries with existing high-speed rail systems so that we can design and build the best possible high-speed rail system here in California and the first in our nation.”
As for the scotched deal with Xpress West, officials told the Xinhua news agency that it will have “no impact” on California’s decision on whether to use Chinese investment in its own high-speed project, although they offered no specifics on how it might address the domestic manufacturing requirement.
Attracting sufficient funding and dealing with federal trade blockades aren’t the only challenges that the California high-speed rail project faces: it is also struggling to maintain popular support. A poll of Californians conducted in 2015 by researchers at Stanford University reported that 53 percent of respondents support ending the high-speed rail project and shifting its funding to dealing with the drought that has gripped the state in recent years.
There also exists the strong possibility of a political backlash to the idea of Chinese-financed high-speed rail projects. In 2005, fears of growing Chinese influence—stoked by U.S. politicians and pundits—helped doom a bid by CNOOC, a Chinese firm, to acquire the U.S. oil producer Unocal. Today, anti-Chinese sentiment is running even higher than it was then, thanks in no small part the presumptive Republican presidential nominee Donald Trump, who regularly berates Washington elites for not taking a tougher line on Beijing. And critics of Chinese involvement in U.S. rail will no doubt exploit public concerns over safety. In 2011, a malfunctioning signal box caused the collision of two Chinese-built high-speed rail trains near the city of Wenzhou, killing 40 and injuring almost 200 more. The Chinese government moved to squelch criticism, even though investigations found that the rail line had been built hastily with substandard materials amid an atmosphere of official corruption.
The Committee on Foreign Investment in the United States (CFIUS), an arm of the Treasury Department designed to protect the nation from financial threats to its national security, would presumably review any large-scale involvement by Beijing in a critical piece of U.S. infrastructure. But the CFIUS approval process is somewhat opaque, and the committee’s decisions can apparently be swayed by high-priced lobbyists. When asked about their review process, a U.S. Treasury spokesman responded in email that the committee “does not comment on information relating to specific CFIUS cases, including whether or not certain parties have filed notices for review.”
But in September 2012, U.S. President Barack Obama stepped in to veto the Chinese-backed purchase of four wind farms off the coast of Oregon. CFIUS recommended that the president prohibit the transaction and Obama concluded that the plan posed a threat to national security because the farms were close to a U.S. Navy facility dedicated to drone flights. That was an unusual outcome: indeed, it was the first time that a U.S. president had intervened in a Chinese investment in the United States since 1990, when President George H. W. Bush blocked a Chinese company from buying an American motor manufacturer, citing national security risks. But in a political environment shaped in part by Trump’s China-bashing, Chinese firms might have a tough time getting approval for investments in high-speed rail projects in the United States.
Flagging U.S. public support for high-speed rail and rising anti-Chinese sentiment are hardly the only obstacles China will face in the American market. In making such impressive strides in its own high-speed rail systems, China has enjoyed the home-turf advantages of cheap labor and government muscle, noted David Dollar, a Sino-American economic relations expert at the Brookings Institution. Chinese firms will face a far different situation in the United States, which has far more restrictive (and expensive) rules governing land acquisition and labor standards. “It’s not clear what the Chinese construction advantage would be over here,” Dollar said.
Obama once had bold plans for a U.S. high-speed rail network—not as big as China’s, but still ambitious—focusing on regional connections like Miami-Tampa, Cleveland-Cincinnati, and Chicago-Minneapolis. Federal seed money of $8 billion wasn’t nearly enough to cover even a single link of the chain, but it was seen as a start. Then the governors of Florida, Ohio, and Wisconsin rejected the plans and sent back the money, leaving only California to carry out the project by hunting down offshore financing.
But if the country discovers its appetite for bullet trains, Chinese companies will almost certainly be the first in line to make a bid. U.S. political leadership will then have to balance its fears of foreign ownership of critical transportation infrastructure with the need to build it quickly and cheaply. None have proved more adept at that than the Chinese. Xpress West CEO Tony Marnell may have anticipated this dilemma in a statement announcing—for now—the end of Chinese involvement in its U.S. high-speed rail project. He challenged the political elite in Washington, asking whether it had “the courage and vision” to make the country’s aging rail infrastructure a priority, or whether U.S. leaders would continue forcing companies like Xpress West to find financial support abroad.