The Emperor’s New Road: China and the Project of the Century

by Jonathan E. Hillman

  Shabby but punctual, the train departed at 7:42 in the morning and soon passed through the area where China and Serbia held a ground-breaking ceremony for the new railway in November 2017. “I hope workers from the two countries will work devotedly and complete the project with high quality,” a Chinese official remarked after the ceremony. But when I visited that site, there were no noticeable signs of significant construction. After initially promising the project would be completed in 2017, officials have delayed it several times.22

  The train is so flawed that, accidentally, it offers something priceless and increasingly rare. It is a tired rumbling box with signs advertising Wi-Fi that does not exist. The outlets do not work. Out the window, flat fields of wheat and sunflowers repeat endlessly. What you see in the first hour is what you get for nine hours. Few services provide such a complete escape from distraction, and when almost everything else does not work, the mind really does.

  The new railway has suffered from creeping requirements. Officials promise it will be “high speed,” even though original plans indicated a target well below two hundred kilometers per hour, the generally accepted threshold. Some reports have suggested they are considering further upgrading the project to hit that mark, which would inevitably upgrade the project’s price tag as well. The current train could certainly benefit from greater speed. In a world where most forms of transportation have become faster, the Belgrade-Budapest line has actually regressed. In the early 1980s, the train took roughly six hours, a third less than it takes today.23

  But beyond a certain point, the allure of speed often reflects the triumph of politics over economics. Politicians love to announce big projects, which attract media coverage and advance legacy-building efforts. There are usually other options, of course. For existing railways like the Belgrade-Budapest line, investing in upgrades and better operations and maintenance can be more cost-effective than starting anew. Those prudent decisions should be cheered by taxpaying citizens, but the theater of politics often demands more. It is hard to hold a ribbon-cutting ceremony for a maintenance job.

  High-speed railways are doubly tempting because they tap into what sociologists call the “technological sublime,” the thrill that planners and politicians get from delivering the latest technology and in some cases even pushing technological boundaries.24 Superlatives often accompany new projects—the longest bridge, the fastest train, the tallest building—and can influence design choices. The technological sublime is baked into the very name of high-speed rail, which evokes images of sleek futuristic trains zipping from one city to another. Having built more kilometers of high-speed rail domestically than the rest of the world combined, Chinese firms are eager to feed these temptations.

  As China aims to dominate other advanced technology and manufacturing sectors, high-speed rail is a cautionary tale for its Western competitors. After launching joint ventures with Canadian, German, French, and Japanese companies, Chinese firms were able to acquire the capabilities and technical knowledge to start producing their own high-speed rail technology. In 2010, one industry expert estimated that 90 percent of China’s high-speed rail technology was derived from foreign partnerships or equipment.25 Driven by quarterly earnings, Western firms failed to appreciate, or simply could not resist, the longer game that China was drawing them into. These deals provided foreign firms with access to China’s large domestic market, but the gains were temporary.

  Many of China’s early partners became its competitors, and since then, many have become its collateral damage. In 2005, the German conglomerate Siemens entered into a joint venture with China National Railway Corporation to provide $919 million worth of trains for the Beijing-Tianjin high-speed railway.26 During the railway’s construction, the Chinese partner mastered the German firm’s technology and deployed an “indigenous” version at one-third the cost, raising red flags that Siemens’ intellectual property had been compromised.27 When a follow-on project was announced in 2008, China’s Ministry of Railways insisted it use “Chinese” technology, awarding the $5.7 billion contract to China National Railway Corporation.28 The accusations have come full circle as Chinese researchers have even accused foreign companies of stealing Chinese rail technology.29

  Despite the political appeal of high-speed railways, they are rarely profitable.30 As a rough rule, the proposed route should be between two hundred and five hundred miles in length. Outside that range, shorter routes are often better served by standard rail or buses, and longer routes are better served by airplanes. Most new routes cost at least $10 million per mile to build and rely on government subsidies to operate. To break even, high-speed railways require at least six million passengers a year under relatively optimistic assumptions about construction cost and time savings.31 Since the first high-speed railways emerged in France and Japan in the early 1980s, only two high-speed rail projects have become profitable, and a third has broken even.32

  The Belgrade-Budapest line seems destined to join that loss-making list. Even though its length, roughly 220 miles, is within the appropriate range, it will struggle to serve enough people. Attracting six million passengers would require every man, woman, and child in Belgrade and Budapest to buy two tickets each year. More often, annual passenger volumes must exceed nine million to break even. Tamas Matura, an assistant professor at the University of Budapest, estimates that the new line will take twenty-five hundred years to make a profit, without factoring in maintenance costs.33

  Despite the uncertainties of the railway—or perhaps because of them—Hungarian, Serbian, and Chinese officials are already looking south. They have suggested that the railway will become part of a corridor linking another historic destination turned flagship BRI project, Piraeus Port in Greece, with European markets farther inland. Ships from China will dock at Piraeus, and their cargo will be carried by rail to Budapest, passing through Belgrade along the way. Chinese officials have dubbed it the “China-Europe Land-Sea Express Line.”34

  But like Serbia’s first railway, the idea depends on other railway links being built in the coming years. Standing between Belgrade and Piraeus are hundreds of miles of railways in Serbia, Macedonia, and Greece that require upgrades. Practical concerns aside, the idea is undeniably clever and, like other parts of the BRI, has an imaginative pull. It has also been called the Balkan Silk Road, and realistic or not, it has the benefit of associating the uncertain Belgrade-Budapest railway with Piraeus, which has already established itself as one of China’s most commercially successful projects.35

  “The Dragon’s Head”

  When I visited Piraeus Port in October 2018, its staff was recovering from hosting a much more important visitor. A few days earlier, China’s transportation minister, Li Xiaopeng, toured the facilities by boat. At the time, his three-year budget was larger than Argentina’s annual GDP. Chinese officials use Piraeus as a showpiece, allowing party leaders to bask in its success and hosting foreign officials from Africa and elsewhere to give them a glimpse of what partnering with China might accomplish. When Xi visited in November 2019, he called it “the dragon’s head” for China in the region.36

  Well before Piraeus became part of China’s BRI, it was center stage for the rise and fall of great powers. In the fourth century BC, the Athenian general Themistocles persuaded his government to create a naval fleet at Piraeus. The decision was criticized at the time as wasting public resources but vindicated when Persia’s King Xerxes attacked Greece in 480 BC. In one of the first large naval battles in history, Themistocles lured the Persian fleet into the narrow waters at Salamis, where his vastly outnumbered Greek fleet sank three hundred Persian ships. After growing into a commercial hub, the port was destroyed during the Peloponnesian War, when Sparta defeated Athens. It was rebuilt under Alexander the Great and then destroyed again by the Roman Empire. Not until Greece’s statehood in 1832 did the port begin to reemerge.37

  China took the port without violence, though not without opposition. In 2014, after leasing a container
terminal at Piraeus five years earlier, the Chinese shipping giant COSCO reached a deal to buy a majority stake in the port. Led by Alexis Tsipras, the left-wing party Syriza opposed the deal along with other proposed privatizations, which it pledged to freeze and renegotiate on better terms. When Syriza took power in 2015, its shipping minister announced on his first day in office, “The [port] selloff stops here.”38 But under pressure from Greece’s “troika” of creditors—the European Commission, the European Central Bank, and the International Monetary Fund—Tsipras accepted the deal and only made changes at its margins. Investors applauded Tsipras for this reversal, and union workers protested outside his office.39

  Few projects under the BRI banner have achieved Piraeus’s commercial success. In 2018, its container traffic increased more than fivefold over 2010 levels, when COSCO first took over the management role from Greek companies.40 A Greek company still runs one of the three terminals, but most of the gains have occurred in the two Chinese-run terminals. When I visited, a long line of trucks was backed up beyond the entrance to the Greek-run terminal, while those entering the Chinese terminals cruised smoothly into the facilities.

  The port’s increase in performance has not come without controversy. Its workers union has gone on strike several times and has alleged that COSCO is not fulfilling its labor-protection obligations.41 The new management team paid for 110 workers to retire early, roughly a 10 percent workforce cut.42 Previously, port authority workers were allowed to work from 7:30 a.m. to 3:00 p.m., and now they are required to work standard business hours, 9:00 a.m. to 5:00 p.m. Of course, many of these adjustments are not unique to Chinese ownership and could have happened under other private owners.

  EU authorities also suspect that a criminal smuggling network has shifted to the port. In 2018, they began investigating whether Chinese companies are systematically underreporting the cost of imported goods to avoid EU taxes. The EU’s antifraud office has fined the Greek government €200 million for poor regulation and oversight.43 In Piraeus, as elsewhere, better connectivity not only brings more “nice” things but also opens the door for illicit activities.

  Undaunted, China is eager to expand further. It aims to turn Piraeus into the largest container port in the Mediterranean by 2020 and has already moved into second place, behind Spain’s Port of Valencia. In October 2019, the Greek government partially approved COSCO’s master plan for turning old warehouses into luxury hotels, adding new storage and logistics facilities, and building a cruise terminal service center with duty-free shops.44 COSCO also wants to invest an additional €300 million to build a fourth container terminal.

  As one of China’s most successful projects, Piraeus also shows the limits of using foreign infrastructure in general and ports in particular to promote goodwill. Sometimes commercial success is at odds with public sentiment, especially when higher productivity means fewer workers. Touring a modern port is like watching a giant mechanized symphony: there are smooth, coordinated movements and very few people. Piraeus operates its container terminals as semiautomated, which it justifies on safety grounds but has the benefit of employing more workers. The port’s top leadership is mostly Chinese, but the workers are overwhelmingly Greek. The tension between productivity and employment is not unique to foreign infrastructure projects, but foreign owners are an easier target for public protest. Beijing can lose in the public eye even when its projects succeed.

  Greek citizens, like so many others, hold conflicting views about China.45 On the one hand, a majority of Greeks view China positively as an economic partner. On the other hand, they view China’s rise as negative for the European Union as a whole. Complicating matters is resentment among Greeks about the choices they face. After mandating that Greece sell state assets, EU officials express concern about China’s growing investments there.

  This ambivalence gives local politicians the ammunition they need to create obstacles to the port’s expansion. Greece’s Central Archaeological Council designated large swaths of Piraeus a heritage site in April 2019, threatening to prevent further construction at the port due to Greece’s strict archaeologic protections.46 By design, these threats are likely to yield only minor adjustments. Politicians benefit from publicly standing up to China and being seen to protect Greek heritage and culture. In the process, they may also compel China to increase its investments to win their approval.

  “Balkan Back Door”

  Whether the Belgrade-Budapest railway ever reaches Piraeus, it has already become a flagship project for China’s regional engagement. Every year since 2012, sixteen central and eastern European heads of state, including eleven EU members and five non-EU members, have assembled around China. Originally called the “16+1” format, the group expanded to include Greece in 2019.

  This regional grouping is both less and more than it seems. At first glance, it is tempting to dismiss it as a hollow talk-shop. Almost every year, statements note that cooperation will be conducted in accordance with each country’s “respective laws and regulations,” an attempt to reassure Brussels that EU rules are not being undermined. The group has accomplished little of consequence since it was formed in 2012. Confusion about its purpose is evident in the struggle to describe it. It has been called a mechanism, a format, a framework, and a platform, among other things.

  What all these labels fail to capture is China’s ability to effectively exercise its power bilaterally under the cover of a multilateral veneer.47 Bringing together many countries, this grouping gives the outward appearance of inclusivity and consensus building. In statements, the participants affirm their commitment to principles such as openness and transparency and genuine multilateral institutions like the World Trade Organization and the United Nations.48 “We need to uphold multilateralism,” China’s Premier Li Keqiang told attendees in 2018.49

  Beneath the surface, China’s 17+1 format is fundamentally different from the multilateral practices and institutions it claims to uphold. China and its partners do not subscribe to a common set of rules that has any significant impact on their behavior. Nor is anything of consequence done by consensus. China’s multilateralism through the 17+1 format and the BRI more generally lacks depth, and it relies on stroking egos and dangling bilateral deals. Call it “flatteralism.”

  Most of the time, the 17+1 equals two: China and the smaller country with which it is negotiating. It is an equation that has worked well for Beijing, which has used its economic power to divide the EU’s current membership and deepen roots in candidate countries. In 2016, Hungary, Croatia, and Greece helped soften an EU statement on China’s claims in the South China Sea. Similar tactics have blocked criticism of China’s human rights record.50

  There are practical and political advantages as well. These annual gatherings allow Chinese officials to efficiently lavish high-level attention on smaller economies. And when China comes to town, its summits are less board meetings than auditions. The seventeen countries compete for the attention of the one. China uses variations of this model elsewhere, positioning itself at the center of summits in Africa and Latin America.

  But China has yet to offer deep multilateralism at scale. Its closest attempt, the Asian Infrastructure Investment Bank (AIIB), has attracted broad participation and adopted rules similar to those of the World Bank. But having lent only $12 billion at the end of 2019, the AIIB is easily overshadowed by Beijing’s bilateral lending mechanisms.51 China Development Bank, which is the world’s largest development-finance institution, pledged to lend $250 billion to BRI partners over a five-year period.52

  The limits of China’s bilateral approach are evident in the MOUs that Beijing has pushed so many countries to sign. Chinese officials make a point of claiming that the BRI will be tailored to promote local development goals, but the MOUs use boilerplate, nonbinding language. Occasionally, a mention is made to “link” or “align” the BRI with a partner’s development plan, but how that will happen is not spelled out.

  The value of these
documents is purely symbolic, though increasingly not as China intended. Chinese state media make a habit of touting how many cooperation documents have been signed with countries and international organizations. But participation is no guarantee of investment, and the longer the list of BRI cooperation documents grows, the less signing them means. More than any port or high-speed railway, it is perhaps the MOU that best captures what the BRI is—and is not.

  For all the lip service paid to openness, China’s checkbook disproportionately favors the five non-EU governments, where investment rules are less transparent and open. Collectively, the five non-EU economies (Albania, Bosnia and Herzegovina, North Macedonia, Montenegro, and Serbia) have a GDP that is roughly one-sixteenth of the eleven EU economies. Yet in 2016 and 2017, they attracted roughly half of announced Chinese investment across the sixteen economies in transport infrastructure, energy, real estate, and mergers-and-acquisitions deals.53 Citing these outsized investments, some European officials worry that China is creeping through a “Balkan back door.”

  China’s promises for investment must be taken with a grain, if not a mountain, of salt. For each project that has started, there are countless others that remain aspirational. During Xi’s visit to the Czech Republic in 2016, for example, he proposed building canals linking the Danube, Oder, and Elbe Rivers. If completed, they would allow ships to travel from the Baltic and North Seas to the Black Sea. The idea was not China’s, nor was it new, having been proposed in various forms for hundreds of years. But its sheer scale seemed a natural fit for China’s ambitions and the insatiable appetite of Chinese construction companies. After some initial fanfare, however, little has occurred.

  “The Secular Struggle”