Pacific Money | Economy | Southeast Asia

Southeast Asia’s Railway Expansion

China dominates for now, but there are opportunities for Western players.

For decades, Southeast Asian leaders have dreamed of a modern, integrated rail network connecting the region. In 1995, former Malaysian Prime Minister Mahathir Mohamad outlined a vision for a “pan-Asian” railway network. Studies by PwC and the Asian Development Bank in 2014 called for major investments in cross-border rail to foster economic development. Yet the region has lagged behind, and few modern railways have reached completion over the past three decades.

In recent years, China has helped Southeast Asian governments turn this vision into reality. Capital, materials, and technical expertise have flowed from the Chinese government, state-owned enterprises, and private firms under the Belt and Road Initiative (BRI). Chinese companies have financed, constructed, and supplied rolling stock for most major rail projects across ASEAN over the past decade, including the line linking Vientiane to Kunming, Southeast Asia’s first high-speed railway between Jakarta and Bandung, and Malaysia’s forthcoming East Coast Rail Link.

Given China’s technical expertise, deep financial resources, and track record in the region, it may appear that companies from other countries have limited scope to participate meaningfully in Southeast Asia’s rail ambitions. Yet China faces structural challenges that are pushing Southeast Asian governments toward a diversified partnership model, creating meaningful opportunities for non-Chinese investors and technology providers.

The recently completed Jakarta–Bandung high-speed rail project, known as Whoosh (short for Waktu Hemat, Operasi Optimal, Sistem Hebat, or “Time-Saving, Optimal Operation, Outstanding System”), has been beset by financial strain following years of difficult land acquisition and construction delays. The line has become a fiscal burden, failing to generate sufficient ridership and revenue to service its heavy debt load. While travel times have been sharply reduced and millions of passengers have been carried, fare revenue falls well short of what is needed to cover operating costs and loan repayments. The project cost around $7.2 billion, roughly three-quarters of which was financed by the China Development Bank. Annual debt servicing alone is estimated at about $120 million. Persistent losses have weakened state-owned shareholders, led by Kereta Api Indonesia, which have been forced to absorb project-linked deficits.

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For decades, Southeast Asian leaders have dreamed of a modern, integrated rail network connecting the region. In 1995, former Malaysian Prime Minister Mahathir Mohamad outlined a vision for a “pan-Asian” railway network. Studies by PwC and the Asian Development Bank in 2014 called for major investments in cross-border rail to foster economic development. Yet the region has lagged behind, and few modern railways have reached completion over the past three decades.

In recent years, China has helped Southeast Asian governments turn this vision into reality. Capital, materials, and technical expertise have flowed from the Chinese government, state-owned enterprises, and private firms under the Belt and Road Initiative (BRI). Chinese companies have financed, constructed, and supplied rolling stock for most major rail projects across ASEAN over the past decade, including the line linking Vientiane to Kunming, Southeast Asia’s first high-speed railway between Jakarta and Bandung, and Malaysia’s forthcoming East Coast Rail Link.

Given China’s technical expertise, deep financial resources, and track record in the region, it may appear that companies from other countries have limited scope to participate meaningfully in Southeast Asia’s rail ambitions. Yet China faces structural challenges that are pushing Southeast Asian governments toward a diversified partnership model, creating meaningful opportunities for non-Chinese investors and technology providers.

The recently completed Jakarta–Bandung high-speed rail project, known as Whoosh (short for Waktu Hemat, Operasi Optimal, Sistem Hebat, or “Time-Saving, Optimal Operation, Outstanding System”), has been beset by financial strain following years of difficult land acquisition and construction delays. The line has become a fiscal burden, failing to generate sufficient ridership and revenue to service its heavy debt load. While travel times have been sharply reduced and millions of passengers have been carried, fare revenue falls well short of what is needed to cover operating costs and loan repayments. The project cost around $7.2 billion, roughly three-quarters of which was financed by the China Development Bank. Annual debt servicing alone is estimated at about $120 million. Persistent losses have weakened state-owned shareholders, led by Kereta Api Indonesia, which have been forced to absorb project-linked deficits.

Continue reading for free at The Diplomat’s new companion publication, The Investor.

Maxwell Abbott is a Singapore-based political risk and strategic intelligence consultant with more than a decade of experience advising clients on regulatory and geopolitical dynamics across the Asia-Pacific region.

Chinese investment in Southeast Asia

Southeast Asia railways

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