Derailing Development: China’s Railway Projects and Financing Coalitions in Indonesia, Malaysia, and the Philippines

Why do major development projects get delayed while others progress? Where do projects encounter opposition? While the literature on development financing is substantive, scholars continue to treat project completion or cancellation as a byproduct of weak institutions, lack of technical capacity or the financing institution’s decision to withdraw. However, when delays are insignificant or already accounted for, what factors enable, or inhibit project progression? Research by the World Bank found delays in major projects can cost financiers (foreign banks, firms or international organizations) millions in compensation, leading to significant political and economic costs. 

In a new working paper, Alvin Camba examines the sources and nature of delays in three major Chinese railway projects in Southeast Asia, the Bicol South Rail Project (BSRP) in the Philippines (2016-), High-speed rail (HSR) in Indonesia (2014-) and the East Coast Railway in Malaysia (2016-). Building on fieldwork across three countries and over 40 interviews, Camba argues that financiers (Chinese policy banks) and host states (government’s of the borrowing countries) engage in a two-level game in major development projects. At the first level, financiers and the host state create a financing coalition in order to build a project. He suggests that host states are vulnerable to domestic contestation from domestic opposition, specifically economic, political and regional-local powerholders. After the coalition has formed, the next level occurs between the coalition and the host state opposition, such as the national opposition parties, local elites, and competing firms in upstream and downstream industries and others in the host state. Camba demonstrates that the major Chinese railway projects in Indonesia, Malaysia and the Philippines experienced delays due to the opposition of competing firms or the mobilization of the political opposition, temporarily delaying the project or rupturing the financial coalition.

Main findings:

• Bargaining between the host state regime and the opposition should be given greater attention, as it ranges from upstream and downstream firms to the variety of host state forces.
• Projects can continue with successful compromise between the financing coalition and the host state opposition, in order to limit project delays. 
• Major development projects can be delayed when the financial coalition is unable to compromise with the host state opposition.
  • During periods of electoral and political turnover, competing firms and host state elites could mobilize against the regime and ultimately harm the project.
  • When competing firms choose to mobilize or when host state opposition have amassed enough power to delay the project or usher in elite circulation, projects get delayed.
• The nature of the delays and the type of opposition against the projects all vary across the three states, reflecting the degree of central government’s bargaining power over local elites and financiers, as well as the degree of subnational opposition.
• Chinese capital largely benefits Chinese firms and their partners. In other words, the impact of Chinese capital is not just an issue of whether or not the host state gains, but more of who wins and who loses across sectors and social groups.

To fully understand the development implications of Chinese development finance, Camba argues there must be a more systematic treatment and suggests future scholarship analyze the implications of major projects across time and subnational differences. Furthermore, additional topics of investigation include the impact of Chinese development finance on more multidimensional standards of development, such as democratization, governance and environmental sustainability. Economic impact aside, Camba argues the surge of Chinese finance, or other types of economic capital more broadly, makes countries increasingly interdependent with one another.