国际关系学系

16 April 2020

Doing Three Things at Once (三个同时): Construction, Cooperation, and Controversy along China’s Belt and Road Initiative in Indonesia and Malaysia

The Belt and Road Initiative (BRI) is China’s flagship foreign policy initiative for the 21st century. The ambitious program seeks to link maritime Southeast Asia with the Eurasian landmass to smooth the flow of commerce throughout the region. Despite the initiative’s promise to spur regional development, the BRI has faced political pushback in some countries and come under scrutiny in the media.¹ Claims that Chinese investment projects flood recipient countries with migrant labor or straddle them unsustainable debt are circulated as widely as reports on the constructive impact of Chinese investment. ² To examine these countervailing claims, and to witness first-hand the astonishing scale of China’s global footprint, our Tsinghua-SAIS research group traveled to Jakarta, Indonesia and Kuala Lumpur, Malaysia to visit infrastructure sites, speak with Chinese contactors, and exchange viewpoints with local stakeholders.

Throughout our visit, we learned of the many challenges Chinese businesses face when transporting their construction models to foreign political contexts. During our exploration of the first tunnel on the Jakarta-Bandung High-Speed Railway (JBHSR), for example, we learned about the delicate balance between engineering efficiency and respect for local communities. To maintain the integrity of the Istiqlal Mosque in East Jakarta, Chinese contractors bore a massive, two-kilometer concrete tunnel—the largest in Southeast Asia. Although this development is more expensive and time-consuming than surface construction, it was built with the local population in mind, which explains why more than 70 percent of the JBHSR consists of underground and above-ground rail.

We observed a similar dynamic in the negotiations over the East Coast Rail Link (ECRL) in Malaysia. While originally intended to cut through Pengkalan Kubor and Wakaf Baru, at a total

¹ Hannah Beech, “We Cannot Afford This: Malaysia Pushes Back against China’s Visio,” New York Times, August 20, 2018, accessed April 1, 2020, https://www.nytimes.com/2018/08/20/world/asia/china-malaysia.html.

² On the BRI’s economic benefits, see: Richard Bluhm et al., “Connective Financing: Chinese Infrastructure

Projects and the Diffusion of Economic Activity in Developing Countries,” AidData, September 11, 2018, accessed April 2, 2020, https://www.aiddata.org/publications/connective-finance-chinese-infrastructure-projects; On debt-trap diplomacy, see: Brahma Chellaney, “China’s Debt-Trap Diplomacy,” Project Syndicate, January 23, 2017, accessed April 2, 2020, https://www.project-syndicate.org/commentary/china-one-belt-one-road-loans-debt-by-brahma-chellaney-2017-01?barrier=accesspaylog; On labor issues, see: Eveline Danubrata and Gayatri Suroyo, “In Indonesia, labor friction and politics fan anti-Chinese sentiment,” Reuters, April 18, 2017, accessed April 1, 2020, https://www.reuters.com/article/us-indonesia-election-china/in-indonesia-labor-friction-and-politics-fan-anti-chinese-sentiment-idUSKBN17K0YG.

cost of RM65.5 billion, the path of the ECRL was renegotiated by Prime Minister Mahathir Mohamad to reduce its cost and environmental impact. In our conversation with one of the ECRL’s major Chinese contractors, China Communications Construction Company (CCCC), we learned about the difficulties of adapting to Malaysia’s unique engineering standards, from structural regulations to noise limitations.

Yet despite these many challenges, we witnessed Chinese contractors skillfully design and execute large-scale infrastructure developments, while simultaneously navigating the complex political terrain in which they operate. Through a process of collaboration and compromise, we saw Chinese businesses and local stakeholders work together to promote their shared vision of an interconnected Southeast Asia.

A Debt of Gratitude

One of the major reasons for hesitation regarding China’s BRI is that large infrastructure projects come with significant debt burdens. In some instances, as was the case with Sri Lanka’s Hambantota Port, debt loads can prove so great that the returns on finished infrastructure projects are not sufficient to finance the debt. In Sri Lanka, negotiations were made for China to receive a 99-year lease on the Hambantota Port in exchange for $1.1 billion to help Sri Lanka service its debt.³ Although this case represents more of an exception than the rule, critics worry that large debt loads leave recipient countries vulnerable to China’s political influence, even if they do not result in the outright seizure of assets.⁴

What this perspective fails to consider, though, is that recipient countries have agency to accept or reject foreign investments. When speaking with scholars at the University of Malaya, we learned that the Malaysian authorities were less concerned with the cost of the ECRL, in particular, than they were with the potential for those funds to be allocated more efficiently elsewhere in the economy. Seen in this context, Mahathir’s request to renegotiate the terms of the ECRL was not so much intended to avoid an otherwise inevitable debt trap, but rather to maximize the effectiveness of state spending. The success of Mahathir’s negotiation effort demonstrates that Chinese contractors are open to flexibility with their international partners.

At the same time, this renegotiation demonstrates the leverage that China’s smaller neighbors have in their bilateral relationships. Scholars with whom we spoke at the National University of Malaysia framed Mahathir’s leverage in light of the broader pushback against the BRI, which had been growing internationally in the lead-up to Mahathir’s 2018 election. From Kenya to the

³ Reuters, “Sri Lanka hands port formally to Chinese firm, receives $292 mln,” December 9, 2017, accessed April 2,

2020, https://www.reuters.com/article/sri-lanka-china-ports/sri-lanka-hands-port-formally-to-chinese-firm-receives-292-mln-idUSL3N1O908U.

⁴ Chellaney, “China’s Debt-Trap Diplomacy.”

Maldives, a number of governments began calling for investigations into Chinese-backed projects to appease constituencies. ⁵ By offering to renegotiate the ECRL, Mahathir reaffirmed the importance of the BRI’s mission at the same time as he refused to accept his predecessor’s corrupt, closed-door dealings.

During our visit to Indonesia, on the other hand, we learned how the country’s history with foreign direct investment weighs on its contemporary developmental partnerships. A representative from the China State Construction Engineering Corporation explained to us that the Indonesian government is reluctant to take on large sovereign debt loads due to memories of the Asian Financial Crisis. For this reason, Chinese contractors often embark upon joint ventures with private Indonesia companies rather than bidding for government contracts. In the case of the JBHSR, we learned that the Indonesian government chose to work with Chinese contractors, rather than their Japanese counterparts, primarily due to the China Development Bank’s willingness to forgo a government debt guarantee. Again, this readiness to accommodate local government requests demonstrates China’s flexibility with respect to its international partners. By the same token, the ability of recipient countries such as Indonesia and Malaysia to firmly negotiate the terms of their loans demonstrates the flimsiness of the debt-trap thesis.

Addressing Environmental Concerns

According to the Indonesian Ministry of Environment’s regulation No. 11/2006, any business plan or activity that poses a significant environmental impact must go through an environmental impact evaluation, or AMDAL (Analisis Manajemen Dampak Lingkungan). AMDAL not only evaluates the ecological impacts, but also takes socio-economic, socio-cultural, and public health impacts into consideration. ⁶ Since 2009, obtaining an environmental license from AMDAL is a prerequisite for securing business expansions or activity permits from sector-based agencies.⁷ Therefore, any infrastructure project invested, loaned, or contracted by Chinese companies would require the AMDAL. Nonetheless, even when projects pass the AMDAL evaluation, conflicts may still arise when local NGOs, residents, or the media question its comprehensiveness or credibility.

The JBHSR has led some groups to raise concerns about its impacts. For example, in September 2016, WALHI West Java, an Indonesian environmental NGO, denounced the project, calling it “too ambitious” and listing several alleged violations to Indonesian environmental, transportation,

⁵ Christopher Balding, “Why Democracies Are Turning Against Belt and Road,” Foreign Affairs, October 24, 2018, accessed April 3, 2020, https://www.foreignaffairs.com/articles/china/2018-10-24/why-democracies-are-turning-against-belt-and-road.

⁶ Dr. Ariff Zulkifli, “Analisis Mengenai Dampak Lingkugan (Admal) atau Environmental Impact Assessment (EIA),” September 14, 2012, accessed April 2, 2020, https://bangazul.com/analisis-mengenai-dampak-lingkungan-amdal-1/.

⁷ Ecolex, “Law No.32/ 2009, Environmental Protection and Management,” Indonesian Legislation, 2009, accessed

April 1, 2020, https://www.ecolex.org/details/legislation/law-no-322009-on-environmental-protection-and-management-lex-faoc097643/.

and business laws. ⁸ Again, in October 2019, West Java Governor Ridwal Kamil met with representatives from PT Kereta Cepat Indonesia China and other parties involved in the project after a construction mishap led to the explosion of an underground oil pipe.⁹ The meeting also covered discussions on other cases of environmental risks and hazards, including noticeable cracks within walls of residences in the area. As recently as March 2020, the Indonesian State-Owned Enterprises Ministry demanded a reassessment of the project over environmental and human concerns, presumably after the railway’s faulty drainage system inundated a nearby toll road.¹⁰

However, when we met with members of Power China working directly on the JBHSR, they assured us that the construction project meets China’s “three simultaneity” standards (simultaneous design, simultaneous construction, and simultaneous use). As a result, environmental impact considerations—such as wastewater treatment, noise pollution, and structure vibration, to name a few—were included in the design. Power China also confirmed that Indonesian EHS regulations have been respected throughout the entire process.

Malaysia’s ECRL incorporated environmental considerations from the very beginning. The design includes tunnels, wildlife crossings, and elevated tracks to avoid and reduce forest fragmentation. Unlike previous proposals by other contenders, the train route circumvents the jungles in the central area of the peninsula, thereby limiting the disruption to the natural ecosystem and wildlife.¹¹ The Malaysia Rail Link Sdn Bhd (MRL)—an entity of the Ministry of Finance (MOF) of Malaysia created to administer the implementation of the East Coast Rail Link—from the start seemed to be receptive to WWF-Malaysia’s suggestions and concerns about the effect of construction on the environment.¹² Additionally, China Communications Construction Company (CCCC), the main contractor for the ECRL, announced in February 2018 that it would allocate 10 million RMB to the implementation of a plan to help monitor the impact on wildlife along the railway.¹³

⁸ Wahli West Java, “Indonesia: CSOs raise concerns on environmental & social impact of Jakarta-Bandung High

Speed Rail invested by China Development Bank,” Business and Human Rights Center, September 19, 2017, accessed April 5, 2020, https://www.business-humanrights.org/en/indonesia-csos-raise-concerns-on-environmental-social-impact-of-jakarta-bandung-high-speed-rail-invested-by-china-development-bank#c162930.

⁹ Arya Dipa, “High-speed railway construction causes environmental problem in West Java,” The Jakarta Post, October 28, 2019, accessed April 5, 2020, https://www.thejakartapost.com/news/2019/10/28/high-speed-railway-construction-causes-environmetal-problem-in-west-java.html.

¹⁰ News Desk, “SOE Ministry demands assessment of halted high-speed railway project,” The Jakarta Post, March 2, 2020, accessed April 6, 2020, https://www.thejakartapost.com/news/2020/03/02/soe-ministry-demands-assessment-of-halted-high-speed-railway-project.html.

¹¹ Kate Mayberry, “Malaysia’s East Coast Rail Link a double-edged sword for environment, wildlife,” Mongabay, August 9, 2017, accessed April 5, 2020, https://news.mongabay.com/2017/08/malaysias-east-coast-rail-link-a-double-edged-sword-for-environment-wildlife/.

¹²Ibid.

¹³ Bernama, “China firm behind ECRL allocates RM10m for wildlife management plan,” February 28, 2018, accessed April 6, 2020, https://www.malaymail.com/news/malaysia/2018/02/28/china-firm-behind-ecrl-allocates-rm10m-for-wildlife-management-plan/1587133.

After the project was renegotiated in early 2019, a new slightly different route was proposed. The new line avoids the Klang Gates Quartz Ridge, which is home to over 265 species of flora and fauna.¹⁴ Additionally, MRL agreed to submit new assessments on the environmental, social, and heritage impacts of the re-aligned rail link.¹⁵

When we met with engineers from CCCC working on the ECRL project, they reiterated the company’s commitment to social responsibility, local development, and environmental standards. They also mentioned that the re-negotiated project included an agreement between the company and the local government on these issues.

Working Across Boundaries

Another allegation often lodged by critics of the BRI is that Chinese projects rely on foreign labor at the expense of local employment. This issue has incited pushback in countries with already strained labor markets. In Indonesia, for example, conspiracies about the untallied number of Chinese workers led to a rise in anti-Chinese sentiments in 2019, which coincided with the populist presidential campaign of Prabowo Subianto.¹⁶ Yet despite the widespread narrative implying conflict between Chinese workers and local workers at BRI construction sites, the facts on the ground demonstrate a different reality.

During our visit to the first tunnel of the JBHSR, Power China informed us of their adherence to a government quota, which requires foreign companies to hire four Indonesian workers for every one foreign employee. As a result, over 300 Indonesians are working on the first tunnel of the JBHSR alone. In addition to respect for the Indonesian labor law, the representative from Power China told us that it is more cost-effective to hire locally, since Chinese workers tend to demand higher remuneration. He also assured us that there is little competition between Chinese employees and local workers because the former tend to fill highly specialized engineering and management roles.

In Malaysia, similarly, we learned that some Chinese companies do employ foreign contract-labor, but these workers are not necessarily from China. At one of CCCC’s metro developments in Kuala Lumpur, we learned from the Malaysian site manager that the local market lacks a robust supply of construction workers. As a result, the bulk of routine positions onsite were filled with workers from Bangladesh and Pakistan, while the Chinese workers assumed management and engineering

¹⁴ Ahmad Farhan, “Malaysia saves US$5 billion,” ASEAN Post, April 18, 2019, accessed April 7, 2020, https://theaseanpost.com/article/malaysia-saves-us5-billion.

¹⁵Chester Tay, “MRL to submit ECRL environment, social, heritage impact assessment reports in 1Q20,” July 25,

2019, accessed April 7, 2020, https://www.theedgemarkets.com/article/mrl-submit-ecrl-environment-social-heritage-impact-assessment-reports-1q20.

¹⁶Danubrata and Suroyo, “In Indonesia, labor friction and politics fan anti-Chinese sentiment.”

roles. In this way, while many Chinese operations overseas may involve heavy foreign-contract labor, there is little evidence that Chinese workers are competing in the local labor markets.

Concluding Remarks

Our visit to Kuala Lumpur, Malaysia and Jakarta, Indonesia, shed light on the complex interplay of factors driving China’s BRI projects in these countries and beyond. Through our meeting with members of local governments, universities, construction companies, and financial institutions, we were able to look behind the curtain and see how these multi-million-dollar projects are being implemented. This allowed us to take a closer look at some of the many allegations of misconduct—namely forced “debt traps,” subpar environmental measures, and outsourced labor— that often follow China’s ventures abroad. As we have outlined in this report, the majority of these accusations are sensationalized at best and unfounded at worst.

Malaysia’s ECRL and Indonesia’s JBHSR are examples of how Chinese companies are willing to adjust to the specific local contexts in which they are working. We saw this dynamic in other projects we visited, including the Xiamen University campus in Malaysia constructed by Power China and real estate schemes in Indonesia by China State Construction Engineering Corporation. In all the interviews we conducted with both Chinese workers and local academics and officials, we heard of the flexibility of these enterprises. Based on our observations, it seems that the Chinese companies carrying out the work are simply profit-seeking law-abiding entities that are receptive to feedback from local governments, organizations, and other stakeholders. As such, these companies actively work to comply with regulations and meet any standards required by host governments. Despite the many controversies often surrounding the BRI, the Chinese companies bringing these ambitious plans into fruition are acting in good faith.

Authors: Nathaniel Sher, Andrea Fernández Aponte, Ruoxiao Chen, Jingzhe Du, Minsun Hong, Sophia Rosales, Mikaela “Yuchen” Wang, Yuzhen Wang, Can Zhang, Suzie Zhang

Bibliography

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https://www.foreignaffairs.com/articles/china/2018-10-24/why-democracies-are-turning-

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