Tag Archives: infrastructure

Thailand bets on China-led AIIB to finance massive infrastructure needs

Will China's AIIB-backed 'railway diplomacy' be enough to jumpstart Thailand's lagging economy?

Will China’s AIIB-backed ‘railway diplomacy’ be enough to jumpstart Thailand’s lagging economy?

On January 26, Thailand’s cabinet approved a budget of 52.82 billion baht (US$1.47 billion) to join the China-led Asian Infrastructure Investment Bank (AIIB).

Thailand will hold around a 1.43 percent share of the bank with payments beginning in five installments of 2.112 billion baht (US$58.90 million) due by the end of 2019.

“As the country [has] aggressive plans to improve its much needed infrastructures, the AIIB would offer great opportunities in terms of more loan availability” explains Nithi Kaveevivitchai, a research economist at the Bank of Ayudhya.

Thailand’s junta is attempting to revive the country’s flailing economy with an ambitious spending program of over US$100 billion that would include large-scale infrastructure upgrades for the country’s railways and roads, as well as air and seaports. Being one of the fifty-seven founding members of the AIIB, Thailand could potentially receive cheaper loan rates and more flexible lending conditions from the Beijing-based bank, compared against the US-led World Bank or the Japan-led Asian Development Bank.

The Thai government foresees it will benefit from intensified diplomatic rivalries between China and Japan. During a speech in April 2015, Thailand’s energy minister Narongchai Akrasanee, cannily asserted that “one thing we have learned is that if we welcome the Chinese, the Japanese will come running.”

Support for the AIIB in Thailand has not been unanimous, however. Kasit Piromya, a former foreign minister and current advisor to the Democratic Party of Thailand, criticized the creation of the AIIB as “part of China’s global strategy to dominate” and argued at the Asian Financial Forum that “China will be dictating terms and that will further weaken the Asean community.”

Since seizing power, Thailand’s military generals have instead sought to deepen political and economic ties to China, which is now the country’s largest trading partner. “It has been analyzed that any related projects that could benefit the supply chain network and trading routes between the ASEAN region and China would receive great attention from the AIIB,” assesses Nithi Kaveevivitchai.

The Sino-Thai railway link, which aims to transform Bangkok into the hub of China’s ambitious Pan-Asia Railway Network, appears to be a particularly likely candidate for an AIIB infrastructure loan. After months of bumpy negotiations – during which Beijing insisted on downgrading the railway from high-speed to medium-speed – the project saw a breakthrough in January 2016 when China agreed to Thailand’s demand that it slash its interest rate from 2.5% to 2%.

The Chinese government had long insisted on a 2.5% rate, arguing that Thailand was now an upper-middle income country, notes Mr. Nithi.

“Whether [the] AIIB will be used to fund this project is still too early to say… it could be seen as a good alternative for funding, especially if the development bank can offer a more competitive lending rate,” he adds.

The railway is currently facing further uncertainties due to its estimated budget of 500 billion baht (US$13.08 billion) and the Thai government is asking China to take more financial responsibility for the project.

Thai Deputy Prime Minister Somkid Jatusripitak told the Nation (Thailand) on February 5 that “Thailand was requesting that China be responsible for civil construction and related work for the 800km-plus railway track instead of just providing trains, rolling stock and related equipment, as the scheme is mutually beneficial so profits should not be the only factor for consideration.

In addition to issues of cost, critics in Thailand have asked whether the project is actually beneficial to the country, which has no mass goods in need of rail transit.

In parallel to the Sino-Thai railway link, Thai and Japanese authorities recently announced they have launched on a trial basis a train-delivery service using 12-foot long containers at Nong Pla Duk Junction in Ratchaburi province.The aim would be to eventually connect the junction to the Dawei deep-sea port in Myanmar, where Thailand has been developing a special economic zone (SEZ) with Naypyidaw since 2012. The long-delayed project was recently joined by Japan in 2015 and has the ambitious aim to become the gateway for the Mekong region to the Indian Ocean. China, however, has also expressed interest in creating a Dawei rail link, intimating a likely point of competition in the future. 

While it remains too early to be seen whether Minister Narongchai will be proven right, using the AIIB to expedite rail infrastructure loans could significantly help China  secure its fragile ascendancy over Japan in terms of ‘railway diplomacy’, as the two countries continue to compete for contracts across Southeast Asia.

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Report: “Mismanagement” stalling building projects across China

Work continues on the Darui Railroad in western Yunnan Image credit :cr8gc

Work continues on the Darui Railroad in western Yunnan. Image credit: cr8gc

Hundreds of highway and railroad projects are facing delays or otherwise running far behind originally envisioned construction timetables. This, according to a report issued by China’s National Audit Office, is a result of local governments improperly managing infrastructure funds — actions thought to have a direct effect on the country’s stalling economy.

In total, the audit of projects nationwide looked into 815 infrastructure programs across the country. More than 20 percent — 193 in total — were found “to be experiencing significant implementation lags due to a lack of funds or poor initial planning.” Together, the behind-schedule ventures represent government investment of 287 billion yuan (US$45.2 billion).

The architects of China’s economy have traditionally relied heavily on state-funded building projects as a means to revitalize the financial system in times of decline. Therefore, those lagging behind schedule due to mismanagement or misuse are seen as harming the economy in two ways, according to the audit. Not only are funds not being spent as quickly as they are authorized, but the benefits to localities through which new infrastructure projects pass must wait idly for any expected economic uplift.

In Yunnan, this is especially true in the province’s west. A railroad from Dali — traveling through Yongping, Baoshan, Mangshi and terminating at Ruili on the Burmese border — was originally expected to be completed in 2014. It will provide some of the most populated regions in western Yunnan direct rail access to Kunming for the first time ever. However, due to cost over-runs and awkward mountainous terrain, the line is now expected to open as late as 2019.

In an effort to speed up construction along the single-track Darui Railroad (大瑞铁路), Beijing injected a further five billion yuan (US$788 million) in annual funding for the endeavor beginning in 2012. The 335 kilometer railway is 75 percent tunnels and bridges, making for difficult surveys and slow progress, especially in places where engineers must dig under theGaoligong Mountains.

The railway was first conceived of in 1938 as a way to connect Kunming with the British colony of Burma. The outbreak of World War II scuttled those plans. However, they have since been resurrected as one part of the massive BCIM trade corridor, which Beijing hopes will one day provide an overland link between Kunming and seaports on the Indian coast some 2,800 kilometers away.

This post was originally published on GoKunming and written by Patrick Scally. It is reprinted here, in its entirety, with permission from the author. 

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China’s Maritime Silk Road Gamble

Ever since Xi Jinping announced the creation of a Maritime Silk Road in an October 2013 speech to the Indonesian parliament, China’s vision for “one road” running through Southeast and South Asia has driven a significant portion of Chinese foreign policy in its periphery. This has led to both thecontroversial Asian Infrastructure Investment Bank (AIIB) (announced in the same speech) and complementary investment funds such as the Maritime Silk Road Bank, as well as high-level diplomatic visits by Chinese leaders to countries in the region. In addition, China sees its “Silk Road Economic Belt” among its Central Asian neighbors as indivisible from the “21st Century Maritime Silk Road,” as seen by China’s slogan 一带一路 (“one belt, one road”) and its public diplomacy effort to promote both policies together. All of this indicates that, like many Chinese foreign policy initiatives, the “21st Century Maritime Silk Road” is multi-pronged: it is intended to serve diplomatic, economic, and strategic purposes.

First and foremost, the Maritime Silk Road is designed to pacify neighboring countries threatened by China’s aggressive territorial claims in the South China Sea. Curiously, China has attempted to both aggravate tensions among its Southeast Asian neighbors and soothe them at the same time, contrary to its normal pattern of swinging back and forth between aggressive brinksmanship and diplomatic rapprochement (such as in China’s relationship with Taiwan or its cutting off and then reestablishing of military to military ties with the United States). Despite the idealistic claims of‘peaceful economic development absent political strings’ made by Chinese leaders and state media about the Maritime Silk Road, China has continued unabated to strengthen its unilateral claim to vast maritime territory in the South China Sea, turning reefs and other undersea maritime features into full-fledged islands, complete with airstrips that could be used by the People’s Liberation Army.

Conversely, the Maritime Silk Road is also designed to cement relationships with countries that are tacitly friendly to China such as Malaysia, Cambodia, Sri Lanka, and Pakistan. This will be accomplished primarily through economic incentives like infrastructure development and trade deals. In this sense, the Maritime Silk Road not only stands side by side with the Silk Road Economic Belt, but also as part of a historical continuum that includes China’s past investment in maritime-related infrastructure, which has been referred to by some as a “String of Pearls” policy. If one wants to know what kind of infrastructure projects China will fund in the future, look to what it has done in the past: oil and natural gas links to Myanmar’s port in Sittwe, ports in Sri Lanka such as the Hambantota and Colombo Port City projects, and the Pakistani port in Gwadar. Indeed, China and Malaysia have already announced a joint port project in Malacca. Meanwhile, China, which is already the largest trading partner for most countries in Southeast and South Asia, is also signing new free trade agreements with countries such as Sri Lanka.

Chinese infrastructure investment, intended primarily to strengthen China’s energy security and increase trade between China and its neighbors, will now get a huge boost with the creation of both the AIIB and more specialized investment vehicles such as the Maritime Silk Road Bank and the Silk Road Fund. While the AIIB has had the flashiest rollout with China contributing $50 billion USD to a planned $100 billion USD in capital, the other two funds are no slouches: the Silk Road Fund has plans for $40 billion USD in capital, while the Maritime Silk Road Bank hopes to attract$100 billion RMB in investment.

Finally, unmentioned in authoritative Chinese sources is that the Maritime Silk Road, and especially Chinese infrastructure investment, is implicitly intended to facilitate more frequent People’s Liberation Army Navy (PLAN) deployments in the Indian Ocean and beyond. The PLAN needs reliable logistics chains across Sea Lines of Communication (SLOCs) throughout Southeast and South Asia; ships cannot go far without a reliable supply of fuel, food, and armaments. But for the foreseeable future, China is at a serious disadvantage in this regard: the US Navy and allied navies have such a preponderance of force and ability to project power throughout the region that the PLAN is ill-equipped to compete. Given the PLANs current capabilities, China’s logistics capacity would only be dependable during peacetime; they would not survive in a contested environment, particularly if the US decided to close off key chokepoints like the Malacca and Sunda Straits. Therefore, the first step to strengthen the PLAN’s capabilities is to build reliable logistical infrastructure in key friendly states, such as the aforementioned projects in Malaysia, Sri Lanka, and Pakistan. These logistical links would still be quite vulnerable in a conflict scenario, given the tenuous relationship China would have with even putatively friendly countries if China went to war. Therefore, the primary benefit for the PLAN is to demonstrate presence in peacetime, and to show that it can operate far from its own shores.

The Maritime Silk Road, along with the attendant Silk Road Economic Belt, is truly a multi-headed dragon, so large that it is difficult to disaggregate its many parts. The most difficult challenge for China, however, will not be building infrastructure and signing trade deals—these are no doubt massive undertakings, but they are fundamentally instrumental tasks that will not receive much opposition from countries in the region. The more difficult objective for China is translating investment and trade into building a coalition of states in the region that align their values and foreign policy goals with those of China, and indeed identify with China at the expense of competitors like the US. China will likely find this kind of bandwagoning hard to pull off—when it comes down to it, the Maritime Silk Road may wash away like sand.

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Infrastructure money continues to pour into Kunming

Planning Map of Kunming Subway System Image: Kunming Rail Transit Group

Planning Map of Kunming Subway System Image: Kunming Rail Transit Group

The seemingly unlimited supply of development money made available to Spring City urban planners shows no signs of letting up. A new report released by the municipal governmentreveals 340 billion yuan (US$54.3 billion) has been allocated to “accelerate” construction, especially on the city’s metro, railway and highway systems, over the next five years.

Referred to as the “Comprehensive Transportation Campaign” (CTC), program costs include having at least six fully functioning metro lines by the year 2020, up from the current number of two-and-a-half. When finished, the above- and below-ground sections of the Kunming Metro will cover 206 kilometers. Three additional lines are also under consideration, but will not be finished by 2020.

It is not only the metro that will receive huge amounts of funding. So too will railway ventures designed to make Yunnan more connected not only to the rest of China, but also to its Southeast Asian neighbors. Among the 12 railroads receiving CTC money is a line that will one day connect Lhasa to Shangri-la and then Kunming, a bullet train to Shanghai and other railways linking up with Chongqing, and cities in Guizhou, Myanmar and Vietnam.

In addition to the expenditures for the metro system and vast railway upgrades, the Comprehensive Transportation Campaign will add more than 20 newly built or drastically expanded traffic expressways radiating outwards from the Spring City. The network of roads is planned to connect all of the “economically important cities of central Yunnan” and in some cases drastically reduce driving times.

One other key initiative involves logistics and Dianchi Lake. To facilitate all of the planned trade coming into and leaving Kunming once the aforementioned projects are completed, an enormous “integrated transport hub” is under consideration for Chenggong. If approved — and it appears the money has already been set aside — a 458 million yuan (US$73 million) shipping and receiving facility would be built on the shores of the lake, complete with a wharf.

The CTC’s 340 billion yuan price tag should provide a significant economic jolt to a city already in the throes of a long-lasting and frenetic building boom. In 2014, the entire province saw 70 billion yuan earmarked for infrastructure work — a number almost matched by annual CTC outlays for the Spring City alone. It appears provincial leaders, and those in Beijing, are still quite serious in their intentions to transform Kunming into a hub connecting greater China with Southeast Asia and beyond.

Editors note: This article was originally published on GoKunming and written by Patrick Scally. It is republished here, in its entirety, with permission from the author.

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Bottlenecks to Development: Challenges in the Mekong Delta

Last week, ExSE took a hard look at the environmental challenges facing the Mekong Delta region and found that the prospects are not good. Due to unenviable geography and global warming, rising sea levels, higher average temperatures and irregular precipitation patterns will all converge in the next 50 years to change the face of the Mekong Delta (MKD). That’s to say nothing of salinity intrusion, flooding and tropical storms. However, the MKD’s problems are not only environmental in nature; the region’s economy also faces a host of challenges, many of them tied to the Delta’s environmental changes.

Issues in the Mekong Delta are of course significant for its residents, but they also carry great importance for those outside the region because of the MKD’s role in national and regional food security. The statistics on the Delta are incredible. In an area taking up just 36,000 square kilometers (12 % of Vietnam’s total area), the Delta’s 22 million inhabitants plant 2.6 rice crops per year totaling 25 million tons of rice. The MKD’s rice production accounts for over half of Vietnam’s total and the seven million tons rice that the Delta exports has helped Vietnam become the world’s second largest rice exporter after Thailand. In addition, the Delta accounts for 70% of Vietnam’s fruit production and three-quarters of its fish catch.

The Delta’s massive agricultural output is no accident. The region is perfectly situated to receive large amounts of water and sediment from the three main stems of the Mekong Delta and the many thousands of canals that intersect them and a tropical temperature allows for farming year-round. What’s more, concerted efforts in the past 30 years to improve the region’s water infrastructure have doubled arable land in the MKD. Combined with advances in genetically modified rice strains, yields in the Delta have increased by 30% and total production has doubled, all within the past 20 years.

Incomes have also increased. According to the General Statistics Office of Vietnam (GSO), the average income of Delta residents has gone from 50 cents USD/day in 1999 to $2/day in 2010 and the region reached it Millennium Development Goals in 2006. However, despite impressive improvements in agricultural output and per capita income, the Delta has lost ground to other regions of Vietnam and now lags behind in important measurements of human and economic development.

Source: Dr. Ho Long Phi, processed from data of General Statistics Office of Vietnam.

Source: Dr. Ho Long Phi, processed from data of General Statistics Office of Vietnam.

In the late 1990’s, the Delta was actually 20% above the national average in per capita income. However more than 10 years later, the number stands at a little more than 80%. In the first decade of the new millennium, Vietnam underwent a period of intense economic growth through industrialization and people all over the country got richer as a result. The benefits of economic growth were not felt equally by everyone, however. Due to development bottlenecks, some regions, including the Mekong Delta, did not industrialize like others

One of these bottlenecks is a lack of infrastructure. The proportion of waterways, intra-provincial roads and inter-provincial roads per thousand people are all behind the national average. Of these three measures, the proportion of inter-provincial roads stands out. For one, there are only 0.34km of them per 1000 people in the Delta, standing at only half of the national average. This is especially important because of the nature of the Delta’s economy. The MKD, because its economy is so heavily concentrated in agriculture, lacks many necessary products and thus has a long history of importing and exporting nearly everything. While this may be good for enterprising middlemen, it is not good for the region’s economic development. With so few avenues for importing and exporting goods, the logisitical cost rises and because the MKD lacks so many raw materials, industrial development becomes disadvantageous. In fact, unless an investor is interested in agricultural processing, building a factory closer to Ho Chi Minh City is probably a better business plan in many cases.

Source: Dr. Ho Long Phi, processed from data of General Statistics Office of Vietnam

Measure of waterway, inter-provincial roads and intra-provincial roads in the Delta. Source: Dr. Ho Long Phi, processed from data of General Statistics Office of Vietnam

A second bottleneck, and another reason a potential investor might not consider the Delta, is a lack of skilled labor. Like the region’s road density, the MKD’s percentage of trained labor lags behind the national average; according to data collected by GSO (General Statistics Office of Vietnam) the Delta’s percentage of trained labor stood at just over half of the national average. In addition, the proportion of Delta residents with some sort of higher education stood at less than 1%, or in other words, just a fifth of the national average. With a workforce that is so poorly trained and educated, the Delta becomes an even less attractive region for investment, especially when compared to the populations near the Red River Delta (Hanoi and its environs) or Ho Chi Minh City.

What’s more, those Delta residents that have some technical training and/or higher education do not stay in the Delta for long. As the region’s economy falls farther behind the rest of Vietnam, more and more Delta residents are moving to urban centers to look for work. One of the main destinations for these people is Ho Chi Minh City, where over half of the city’s migrant workers come from the Mekong Delta. What trained labor the MKD might have ends up leaving the region for greener pastures, thus widening the gap between the Delta and places like Ho Chi Minh City.

Source: Dr. Ho Long Phi, processed from data of General Statistics Office of Vietnam

Source: Dr. Ho Long Phi, processed from data of General Statistics Office of Vietnam

One reason that the MKD has such a low percentages of trained labor and educated inhabitants is that in the past there was no need for supplementary education of any form. In an environment where the annual rice yields are stable and prices are good enough, investing time and money for a new career is an unnecessary risk and one that Delta residents have not taken. Paddy rice cultivation requires little technical skill yet provides a modest, usually stable income. However, the income provided from rice is rarely enough to invest in the expansion of other industries and in the Delta’s case, the lack of infrastructure makes such an investment an even more expensive proposition.Unfortunately for the farmers of the Mekong Delta, rice cultivation is becoming a less and less stable enterprise. For one, the price of rice has dropped in the past decade. As more and more rice is produced worldwide, the seven tons of rice the Delta exports annually decreases in value and farmers lose out.

However, shifts in the world rice market are nothing compared to problems farmers face due to global warming. As detailed here, rising temperatures, sea level rise, an erratic precipitation and flood schedule and more frequent tropical storms all threaten to radically alter the Mekong Delta in the next century. The region already has enough impediments to development with its lack of infrastructure and trained labor; its environmental issues only add to the severity of the situation. The Delta, now more than ever, is in acute need of solutions. However, who’s coming up with these solutions, if there are any to begin with, is another question unto itself and one that needs to be answered before any future for the Mekong Delta can be imagined.

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Filed under Agriculture, Economic development, Environment and sustainability, Mekong River, SLIDER, Sustainability and Resource Management, Vietnam