China’s Making Tracks In Southeast Asia

Courtesy of The Economist, an interesting article on China’s renewed push to lay tracks to mainland South-East Asia:

THE rapid expansion of its high-speed railways has got China plenty of attention. Yet ambitions do not stop at the border. On its southern flank China is renewing a push to lay tracks to mainland South-East Asia. The region’s leaders have dreamed since the 1990s of seamless rail travel between Singapore and Kunming, capital of the south-western Chinese province of Yunnan. South-East Asia’s existing network of railways is creaking, patchy and underfunded. Most goods move about the region by lorry and ship. But that creates choke points while running up fuel bills. An integrated rail system could be just the ticket.

Enter China, chequebook in hand. It has recently signed agreements to build new lines in Laos and Thailand, while it extends its network from Kunming to the China-Laos border. These lines are meant to be ready by 2015. The benefits may be huge. Most countries along the route have already hitched their wagons to China’s outsize economy and are eager for more trade. China’s free-trade agreement with the Association of South-East Asian Nations (ASEAN), which took effect a year ago, has cut tariffs on most traded goods. The region still has natural resources, which China is keen to strip.

Empire-builders love railways. Most of South-East Asia’s were laid during colonial rule, as Britain and France pushed inland. In a region with American leanings, China wants to bind its neighbours into an economic sphere with strategic weight. Laying lines into Myanmar, with a large but decrepit network, would add a coveted Indian Ocean port. More regional trade with its centre in Yunnan spreads wealth inland, another Chinese objective. Trains already shuttle between China and Vietnam, which has a north-south railway. This linkage opens up the possibility of a circuitous eastern route into South-East Asia, via Cambodia and Thailand. Both countries belong to the Greater Mekong Subregion, a grouping fostered by the Asian Development Bank (ADB) that also includes Vietnam, China, Laos and Myanmar. According to the ADB, it would cost $1.1 billion to build the missing links along this route, making it the cheapest way to connect the region. Some $7 billion more would be needed to upgrade existing lines and rolling-stock. By 2014, once this route is operating, it would carry almost 7m tonnes of cargo among Greater Mekong countries, rising to 26m tonnes by 2025, the ADB reckons. Greater Mekong countries duly backed the plan in August.

Yet China quickly upended this consensus. In December Laos said China would build a $7 billion high-speed railway from the border to its capital, Vientiane. Construction is set to begin in April. Meanwhile, Thailand is negotiating with China to build a connecting north-south line to Bangkok, using concessionary Chinese loans. ADB officials are left scratching their heads over what this means for the Vietnam-Cambodia route, including a long stretch that China had been expected to build but which now appears to be on the back burner.

On paper, the Laos-Thailand route is more direct, but it is also far more mountainous, with 190 kilometres (120 miles) of tunnels in Laos and countless bridges. Remote areas of Laos are also littered with unexploded bombs from the Vietnam war. None of this is likely to stop a country that laid a railway up to the Tibetan plateau.

In Thailand the hazards are more political. To get around the mighty, hidebound state operator, the Thai government proposes a new line using Chinese technology to run parallel to the existing one. A Thai-Chinese entity would rent the land from the state operator and build its own signals and stations. Handily, the route would pass through Thailand’s poor and politically disaffected north-east, giving a shot in the arm to the local economy.

Thailand says that fast passenger trains would reach speeds of 200 kilometres an hour, streets ahead of what currently pass for express trains. Tourists could ride luxury carriages to exotic destinations. A fast train, says Korbsak Sabhavasu, the government’s chief negotiator, is something Thailand needed 20 years ago. But Thailand’s treacherous politics may yet intrude, as any final agreement with China needs the nod from parliament. In an election year, this is no certainty.

Tourists and trainspotters may be tickled by a fast train to China. Yet the real point of modernising the railways is cargo. Intra-ASEAN trade is growing much faster than exports to developed markets. Nearly a quarter of Thailand’s exports go to South-East Asia, with another 11% (and rising) to China. Trains are more efficient and less polluting than lorries on all but the shortest routes. Peter Broch of the ADB estimates that a rail service from Bangkok to Phnom Penh would cut the price of moving a container by two-thirds compared with moving it by ship and lorry, as now.

Even without a railway network, the region is tying itself together. Roads have been upgraded, and customs procedures are less tape-bound than they were before. When Wang Er-Chern began trading agricultural produce in northern Thailand in the early 1990s, it took two weeks to send goods by road and ship via Laos to his native Yunnan. Today the journey has been shaved to two days. Mr Wang, prominent in the Thai Yunnan Commerce Association, says a fast rail link to Kunming would be nice. But he grumbles that business has already become less profitable as more Chinese traders have got in on the act. A trainload more may soon be on the way.

This entry was posted on Monday, January 31st, 2011 at 4:29 pm and is filed under Cambodia, China.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

Comments are closed.

Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.