China Expands Trade Networks Through South-East Asia

March 2, 2015

China’s government has been agreeing rail development projects with Thailand, Laos, Malaysia and Singapore during the past year. Taken together, the agreements constitute a larger scale plan to develop new rail infrastructure which, if completed, will alter trade flows in the region and open up new areas for development. 

 

Work has already started in most cases, with Forbes reporting that work had started in December 2014 on links between Laos and the South China city of Kunming, as well as on other project lines in Thailand, Malaysia and Myanmar. 

 

China’s drive to involve itself in infrastructure build-out is welcome for countries like Laos and Myanmar, who lack the funds to upgrade and invest in their rail infrastructure. Aside from building relationships, the Chinese government has underlying strategies at play that break down as follows:  

 

  • Building rail links helps move low-cost domestic manufacturers away from the mainland and is in line with the government’s ‘go-abroad’ policy. Chinese businesses can migrate out of traditional manufacturing bases to exploit lower labor costs in Laos and Myanmar, whilst retaining access to mainland markets. By signing infrastructure deals, the Chinese government is creating demand for its own companies services whilst giving it leverage on strategic trade links, which will further its political influence.

 

  • New trade links offer better port accessibility. Ports in Bangkok and Myanmar will be closer to China’s exporters both in the West of the mainland and those newly settled factories in Laos and Northern Thailand. By developing a trade link through Thailand that can be linked to new port projects in Myanmar, Chinese exporters will benefit from faster delivery times. because their consignments won’t have to travel around the Malaysian peninsula. 

 

  • China can tap into new energy supply routes. Ports in Bangkok, Singapore and Myanmar have more direct access to international shipping routes, particularly those that carry oil and commodities. By differentiating its energy supply routes, China mitigates against the risk of unrest in the South China Sea affecting its energy imports. 

 

China's efforts will, if realised, reshape infrastructure in South East Asia, join nations together and promote trade. 

 

That said, despite China’s love of a big project, an endeavour of this scale is a huge undertaking. The logistics are large enough with around 3,000 miles of rail track to be built across the region. 

 

China might point to its success in its own domestic network but a dramatic scale-back in its grandiose plans after the Wenzhou rail disaster in 2011 gives the rub to its ambitions and recent inquiries into the industry in China have uncovered fraud and mismanagement on a grand scale. 

 

The project also raises the question of whether China and its businesses can cope with dissent and the unpredictability of the political situation in South East Asia, much of which is hostile to overt Chinese influence. This is a unique challenge for Chinese construction companies, since they will have to adapt to dissent-free operating environments quite differed to what they are used in mainland China. 

 

Rail projects alone are seen to be an agent of cargo, and will ‘serve the geopolitical interests of the Chinese government to link to Thailand, Malaysia and Singapore’ rather than delivering tangible economic benefit to the people of the countries concerned, according to Greg Wood, railway consultant quoted in Forbes. 

 

That said, such criticisms are too narrow since the proposed train lines will open up new trade hubs in the South East Asia region, which will attract investment - not all of which will be Chinese - and create employment, much in the way that industrial investment in the North of Vietnam has driven economic development in the area, largely from infrastructure links to mainland China markets.

 

While the construction challenges are considerable, the projects speak to two trends - closer trade links and China’s increased prominence on the international business scene - that will drive development in the region in the coming years. Similar developments include the proposed New Silk Route linking China to Central Asia, as well as road and rail between Pakistan, India and Bangladesh. 

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