China’s One Belt One Road Projects in ASEAN

ASEAN Members Require USD 2.8 Trillion to Meet Infrastructure Investment Needs in 2016 – 2030

　The ASEAN Master Plan on Connectivity 2025 was adopted in September 2016 in Vientiane, Lao People’s Democratic Republic (Lao PDR) as the blueprint to enhance, expand and improve physical, digital, and logistical infrastructure linkages as well as regulatory and people connections.

　Within the physical infrastructure field, the ASEAN Master Plan on Connectivity focuses on transport, information and communication technologies, and energy infrastructure connections among ASEAN member states. Major projects within this sphere include the ASEAN Highway Network (AHN), the Singapore – Kunming Rail Link (SKRL), The ASEAN Roll-on/Roll-off (RoRo) Shipping Network and Short-sea Shipping, the ASEAN Power Grid (APG) and the Trans-ASEAN Gas Pipeline Network (TAGP).

　However, ASEAN member states also face challenges in funding infrastructure needs in their countries. According to the ASEAN Investment Report 2015, various researches estimate that the region’s annual infrastructure funding needs will exceed USD 110 billion, up to six times more than the amount spent previously. Similarly, the Asian Development Bank estimates ASEAN’s infrastructure investment needs will reach a total of USD 2.8 trillion for the period of 2016 – 2030, or equivalent to around USD 187 billion annually.

China Targets ASEAN Infrastructure Projects to Realise Parts of One Belt One Road Initiatives (OBORI)

　Since being officially unveiled in 2013, China’s One Belt One Road Initiatives (OBORI) identify South East Asia as one of the most crucial regions to implement major infrastructure projects to connect the country to the World. South East Asia region’s immediate proximity to China and its crucial maritime gateways feature prominently in the OBORI plans.

　Even before OBORI announcements, the Chinese government already created initiatives to help in the development of ASEAN’s member states’ infrastructure development. Chief of these efforts was the creation of the China-ASEAN Investment Cooperation Fund (CAF) in 2010 under China’s sovereign wealth fund. The quasi-sovereign fund announced in January 2018 of its target to raise USD 3.0 billion in a new round of investments from China’s state-owned firms to participate in the OBORI projects in South East Asia.

　China’s Foreign Direct Investments (FDI) into ASEAN member states continued to grow to USD 11.3 billion in 2017, almost two times the average annual inflow of USD 6.4 billion over 2013 – 2015 (ASEAN Statistics). China alone accounted for 8% of total FDI inflow into ASEAN countries in 2017, only after Japan (10%) in terms of net FDI by an individual country in the year.

Source: ASEAN Statistics

Source:  ASEAN Statistics

China’s Main Infrastructure Initiatives in ASEAN Region Comprise Rail Networks and Maritime Connections

　According to the OBORI plans, China’s key initiatives in South East Asia region are to connect the capital of Yunnan province, Kunming with ASEAN member states’ major cities. This overall objective is to be realised via two major plans: the Singapore – Kunming Rail Link (SKRL) and the Maritime Silk Road Initiative (MSRI).

　The SKRL plan will enable undisrupted, rapid transportation of Chinese goods for export to all countries within mainland South East Asia which include Cambodia, Lao PDR, Myanmar, Thailand, Malaysia, Singapore and Vietnam. On the western front of this project, the rail connection between Myanmar’s largest city, Yangon (Rangoon) and Kunming will be one of the key areas of the development of the Bangladesh – China – India – Myanmar (BCIM) Economic Corridor. On the central route running through Cambodia, Lao PDR, Malaysia, Thailand and Singapore, the rail network will enable Chinese goods to reach all major higher developing countries in the region: Thailand, Malaysia and Singapore as well as providing another route to reach the archipelago of Indonesia beside the traditional sea-trade route via the South China Sea.

Singapore – Kunming Rail Link (SKRL) Network Plans

Source: Geopolitical Monitor

Major Projects under the SKRL Master Plan

　Kunming – Vientiane

　Location: Lao PDR and China

　Total Project Cost: USD 6.04 billion

　Total Length: 427 km

　Investment: Laos-China Railway Co., Ltd joint venture between China (70%) and Lao PDR (30%)

　Status: Under Construction – Completion Date: 2021

　The project is worth almost 40% of Lao PDR’s GDP in 2016 (USD 15.8 billion) with 30% of the total capital under the form of loans from the group of Chinese banks led by the Export – Import Bank of China. With public debt ratio to GDP standing at around 70%, plus a government budget deficit, the project puts significant additional strain on the country’s finances.

　Vientiane – Nakhon Ratchasima – Bangkok

　Location: Lao PDR and Thailand

　Total Project Cost: USD 5.4 billion (Bangkok – Nakhon Ratchasima section)

　Total Length:  252 km (Bangkok – Nakhon Ratchasima section), 350 km (Nakhon Ratchasima – Nong Khai section)

　Investment: Thai government for Bangkok – Nakhon Ratchasima section

　Status: Construction to start in early 2019 for Bangkok – Nakhon Ratchasima section. Feasibility study for Nakhon Ratchasima – Nong Khai section to be completed in 2018.

　Although the project was originally pitched by the Chinese government, due to disagreements on loans terms offered by Chinese banks participating in the project, the Thai government decided to build the entire railway portion on the Thailand side with its own funding. After much delay, the construction for the Bangkok – Nakhon Ratchasima section is scheduled to start in early 2019 and the feasibility study for the Nakhon Ratchasima – Nong Khai section is to be completed by 2018.

　Bangkok – Kuala Lumpur

　Location: Thailand and Malaysia

　Total Project Cost: estimated USD 50 billion (compared to the Beijing – Shanghai High Speed Rail project which costed USD 33.1 billion)

　Total Length: ~ 1,500 km

　Investment: Unknown

　Status: Under early stage negotiations

　Given its massive scales and geographical challenges, this portion of the central SKRL network is forecasted to be delayed for at least another 10 years according to BMI Research. While both Malaysia and Thailand governments express their interests in developing the project, recent political and fiscal events in Malaysia prove to be enormous obstacles against the project. With Malaysia currently locked in negotiations to reduce and delay several infrastructure projects with China and Singapore signed by the previous government, the Bangkok – Kuala Lumpur railway project might not be realised anytime soon.

　Kuala Lumpur – Singapore

　Location: Malaysia and Singapore

　Total Project Cost: USD 15 billion

　Total Length:  335 km

　Investment: Malaysia and Singapore governments

　Status: Construction start date delayed to 2020 with complete date delayed to 2031 (originally 2026)

　Although the Kuala Lumpur – Singapore High Speed Rail project was first raised in the 1990s, the project was never realised until 2013 where both governments agreed to proceed. Slated to start construction in 2019 with land acquisition activities started in late 2017. However, the new Malaysian government under Dr. Mahathir Mohamad wishes to cancel or delay the project entirely citing unsustainably high costs amidst straining public finance situation. In September 2018, both governments announced that the project has been delayed to 2020 with completion and operational date to be delayed to 2031, 5 years later than originally planned.

Major Projects under the MSRI Master Plan in South East Asia

　Under the MSRI, China aims to develop maritime connections over the Indo-Pacific region, traversing the continuous trade links between East China Sea and the Indian Ocean, via the important Malacca Straits. There are 3 major port projects that fall under the MSRI plan: Kyaukpyu (Myanmar), Hambantota (Sri Lanka) and Gwadar (Pakistan).

　Kyaukpyu Deep Sea Port & Special Economic Zone

　Location: Kyaukpyu, Rakhine State, Myanmar

　Total Project Cost: USD 10 billion (Deep Sea Port: USD 7.3 billion, Special Economic Zone: USD 2.7 billion)

　Investment: Chinese-backed loans

　Status: Rescaled to USD 1.3 billion for a first phase for the deep sea port.

　Kyaukpyu is a strategic development project within the OBORI by China. Kyaukpyu is projected to play an important role for China’s access to the Indian Ocean, facilitating transportation of crucial oil and gas import via the pipelines across Myanmar to Yunnan, China. This alternative transport route offer China more security than the current Malacca Straits shipping route that is prone to higher level of political risks. Trading activities with Europe, the Middle East and Africa can be shortened by thousands of km and more efficient than the current traditional route around the Malacca Straits.

　Due to the recent troubled Hambantota port project, the Myanmar government wants to renegotiate the deep sea port project to reduce the scale of the deep sea port project to USD 1.3 billion from the agreed USD 7.3 billion. Specifically, the number of berths would reduce to 2 from 10. The latest round of negotiation is yet to be concluded.

Kyaukpyu Grants China Access to the Indian Ocean Directly, bypassing the Malacca Straits

Source: Geopolitical Monitor

Other Major Chinese Invested Infrastructure Projects in South East Asia

　Sino – Myanmar Pipelines Project

　Location: Myanmar and Kunming and Guigang, China

　Total Project Cost: USD 2.54 billion (oil and gas pipelines)

　Total Length:  2,520 km (793 km in Myanmar)

    China National Petroleum Corporation, Myanmar Oil and Gas Enterprise, Daewoo International (KOR), Korea Gas Corporation, Indian Oil, and Natural Gas Transmission Company (IND) – natural gas pipelines.

　Status: Operational since April 2017.

　The Sino-Myanmar Pipelines are one of the three oil and gas transmission routes that are aimed to diversify China’s reliance on the Malacca Straits shipping routes. Currently, around 80% of China’s imported oil and gas still pass through the Malacca Straits from the Middle East.

　With a designed capacity of 22 million barrels of oil per year, the pipelines are projected to account for around 6% of China’s 2016 oil import.

Sino-Myanmar Pipelines Enable China to Diversify Its Oil & Gas Import from the Straits of Malacca

Source: South China Morning Post

　Jakarta – Bandung High Speed Rail

　Location: Java, Indonesia

　Total Project Cost: USD 5.5 billion

　Total Length:  150 km (Jakarta – Bandung section)

　Investment: China Railway Corporation, Wijaya Karya and Jasa Marga with loans from China Development Bank

　Status: Land acquisition stage. Delayed completion date to 2024 from 2019.

　The Jakarta – Bandung High Speed Rail is a major railway project that was awarded by Indonesia to China in 2015. The 150 km high speed rail line will connect Jakarta with Bandung along the length of the Java Island, with further expansion to eventually reach Surabaya on East Java.

　After a long and fierce bidding battle between Japan and China, the Indonesian government chose China, pointing to China’s willingness to forgo Indonesian government’s financial guarantee of the project as the main reason.

Source: Kompas Research Centre