21 Feb 2017
Thai-China Rail Link on Track as Key Element of BRI Infrastructure
Fast rail link set to boost local Thai economy while helping to bring Belt and Road Initiative closer to reality.
The anchor project of Thailand's Belt and Road-related infrastructure plans has long been the construction of a new rail line connecting Bangkok to China via Laos. To date, though, negotiations between China and Thailand with regard to the project have been protracted, with the two parties disagreeing over a number of the key issues. In September last year, however, it was agreed that work on the first phase of the project would begin later this year.
The project, expected to cost 500 billion baht (US$14.2 billion), is a key element of China's Belt and Road Initiative (BRI). Its proposed first phase will focus on the construction of a 256km high-speed railway link from Bangkok to the city of Nakhon Ratchasima, with this initial project expected to take three years to complete.
The second phase – projected to take up to two years – will focus on the construction of a 355km rail link from Nakhon Ratchasima to Nong Khai, a northeast Thai city bordering Laos. Once completed, the line will connect directly to the China-Laos railway, putting Vientiane, the Lao capital, within four hours journey time of Bangkok. From Vientiane, travellers can then proceed to Kunming, the capital of China's Yunnan province.
A proposed third phase would see the construction of a 246.5 kilometre line linking two provinces Saraburi in central Thailand and Rayong on the country's east coast. There is also a longer-term plan to extend the line south, offering connections to Kuala Lumpur and Singapore.
The Thailand-China railway is seen as a good fit with Thailand's own infrastructure development strategy – a comprehensive five-part, 1.9 trillion baht plan scheduled to be completed by 2022. Overall, these initiatives are all tied into the country's goal of establishing itself as the key strategic and logistics gateway to the ASEAN Economic Community (AEC).
In terms of Thailand's own development, the potential gains from the Thailand-China railway are seen as hugely significant. Assessing its likely impact, an academic study by John Draper and Peerasit Kamnuansilpa, two lecturers at northeast Thailand's Khon Kaen University, indicated that it was set to improve Thailand's connectivity with Myanmar, Laos and Vietnam via similar local BRI-related projects. The connection with Myanmar was also seen as ultimately leading to the creation of a new economic corridor linking China, Bangladesh and India.
Additionally, according to the academics, once the Thailand-China railway links-up to the Trans-Asia railway, Bangkok will be directly connected to Chengdu, the capital of Sichuan province, home to a thriving electronics, IT, and car-manufacturing sector. It will also bring Bangkok to within 15 days of rail-freight time to Lodz, Poland's third-largest city.
Among the other expected benefits of the link will be a sharp increase in the number of mainland tourists travelling to Thailand. China is already Thailand's leading tourism source market and its fastest-growing. In 2015 alone, Thailand attracted eight million Chinese tourists, a 71% increase on 2014. These 2015 visitors accounted for 376 billion baht in revenue, an 87% rise on 2014. Mainland tourists now account for more than 25% of all overseas visitors to the country.
From China's perspective, its investment in Thailand is seen as making good economic sense. Not only is Thailand advantageously located geographically, but it also has highly developed logistical, trade and finance resources. By nurturing Thailand as the primary logistics hub within the ASEAN bloc, China ultimately stands to gain greater access to Southeast Asia's 600-million strong market.
Despite these clear benefits, negotiations with regard to the rail project have been far from smooth. Among the many concerns raised were the interest rate China proposed with regard to its financial support, the overall ownership structure and the construction costs. Thailand is also believed to have baulked over China's pursuit of development rights along the railway's rights of way.
These concerns led Thailand to reject China's initial funding proposal, opting instead to finance the project through domestic loans, bond issues and the establishment of an infrastructure fund. All of the trains and signaling systems, however, will still be purchased from China.
Ultimately, for the project to prove a success, Thailand will need its investment to be repaid by a substantial increase in trade. At present, its trade with China is still rising, with the country both its largest export market and its second-largest source of imports. China has also been Thailand's second-largest foreign investor, after Japan, for the past seven years.
While some see risks in Thailand's growing dependence on China, there is also a sense that it is currently by far the best option on offer. Overall, the rail project is seen as certain to strengthen Thailand's role as the key conduit for trade and expertise between the ASEAN bloc and China. With global trade entering a period of uncertainty, such a role could be crucial to ensuring Thailand's own economic well-being.
Geoff de Freitas, Special Correspondent, Bangkok