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back to index backASIAtalk May,  2017


Thai-China Belt and Road Link on Track

A fast-rail link is set to boost the Thai economy while helping to bring the 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. Project negotiations between China and Thailand have been protracted, with the two parties disagreeing over several key issues. Last September, however, agreement was reached for the first phase of the project to begin later this year.

Expected to cost 500 billion baht (US$14.2 billion), the project is a key element of China's Belt and Road Initiative. Its proposed first phase will focus on the construction of a 256-kilometre high-speed railway link from Bangkok to the Thai city of Nakhon Ratchasima, and is expected to take three years to complete.

The second phase expected to take up to two years will focus on building a 355-kilometre rail link from Nakhon Ratchasima to Nong Khai, a northeast Thailand city near the Lao border. Once completed, the line will connect directly to the China-Laos railway, putting the Lao capital Vientiane within four hours journey time of Bangkok. From Vientiane, travelers can proceed to Kunming, the capital of China's Yunnan province.

Good Fit

A proposed third phase would see the construction of a 246.5-kilometre line linking the two provinces of 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 considered a good fit with Thailand's own infrastructure development strategy a comprehensive five-part, 1.9 trillion baht plan scheduled for completion by 2022. Overall, these initiatives are tied into the country's goal of establishing itself as the key strategic and logistics gateway to the ASEAN Economic Community.

The potential gains from the Thailand-China railway are considered hugely significant for Thailand's development. An academic study by John Draper and Peerasit Kamnuansilpa, two lecturers at northeast Thailand's Khon Kaen University, indicated that the project would improve Thailand's connectivity with Myanmar, Laos and Vietnam via similar local Belt and Road-related projects. The connection with Myanmar is expected to ultimately lead to the creation of a new economic corridor linking China, Bangladesh and India.

Railway Benefits

The study also concluded that once the Thailand-China railway links up to the Trans-Asia railway, Bangkok will directly connect to Chengdu, the capital of Sichuan province, home to thriving electronics, IT, and car-manufacturing sectors. It will also bring Bangkok to within 15 days of rail-freight time to Lodz, Poland's third-largest city.

Other expected benefits include a sharp increase in the number of Chinese mainland tourists travelling to Thailand. China is already Thailand's leading, and fastest-growing, tourism source market. In 2015 alone, Thailand attracted eight million mainland tourists, a 71 per cent increase on 2014. These 2015 visitors accounted for 376 billion baht in revenue, an 87 per cent rise on 2014. Mainland tourists now account for more than 25 per cent of all overseas visitors to the country.

Good Economic Sense

From China's perspective, Thai investment is seen as making good economic sense. Not only is Thailand's location geographically advantageous, the nation 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, rail project negotiations have been far from smooth. Among the concerns raised were the interest rate China proposed with regard to its financial support, the overall ownership structure and the construction costs of the project. Thailand is also believed to have baulked at 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 through 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 expected 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 economic well-being.

Source: HKTDC - GAI



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