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Right on Track

China has a plan. The renowned ‘New Silk Road’ project—linking the world’s biggest producer to Europe and beyond—is to be complemented by a new southern artery that will connect China with markets in Southeast Asia. The southern Chinese city of Kunming will be linked to the ASEAN region via high-speed rail network divided into three sections, one going west to Myanmar, another south through Laos, and a third branch to Vietnam. Roughly halfway along the length of the railway, all three streams will converge just outside Bangkok and continue south along the Malay Peninsula toward Malaysia and Singapore.

Taking advantage of this, Thailand is keen to position itself as a hub along this soon-to-be crucial trade route. On December 19, 2015, Deputy Prime Minister Prajin Juntong and Chinese State Councillor Wang Yong officially launched the USD14.8 billion joint railway scheme. For now, the project will concentrate on an 870km single-track line connecting the northeast Nong Khai province on the border of Laos to the automotive and industrial hub of Rayong via Kaeng Koi, while a shorter line will connect Bangkok to what will effectively become the Kaeng Koi intersection.

Speaking at the launch, Thailand’s Transport Minister Arkhom Termpittayapaisith said that construction will begin in May 2016 and is expected to take approximately four years to complete. The minister also noted that a special purpose vehicle (SPV) would be created to overlook construction, track-laying, installing signal systems, and maintenance. Nonetheless, the investment ratio between the two countries into the SPV is still being discussed, and this, along with the overall investment cost and interest loans from China, is proving to be a sticking point in negotiations. China is insisting on charging 2.5% for the project, while Thailand is holding out for a rate no higher than 2%. Likewise, Thai authorities made a proposal to their Chinese counterparts that Beijing hold a 60% stake in the SPV, and if these conditions are accepted, an agreement will be signed during a future meeting of relevant officials.

China’s interests in the Pan-Asian rail network are clear; with the US exerting its economic influence across the globe through multinational trade agreements such as the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP), China is responding by investing in new mass-infrastructure projects across the Eurasian continent to ensure the fast and efficient delivery of its own manufacturing output.

Thailand’s ambitions for the project, while more modest, play an equally crucial role in the sustainable development of the country. The government led by Prime Minister Prayut Chan-o-cha and Deputy Prime Minister Somkid Jatusripitak, who is responsible for the state’s economic affairs, has pledged its commitment to a series of initiatives to develop the north-eastern part of the country, after the region suffered its second consecutive recession in 2015. The Sino-Thai rail project will therefore provide a backbone to the local economy which heavily relies on agriculture and trade with neighbouring Laos. The project will also be complemented by plans to invest over $970 million in housing developments in the region and so-called “village funds” to help boost rural consumption.

Moreover, China is not alone in trying to establish a strong footing in ASEAN. With the ASEAN Economic Community (AEC) coming into effect at the beginning of 2016, Thai firms are rapidly pouncing on the surging growth in Cambodia, Laos, Myanmar, and Vietnam by moving their production facilities into the region. In this regard, the unprecedented high-speed connectivity which the Pan-Asian rail network will provide will be a gamechanger in positioning Thailand as an industrial and logistics hub for the region.

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