China's New Silk Road plan should focus on strategic links to Southeast Asia

Winston Mok says they offer China a chance to redraw world's shipping map and energy routes

PUBLISHED : Monday, 11 May, 2015, 3:00am
UPDATED : Monday, 11 May, 2015, 3:00am

China's ambitious New Silk Road initiatives have continued to gather steam. From Central Asia to Europe, Southeast Asia to South Asia and Africa - the scope extends beyond infrastructure development to trade and investments. All things to all people, the all-inclusive, semi-global programme covers more than 60 per cent of the world's population.

It may be easier to define the ambitious "one belt, one road" programme by what is absent - the New Worlds that lay undiscovered in the age of the ancient Silk Road: the Americas and Australia.

To digest the significant overcapacities in China, it will perhaps take more than half the world. But the potential economic value to China varies significantly across regions. Europe is a large market. Africa and Middle East are important sources of raw materials and energy.

In China's backyard, not every country in Central Asia is resource-rich and most are small markets. What they have in common is a high level of corruption. So, Chinese companies will have to prudently assess the risks and returns of projects in these countries. Amid the wide scope, the New Silk Road may benefit from focusing on those areas promising the highest economic and strategic returns.

Southeast Asia appears to have responded most enthusiastically to China's New Silk Road overtures. And rightly so. For there, the economic logic may be most compelling. Since the time of Zheng He, when most kingdoms in the region were sparsely populated, Southeast Asia has seen tremendous population growth. The 600 million people in the region are now nine times the scale of Central Asia.

Other than trade within the Association of Southeast Asian Nations, China is Asean's leading trading partner. Asean is China's third-largest trading partner, after the EU and US. Most overseas Chinese live in the region. Greater mutual flows of goods, people and capital will promote economic growth for both sides.

When Premier Li Keqiang visited Bangkok earlier this year, he witnessed the inking of a deal for Chinese-financed and constructed rail lines in Thailand. They include a critical section of the strategic Kunming-Singapore railway, which will provide China better access to the 260 million consumers in mainland Southeast Asia - Indochina.

But there is a much bigger play in Indochina with significance beyond the region. Ships leaving China's east coast have to circumnavigate past Singapore through the Strait of Malacca before reaching the Indian Ocean. With the right land connections, Indochina can become China's "west coast".

When the Kunming-Singapore railway is complete, China will have good overland access to Malaysia's Port Klang and Singapore. Port Klang will give China direct access to the Indian Ocean, bypassing the Strait of Malacca - increasingly a choke point. But Chinese goods still have to travel quite far south by rail to Port Klang.

Ports up on Myanmar's coast, such as Dawei, west of Bangkok, would be closer. China's rail connection to Bangkok, if extended west over Myanmar to the Andaman Sea, could make Dawei a key "west coast" port for China.

Indochina's west coast may provide ready ocean access for China's southwest. But for exports from China's economic centres of the Yangtze and Pearl river deltas, Shanghai and Shenzhen will still be more convenient points of departure.

All ocean traffic between East Asia and regions to the west - Europe, the Middle East and Africa - has to pass through the Strait of Malacca, or larger straits further south. The Thai Canal would provide a fully fledged bypass: a more direct path for all ships without the need to circumnavigate the Strait of Malacca, through which a quarter of world sea trade passes. This could be a landmark project for the new Asian Infrastructure Investment Bank, as many members are stakeholders.

There is a strong business case for the Thai Canal. The annual savings in shipping costs would be immense. On the drawing board for centuries, a multilateral effort coordinated by the infrastructure bank could perhaps finally make it happen. At an estimated cost of US$20 billion to US$25 billion, it would have far greater global impact than most other mega projects under consideration or development.

China's New Silk Road can offer more than trade and investments along the old Silk Road supported by improved infrastructure. Beyond its importance as a large and growing economic region, Southeast Asia represents a critical trade path with a role similar to, but greater than, Central Asia's in history. Much of East Asia's exports and energy imports pass through the Strait of Malacca. By developing rail, ports and possibly a canal in Indochina, China can redraw the world's shipping map and energy supply routes.

Winston Mok is a private investor, a former private equity investor and McKinsey consultant. An MIT alumnus, he studied under three Nobel laureates in economics