Source:
https://scmp.com/week-asia/economics/article/3166748/delays-hit-china-thailand-high-speed-railway-bangkok-counts
This Week in Asia/ Economics

As delays hit China-Thailand high speed railway, Bangkok counts the cost of paying its own way

  • Thailand chose to forgo Chinese funding for a planned US$5.4 billion rail link, but money’s been tight since the pandemic hit its tourism-reliant economy
  • Its holding up belt and road plans for a pan-Southeast Asia railway, but analysts say Bangkok’s still in Beijing’s good books – as a recent submarine deal shows
A train is ready on the station during the handover ceremony of the high-speed rail project linking the Chinese southwestern city of Kunming with Vientiane, in Vientiane, Laos, December 3, 2021. Reuters photo: Phoonsab Thevongsa

Every day, Laos’ first high speed train linking its capital Vientiane to Boten, a city on the Chinese border, leaves the station and brings goods and people up and down along its 414km route.

The daily routine started in December following the completion of the rail link that took five years to build.

In the northeast of Thailand, a planned rail line is being constructed to connect with the Laos section. The route, part of Beijing’s global trade strategy known as the Belt and Road Initiative, aims to connect Chinese trade and tourists to mainland Southeast Asia and through to the Strait of Malacca.

A train is seen in December on the China-built railway that connects Vientiane in Laos to the Chinese city of Kunming. Photo: Getty Images
A train is seen in December on the China-built railway that connects Vientiane in Laos to the Chinese city of Kunming. Photo: Getty Images

But in Thailand, it could be at least a decade before Vientiane and the Thai capital Bangkok, situated more than 600km apart, could be connected via the high speed railway.

The Thai section comprises three parts: the 253km Bangkok-Nakhon Ratchasima section, the 356km Nakhon Ratchasima-Nong Khai section and a 16km track connecting Nong Khai to Vientiane. The Thai government expects the first phase to be operational in 2026.

Thailand’s fiscal challenges, and the Covid-19 pandemic, could yet derail the construction timetable, however. In 2016, the government of Prayuth Chan-ocha reached the conclusion that Thailand would fund its section of the railway, with China only providing technical and design assistance following Bangkok’s 2017 signing of deals with Chinese state enterprises. The agreements include a contract that covers the detailed engineering design and the hiring of Chinese technical advisers.

That only came after lengthy years-long talks between Thailand and China that began long before Prayuth took power in a 2014 coup. The agreements were publicly scrutinised at the time because China reportedly requested the right to manage the land around the railway station, an issue which could affect Thai sovereignty.

Unlike the 414km, US$5.9 billion Laos section, which was completed in five years thanks to 70 per cent of the budget being covered by Beijing and loans, the 179-billion-baht (US$5.4 billion) fund for the Thai section’s first phase will be sourced domestically. This helped abate public worry about the extent of China’s control over the project, but its schedule has faced setbacks. In 2019, a government official said the project should be finished in a few years. In December, the government said the first phase was less than 3 per cent complete.

Opportunity costs

Analysts said Thailand could afford to forego China’s funding but it has put itself, and the project, at risk financially, which would mean a further delay. The first phase of the project was expected to be operational by 2026, a timeline that has been pushed back by at least three years.

Thailand’s economy has been one of the hardest hit in Southeast Asia after Covid-19 wiped out its tourism industry. Huge stimulus and relief schemes have helped pour money into the economy at the cost of a vulnerable fiscal state, as public debt skyrocketed and people have to contend with a higher cost of living.

Critics have warned Thailand’s opportunity costs will increase the longer it takes to construct the railway. Pavida Pananond, a professor of international business at Bangkok’s Thammasat Business School, said Thailand’s opportunity to leverage its “geographical location advantage” could slow down its goal of becoming a logistics hub in Southeast Asia.

“Although Thailand is a crucial node in the intraregional railway network, further delays would increase costs of construction as well as hamper the development of other businesses that could benefit from this infrastructural connectivity,” she said.

Pavida also said with Thailand’s debt to GDP level at almost 60 per cent, it is doubtful the country’s financial situation will improve or “accelerate any time soon”.

Other critics doubt how committed the government is, or can be, to the rail project given current economic conditions. Termsak Chalermpalanupap, a visiting fellow at the Thailand Studies Programme of the ISEAS – Yusof Ishak Institute in Singapore said: “Unfortunately, during the past two years, the Thai government has had to spend a lot of money on tackling various emergency issues arising from the Covid-19 pandemic. It has less and less money for the [rail] project, which has never been a high priority for Thailand to start with anyway.”

For Termsak, Thailand’s priority logistics project has been the rail project linking the three airports of Don Muang, Suvannabhumi and U-tapao – part of the government’s flagship Eastern Economic Corridor infrastructure project, which aims to overhaul the country’s economy.

Chinese funding

In Thailand, the rail project has at times become bogged down by political sentiment towards it.

Thailand and China reportedly started discussing the possibility of co-developing the railway even before Beijing officially launched its belt and road plans in 2013.

That year, the government of Yingluck Shinawatra sought lawmakers’ approval for a 2-trillion baht borrowing bill to fund the mega transport project, which included the development of a high-speed rail line linking Bangkok to her hometown of Chiang Mai in the north.

The former prime minister argued that the line would transport people and goods such as vegetables, a point much ridiculed by the opposition. The Constitutional Court later turned down the borrowing bill just months before Yingluck was overthrown in a coup led by Prayuth, the current prime minister.

Panitda Saiyarod, lecturer at Chiang Mai University’s department of sociology and anthropology, said the deals China negotiated with Thailand and Laos differ for political and economic reasons. She said the length of time it took to reach an agreement in 2016 on Thailand self-funding the project showed that the China-Thailand negotiation process was more complicated than Beijing’s talks with Laos. “It is unlikely that China would exert control over the Thai government as [might be the case] with the Laos government,” she said.

Termsak from the ISEAS – Yusof Ishak Institute said certain loan conditions between Thailand and China were not agreed upon. However, currently “China is also no longer in a position to fund all [belt and road] projects like in the beginning”.

“Concerns on Chinese funding are also valid as it may come with many other conditions not so favourable to Thailand. It is a delicate situation that needs to be handled in a careful and transparent manner in order to make sure that public money is spent wisely,” Thammasat Business School’s Pavida said.

Issues of a trade deficit between Thailand and China could be another factor influencing the funding of the high speed railway. James Guild, adjunct fellow at the Singapore-based S. Rajaratnam School of International Studies, said it might be wiser for Thailand “to slow things down and wait to see how the China-Laos railway pans out over the next couple years”.

“Thailand actually runs a pretty significant bilateral trade deficit with China, so I’m sure they don’t want to spend US$10 billion on a high-speed railway when public finances are tight only to see that result in even more imports from China a couple years from now.”

Stronger ties

Despite the rail project being behind schedule, Termsak believes that Thailand’s relations with China are actually growing stronger.

“China might soon give the Royal Thai Navy a free second-hand Song-class diesel submarine,” Termsak said, which could “improve the prospects of the Royal Thai Navy to successfully request new funds to buy the second submarine from China and get the third one free”.

The Thai Navy has faced fierce public opposition towards its planned purchase of China-made submarines in the wake of the pandemic. Last month, defence news website Shephard reported that China was offering two second-hand submarines to the Royal Thai Navy for training, since the S26-T submarine it has on order is unlikely to be completed on time.

A model showing a cross-section of an S-26T submarine, such as Thailand has ordered from China. Photo: Handout
A model showing a cross-section of an S-26T submarine, such as Thailand has ordered from China. Photo: Handout

The Thai Navy bought the first from China Shipbuilding & Offshore International Co Ltd for US$375 million in May 2017. The ship is currently being built at Wuchang Shipbuilding Industry Group in Wuhan with reports that China will request delivery be postponed until April 2024, according to Shephard.

In 2020, Bangkok had a 22.5 billion-baht option for two extra submarines for delivery in 2026, a proposal that was put on hold after the pandemic hit, battering Thailand’s economy.

Guild, from S. Rajaratnam School of International Studies, said opposition towards the submarine purchase reflected the “fraught political and fiscal environment” in Thailand that “places constraints on how much additional money [Bangkok] can borrow in order to build a multibillion-dollar high speed rail network right now. I’m not surprised that they might try and slow-walk this [rail] project for the time being.”