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China’s new Silk Road and its knock-on effect for Southeast Asia

China’s new Silk Road and its knock-on effect for Southeast Asia

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Singapore has done a fantastic job at creating itself as an important hub in terms of finance, logistics and marine transportation. Being a small country, and being able to leverage its key strategic location for the USA, they could capitalise on available funds for infrastructure development. This placed them at an advantage over the likes of Malaysia, Indonesia and Thailand who did not have access to such funds to develop this key infrastructure. But this is all about to change. The Asian Infrastructure Investment Fund and China’s $63bn commitment to the building of the Silk Road will level the playing field in terms of key infrastructure. Based on much of the commentary coming out of Singapore it would appear that there is a level of complacency and indignation by the local business community that does not appreciate the threat.

Historically, the first Silk Road as based on inland routes and to the north enabled China to be the leader in international trade as it carved out key transport nodes that were efficient and linked key trade markets between the east and Europe. This was partly assisted by the poor conditions in maritime transportation, not just vessels but in infrastructure support. This all changed and trade routes shifted to the southeast coastal region of the country as shipping conditions improved – with Singapore taking advantage of this shift.

China responded, and this is clearly seen by their achievements in shipping, all of which has seen China emerge as the world’s leading trade nation. Some of these achievements include the following:

  • Shanghai and Hong Kong are world leading cargo hubs.
  • Of the top 10 container ports, 7 are along the Chinese coast.
  • China shipyards are more competitive and now lead the likes of Singapore.

With this progress having taken place, the obvious question is why would China want to re-instate the inland route? I would contend that the answers provided to this question highlight the challenge that will soon confront Singapore. The reasons I offer include:

  • With China losing its low cost advantage in terms of manufacturing, it needs to structurally align its manufacturing to be closer to low cost producers such as Myanmar, Laos, Cambodia, Bangladesh and Vietnam. Not only do these countries offer a source of low cost labour, it also helps realign the economic disparity created by the maritime road impact over China’s growth over the last decade.
  • It returns capital and employment to the impoverished western region and enables the reducing of social tensions that have emerged during the China growth phase.
  • Strategically wants to replace maritime trade with inland trade as it will reduce its perceived threat of USA control over sea routes via their allies in Singapore, Japan and Korea. Consider this in the light of the ongoing territorial disputes in the South China Sea. It is argued that the Silk Road / inland route strengthens its maritime position as enhances trade capability to Europe.
  • Reduces the dependency on maritime / sea trade and energy imports.
  • It eliminates the security risks, particularly with regard to oil / gas supply, associated with increased piracy and dangers in using the Malacca Straits.

Developments that suggest this is happening and the strategic imperatives are being addressed and implemented – it is no longer a dream, but is fast becoming reality. The developments include:

  • Thai Canal bypassing the Malacca Strait allowing access to Myanmar and possibly stimulating growth in Myanmar maritime traditions.
  • New road, rail and air infrastructure provides Kunming better access, particularly ocean access, to the likes of Myanmar, India, Europe.
  • Beijing is building a new airport with improved logistics and there are new air hubs in Chengdu and Xian.
  • Deepwater port facilities and oil/gas pipeline at Kyaukpyu in Myanmar, connecting Yunnan province, and have seen the start of shipping direct from China to Kyaukpyu and reducing steamtime significantly in that no need to use Singapore.
  • Dawei port development with related improved infrastructure linking it with Bangkok, again improving shipping and transport times.

The opening of the Chongqing rail route, the cheapest of five railway routes from China to Europe, the cost of moving a container using this route is in the region of $9,300. Not only is it competitive, it is twice as fast as shipping and is a more effective method of moving hi-tech and automotive parts.

Singapore can take steps and counter by enhancing and entrenching the role it plays in other sectors – areas that are potentially weaknesses in China’s new strategy. These would be to further enhance its capability in providing:

  • Finance, corporate and currency support by becoming the ‘Wall Street’ of Asia
  • IT support in that China does not have the bandidth to handle current information demands as well as having a firewall that does not allow clear visibility in the supply chain ( I would regard IT as a major weakness in China particularly when it comes to logistics).
  • Export maritime expertise by becoming involved in Myanmar development.

In conclusion, the infrastructure deficit currently in Southeast Asia is being addressed by the Asian Infrastructure Fund. This initiative promotes capital and technology investment into the necessary ports and transport routes that will better facilitate trade in the region. The new Southeast Asia will see Singapore lose its dominance in maritime logistics and will transform itself into a key supplier of finance and IT support. The beneficiaries of the Silk Road are the likes of Myanmar, Thailand, Cambodia and Laos. Myanmar, with its strategic link between China and India, is set to be the biggest beneficiary to this development.

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Andre Wheeler

In mid 1997 Andre established Wheeler Management consulting which in 2014 became Asia Pacific Connex. His key industries are oil, gas, construction, EPCM, marine services and mining. He is particularly experienced at project management and business development that focuses on financial return, customer solutions and innovative process design. Based in Perth, Andre spends considerable time with clients throughout Asia, and is a specialist advisor to five different fund managers.

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2 Comments

  1. China’s new Silk Road and its knock-on effect for Southeast Asia – Supplychains Magazine
    July 10, 2015 at 9:24 am

    […] Click here to view original web page at splash247.com […]

  2. Paul Donaldson
    July 11, 2015 at 2:30 pm

    The information is well founded, BUT as important is the use of the silk road -rail operations Europe to China, this also has the same benefits of reducing transit time into the fast growing Chongqing region
    The movement of multiple vehicles in containers has already started with the OEMs who wish to reduce transit time, cost, vehicle handling and damages
    Paul Donaldson Trans-Rak International