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KUNMING IN SOUTHWEST CHINA MAY TURN INTO SOUTHEAST ASIA'S 'COMMERCIAL CAPITAL' ON THE BACK OF HUGE INFRASTRUCTURE DEALS
KUNMING, YUNNAN, CHINA – PHOTO NASA/WIKIMEDIA

By KRISHNA KUMAR VR in New Delhi.

The pace at which Kunming, a Chinese metropolis that neighbors three Southeast Asian countries, is developing might soon earn it the title of ‘commercial capital’ of Southeast Asia.

As the capital of the southwestern province of Yunnan, which borders member countries of the Association of Southeast Asian Nations (ASEAN) – Myanmar, Vietnam and Laos – the city is at the core of all national business plans in relation to Southeast Asia. Projects including high-speed rail, a mega container terminal, a huge expressway and inland ports have been initiated to connect Kunming to Southeast Asian cities, part of Beijing’s Belt and Road Initiative that will impact 4.4 billion people and, within a decade, aims to generate trade above $2.5 trillion. If the projects go according to plans, “Kunming would soon be the commercial capital of ASEAN with its strategic location and economic ties”, said Ying Zhu, director at the Australia Centre for Asian Business, University of South Australia.

During a trip to Indonesia in October 2013, Chinese President Xi Jinping proposed the Belt and Road Initiative – two major infrastructure projects to revive ancient trade routes between China and the West. The land-based Silk Road Economic Belt and sea-based 21st Century Maritime Silk Road seek to further integrate the region into a cohesive economic area through the building of infrastructure and broadening trade.

And Kunming is at the heart of the modern Silk Road, the route that extends all the way to Thailand and Indonesia. The landlocked Chinese city has been optimizing the land routes by expanding the Kunming Railway Container Center and building a high-speed rail center at Kunming South Station.

[ONE MINUTE EXPLAINER ON THE BELT AND ROAD INITIATIVE]

Dubbed the Eternal Spring City for its year-round temperate climate and breathtaking scenery, Kunming was earlier left out of the massive development drive that was seen in the eastern part of China during the previous decades. But now, Beijing has shifted gears to transform the region into a gateway to South and Southeast Asia.

A report released earlier this year by the municipal government said 340 billion yuan ($54 billion) has been allocated under the Comprehensive Transportation Campaign program to accelerate construction, especially on the city’s metro, railway and highway systems, over the next five years.

The convergence of the 7,000-kilometer Singapore-Kunming Rail Link (SKRL) is already taking shape, with the recent deal between Thailand and China to construct the Thai section of the route giving it a big boost. Laos and China have also reached a deal on the rail project that will link the Laotian capital, Vientiane, with Kunming.

“Kunming is the southern gate of China towards ASEAN, and connecting Kunming with other major capital cities in the region will enhance the economic and strategic closeness between China and ASEAN,” Zhu told China Daily Asia Weekly. “In addition, it will open a new sea-land pathway for China towards the Indian Ocean and Middle East.”

The China-Thailand portion is 867 km long, which will connect northeast Thailand’s Nong Khai province, Bangkok and the eastern Rayong province.

The railway is estimated to add more tourists every year and will provide further convenience to its exports. Upon completion, the SKRL will link Kunming with all the capitals of mainland ASEAN members, except Malaysia, as the line bypasses Kuala Lumpur on its way to Singapore.

It should not be lost on potential investors that ASEAN has a population of 600 million, is the seventh-largest economy in the world, and has an average annual GDP growth rate of around 6 percent. Yunnan province has a population approaching 50 million and an economy growing at above China’s national average at just over 8 percent in 2014.

In 2013, Kunming’s GDP reached 341.53 billion yuan, up 12.8 percent year-on-year. It accounted for about 29 percent of the province’s total. The service industry’s GDP accounts for 49.9 percent of the city’s total figure.

It makes perfect sense for the Chinese government to focus on developing the nation’s economic, infrastructure and cultural links with ASEAN through Kunming, said Alex Malley, chief executive of CPA Australia, a professional accounting body. “Stronger linkages between the two economies make them even more attractive locations for investment,” Malley said.

“If looking at Kunming alone, businesses will find the city has very good road, rail and air linkages to the rest of China.” Increased connectivity between Kunming and Southeast Asia will lead to increased trade and accessibility between consumers and producers of goods and services, which will stimulate industrial development between the two areas, said Mark Rathbone, Asia-Pacific capital projects and infrastructure leader of accounting firm Pricewaterhouse-Coopers (PwC) Singapore.

China is ASEAN’s largest trade partner and ASEAN is China’s third-largest trade partner. In 2013, China and ASEAN set a target to bring bilateral trade volume to $1 trillion by 2020. “The geographies are symbiotic in existence and this will only grow with the increasing connectivity through transport infrastructure installation in the region — for example, the Kunming-Ruili-Myanmar Railway and the Singapore-Kunming Rail Link,” Rathbone said. Ruili is a city on the border of Yunnan province, about 750 km west of Kunming. Kunming should enhance mutual communication and coordination with ASEAN governments in setting industrial policies and plans, he added.

The city has designated the South Kunming Station as a hub from which Chinese trains will reach Myanmar, Laos, Vietnam, Thailand, Malaysia and Singapore as well as India and Bangladesh. The station, expected to be finished next June, will also serve routes to other cities like Shanghai and Beijing. Once the project is finished, the travel time from Kunming to Shanghai will take only 8 hours (from the current 36 to 41 hours) and to Beijing only 9.5 hours (from the current 34 to 43 hours).

Kunming has the potential to contribute vigorously to the development of China, ASEAN and South Asia.

Kunming has the potential to contribute vigorously to the development of China, ASEAN and South Asia, said Rajagopal Dhar Chakraborti, head of the department of South & Southeast Asian studies, University of Calcutta.

“Kunming is ideally placed to take advantage of the increasing trade between India and China as relations between the two regional giants have improved,” Chakraborti told China Daily Asia Weekly.

The Bangladesh-China-India-Myanmar economic corridor, linking Kolkata, the capital of the eastern state of West Bengal in India, with Kunming, passing through Myanmar and Bangladesh, is nearly ready.

Kunming is not only about high-speed infrastructure, however. The construction of the parallel oil and gas pipelines between Kyaukphyu in western Myanmar and the city have brought about a “win-win” situation. Yunnan province has alleviated some of the power shortage pressures and established reliable access to power supply, thereby attracting economic development, said Rathbone of PwC.

The pipeline contributes to Myanmar gaining access to cheaper domestic energy supplies and eases its gas shortages during periods of high demand. It has also put Myanmar’s gas fields into development while, in return, allowing Myanmar to benefit from oil and gas export revenue.

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Dubbed the Eternal Spring City for its year-round temperate climate and breathtaking scenery, Kunming was earlier left out of the massive development drive that was seen in the eastern part of China during the previous decades. Image of visitors in the Kunming Zoo. AFPPHOTO

Kunming is also the hub of Yunnan’s agricultural industry. The Kunming International Flora Auction Trading Centre sells flowers to traders from all over the world, hosting 8 to 10 million deals per day in its large auction halls.

In early June, Kunming hosted the third annual China-South Asia Expo, which was bigger than the previous events, in its newly built Dianchi International Convention and Exhibition Center. Covering an area of 5.4 million square meters, the facility ranks third nationwide and first in Southwest China, according to a press statement of the expo.

In order to create new domestic industries within the China-ASEAN free trade zones, Rathbone said that industry associations in Kunming and ASEAN must become active linkages to promote regional industrial connectivity and cooperation.

They must also promote information communication, capacity building, project cooperation and investment projects, he added.

According to a report by real estate firm Jones Lang LaSalle, Kunming is one of China’s second- or third-tier cities to watch in the coming five years. The report was positive regarding Kunming’s prospects as an investment destination, particularly for the hotel and tourism industries. It grouped Kunming with Nanning, Changzhou, Hefei and Nanchang as “longer term winners”.

Traditionally, the city has relied on favorable agricultural conditions to grow grain, oil-bearing plants and cured tobacco among others.

However, the development of advanced technologies has seen a diversification of the local economy and industries such as biotech, optoelectronics and information technology have contributed significantly to the city’s economic development.

Helping Myanmar on road to growth CHINESE INFRASTRUCTURE PROJECTS PLAYING KEY ROLE IN BOLSTERING ECONOMIC AND SOCIAL DEVELOPMENT

ELECTRICITY PYLONS AND A BRIDGE IN MYANMAR’S EASTERN SHAN STATE. CHINESE INVESTMENT IS IMPROVING INFRASTRUCTURE IN THE COUNTRY INCLUDING ROADS, RAIL, ENERGY AND TELECOMMUNICATIONS AS PART OF THE BELT AND ROAD INITIATIVE . AFP PHOTO

By KRISHNA KUMAR VR in New Delhi.

Location is everything. This adage can apply to a country as much as to anything else.

Myanmar is a case in point. Its close physical proximity to Kunming, the capital city of China’s southwestern Yunnan province, may prove to be a major boon, as it is likely to bring massive infrastructure development to the Southeast Asian country. China is making huge investments in infrastructure in Kunming, in a bid to turn the city into the gateway to Southeast Asia. Moreover, the projects that have been initiated to date are part of China’s grand plan to connect with other economies via the Belt and Road Initiative.

Proposed by President Xi Jinping in 2013, the initiative is a development strategy to construct the Silk Road Economic Belt and 21st Century Maritime Silk Road – aimed at reviving ancient trade routes between China and the West. As part of the plan, Beijing announced that it will pump $900 billion into various projects covering road, rail, coal, gas, mining, electricity and telecommunications into the countries along the route, with funding from the newly created Asian Infrastructure Investment Bank (AIIB) and the Silk Road infrastructure Fund.

Myanmar will benefit enormously from the Belt and Road plan, which is expected to cover the Bay of Bengal as the trade routes pass through Kachin and Shan states, right down into central Myanmar, as they snake their way toward the Mediterranean.

Improving transport infrastructure helps boost economic growth through increased trade, said Emily Dabbs, an economist in the Sydney office of Moody’s Analytics. “And the economic growth will fulfill the aspirations of the Myanmar people, as they get stable jobs and good prospects,” she told China Daily Asia Weekly.

Myanmar will benefit enormously from the Belt and Road plan, which is expected to cover the Bay of Bengal as the trade routes pass through Kachin and Shan states as they snake their way toward the Mediterranean.

The city of Mandalay is also a major focal point in the Bangladesh-China-India-Myanmar (BCIM) economic corridor, which is now part of the Belt and Road Initiative. The BCIM corridor links Kolkata in eastern India with Kunming. Myanmar should cooperate with China and capitalize on the next phase of growth focusing on increased investment in infrastructure in the region, said Albert Guangzhou Hu, associate professor at the National University of Singapore.

The latest of China’s infrastructure projects in Myanmar consists of oil and gas pipelines crisscrossing Myanmar, starting from a new terminus at Kyaukphyu – situated just below Sittwe, the capital of the western Rakhine state – up to Mandalay and on to the Chinese border town of Ruili and then Kunming. Significantly, the new oil pipeline bypasses the Malacca Straits, a narrow channel that connects the Indian Ocean with the Pacific.

There are also proposed projects comprising a port at the Kyaukphyu Special Economic Zone in Rakhine State and a 1,200-kilometer-long railway line linking Kunming and Kyaukphyu Port, including an expressway running parallel to the railway.

Once these projects are completed, “Myanmar will be in a good position to import and export goods at a lower cost, as transportation costs will be lower due to increased efficiencies in connectivity”, said Mark Rathbone, capital projects and infrastructure leader for Asia Pacific at PricewaterhouseCoopers (PwC) in Singapore.

Rathbone said Myanmar’s geographical proximity to Kunming could also contribute to its shipping business, as the Yunnan capital could use Myanmar’s existing ports to transport goods to Africa and the Middle East.

Myanmar currently has nine ports along its western and southeastern coasts. With the exception of the country’s principal port in Yangon, the rest are small coastal ports with limited handling capabilities. If Kunming uses Myanmar ports, “it could lead to capacity expansion and creation of new ports. This is a win-win situation for both the countries”, said Rathbone.

Over the years China has entrenched itself in various business sectors in Myanmar and learned the nuances of doing business in the country. Beijing was Myanmar’s largest investor during its years of international seclusion, supporting strategic infrastructure projects such as oil and gas pipelines, ports and dams.

Between 1988 and 2013, China accounted for a whopping 42 percent of the $33.67 billion foreign direct investment (FDI) that flowed into Myanmar. China remains the largest foreign investor in Myanmar with over 26 percent of FDI.

During Chinese Premier Li Keqiang’s visit to Myanmar last November, the two countries signed deals worth $7.8 billion, covering energy, telecommunications and infrastructure.

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During Chinese Premier Li Keqiang’s visit to Myanmar last November, the two countries signed deals worth $7.8 billion, covering energy, telecommunications and infrastructure. Here, Li Keqiang speaks as he attended the East Asia Summit Plenary Session at the Myanmar International Convention Center in Myanmar's capital Naypyidaw on November 13, 2014. AFP PHOTO / Christophe ARCHAMBAULT

China sees Myanmar as a key partner in the Belt and Road Initiative, said Rajiv Biswas, Asia-Pacific chief economist at consultancy firm IHS. “Infrastructure development will play a vital role in accelerating Myanmar’s industrial development,” he added.

According to the United Nations Economic and Social Survey of Asia and the Pacific 2015, the country has one of the largest infrastructure deficits in the region. It is ranked 141 out of 148 countries in the World Economic Forum’s Global Competitiveness Report 2013–2014.

Although the road network expanded to about 148,000 km as of 2012 from around 90,000 km in 2004, road density remains among the lowest in the region. Only 39 percent of the total road network is paved, with the secondary and local road networks in generally poor condition, said the Asian Development Bank (ADB).

The overall road density within the Association of Southeast Asian Nations is about 11 km per 1,000 people, in stark contrast to about 2 km in Myanmar, one of the 10 member states of the regional bloc.

The country’s immense infrastructure deficiency is the result of decades of underinvestment. Its long period of isolation that began in the 1980s, and the economic sanctions that accompanied it, seriously hampered its overall development.

In nearly three decades, Myanmar lost most access to international investment and assistance, including from the ADB and World Bank.

Consequently, Myanmar’s transport sector has suffered from a lack of international expertise, experience and investment, and a loss of capacity in the agencies that are tasked with managing and operating the sector. This applies broadly to transport subsectors including roads, railways, ports, inland waterways and civil aviation.

The country must step up efforts to narrow infrastructure deficits if it is to achieve sustainable economic growth, said the ADB in its report published last year on the country’s growth prospects.

The report, Myanmar: Unlocking the Potential, said full realization of the economy’s potential could push annual average GDP growth to 9.5 percent by 2030, up from its pre-reform baseline of 4.8 percent. Growth of this magnitude could raise GDP per capita to nearly $5,000 by 2030, up from about $900 today. With the impetus of China’s Belt and Road Initiative, infrastructure is poised for a fundamental change in Myanmar, and eventually it will play a critical role in facilitating economic and social development in the country, said Rajagopal Dhar Chakraborti, head of the department of South and Southeast Asian Studies at Calcutta University.

“The resource-starved country can get funds from the brand-new Silk Road Fund and the AIIB,” Chakraborti told China Daily Asia Weekly.

Myanmar and its people should be a major beneficiary of the far-sighted initiatives of China’s government, and its proximity to Kunming.

The Silk Road Fund has an initial capital of $40 billion to finance infrastructure projects along the Belt and Road. The AIIB targets infrastructure projects in sectors such as energy, transport, telecommunications, agricultural development, urban development and logistics in Asia.

Rathbone of PwC said that the AIIB and the Silk Road Fund will bring about a more competitive environment in Asia, as they compete with other multilateral institutions like the ADB and the World Bank.

Alex Malley, chief executive of accounting body CPA Australia, said the availability of funds should provide a major stimulus to Myanmar’s economy over the long term. “Better infrastructure is fundamental to improving the speed of the economy,” he said, “and I can foresee that Myanmar and its people should be a major beneficiary of the far-sighted initiatives of China’s government, and its proximity to Kunming.”

Sharing one vision for integration DEVELOPMENT BLUEPRINTS OF ASEAN AND CHINA HAVE A GREAT DEAL IN COMMON BUT THEY NEED TO DOVETAIL THEIR STRATEGIES

A TRAIN PASSES THROUGH A STREET MARKET IN MAEKLONG, 60 KM FROM THE THAI CAPITAL, BANGKOK. MUCH OF THE TRANSPORT INFRASTRUCTURE IN SOUTHEAST ASIA IS IN NEED OF AN OVERHAUL, SO A PLAN TO BUILD A HIGH-SPEED RAIL LINE LINKING SINGAPORE WITH KUNMING IN CHINA COULD SIGNIFICANTLY IMPROVE LOGISTICS IN THE REGION. AFP PHOTO

By KRISHNA KUMAR VR in New Delhi.

Two plans, one dream. The China-proposed Belt and Road Initiative and the Master Plan on ASEAN Connectivity (MPAC) address common issues, although they are steered by different sets of stakeholders. Both projects share the theme of integration and connectivity for regional prosperity, and call for a system of roads and railways to link regional countries. The common objective of the two projects includes a system of ports for roll-on/roll-off vessels and short sea shipping to link insular countries and the Chinese mainland.

Equally they can allow Kunming, the capital city of the southwestern Yunnan province, to enhance trade and investment between China and members of the Association of Southeast Asian Nations (ASEAN).

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The Belt and Road Initiative aims to revive ancient trade routes between China and the West with the land-based Silk Road Economic Belt and the oceanic 21st Century Maritime Silk Road. The vision document for the initiative released in March states that “to build an international corridor opening to the ASEAN region, the country should make good use of the geographic advantage of Yunnan province”.

Likewise, the MPAC strategic document points out that “connecting ASEAN with China’s Kunming can potentially bring growth and development to the region”.

The Belt and Road Initiative and MPAC share striking similarities and parallels, according to Huang Huikang, China’s ambassador to Malaysia.

Speaking in June at the Boao Forum for Asia in Kuala Lumpur, Huang said: “Both (projects) envisage transport connectivity as a way to bring member and participating countries closer to one another, facilitating better access for trade, investment, tourism and people-to-people exchanges.

“Given the shared vision, the two could complement one another in common interests and cooperation,” he added.

However, the obvious challenge is to ensure that ASEAN and China can work together to improve connectivity, said Alex Malley, chief executive of accounting body CPA Australia.

“It is important that China and ASEAN continue to have open dialogue over MPAC and the Belt and Road Initiative so that they complement and build off of each other,” he told China Daily Asia Weekly.

EXPANDING TRADE

As for the governments, he added, it is also important for them to engage with local communities to see the benefits that will flow from collaboration between nations.

At present, China is ASEAN’s largest trade partner and the bloc is China’s third-largest trade partner. Bilateral trade is expected to hit $500 billion by the end of this year, and double to $1 trillion by 2020. Both sides stand to benefit if the collaboration materializes, as there is a natural synergy between the Belt and Road Initiative and MPAC, said Albert Guangzhou Hu, associate professor at the department of economics, National University of Singapore.

“China should become a stakeholder in ASEAN’s economic development. A prosperous ASEAN is as much in China’s interest as in ASEAN’s,” Hu said. Analysts said there are projects that would benefit both sides.

For instance, the 7,000 km Singapore-Kunming Rail Link, an MPAC project proposed at the 5th ASEAN Summit in Thailand in 1995, if completed, will link the Chinese city with all the capitals of mainland ASEAN countries, except Malaysia, since the line will bypass Kuala Lumpur on its way to Singapore.

If Southeast Asia is linked by high-speed rail networks with Kunming, it could significantly improve freight logistics. It will also create significant opportunities for the development of major ports and free trade zones, said Rajiv Biswas, Asia-Pacific chief economist at consultancy IHS. China has already initiated various projects in Kunming to transform the region as a gateway to Southeast Asia. Earlier, the region was left out of the massive development drive that was seen in the eastern part of China during the previous decades.

Similarly, the MPAC proposes to narrow the infrastructure gap, particularly in less-developed member states of the ASEAN Economic Community. Except Cambodia, most of the less-developed ASEAN countries — Laos, Myanmar, and Vietnam — share borders with Yunnan province. “Both China and the ASEAN governments should partner up, and jointly realize the broader concept of building the economies along the trade and economic corridors,” said Mark Rathbone, Asia-Pacific capital projects and infrastructure leader at PricewaterhouseCoopers Singapore. “A mutually beneficial and agreed-upon plan should be created to encourage broad investment across the region. It is important that the plan not be beneficial to one country only,” he added.

Rathbone said the plan should prioritize certain activities and dedicate appropriate resources to areas where they are most urgently needed. “The common vision can improve trade, investment, tourism and human capital exchanges between China and ASEAN further,” he said.

However, the critical aspect of the common master plan is resource mobilization to implement key projects. According to the Asian Development Bank’s estimates, over the next decade ASEAN will require approximately $60 billion a year to fully address the region’s infrastructure needs. For instance, upgrading rail lines in Vietnam between Hanoi and Ho Chi Minh City will cost the equivalent of 50 percent of Vietnam’s GDP.  Chris Devonshire-Ellis, chairman of consultancy firm Dezan Shira & Associates, said this would not happen until implementation costs can be brought down or longer term financial assistance provided.

FUNDING ISSUES

The ASEAN Infrastructure Fund has been established with an initial equity contribution of $485.2 million. It is the largest ASEAN-led initiative in the association’s history. However, analysts point out that unless ASEAN improves its investment environment, it will face difficulties in raising funds for connectivity projects. These issues are compounded by unsound and incomplete institutional setups at the regional and national levels.

Moreover, the technical and financial capability of member states to implement connectivity initiatives is affected by uneven levels of development, thereby further hampering MPAC’s progress. “There are huge gaps that have made it difficult for ASEAN to fulfill the vision of MPAC. However, China has the capital, technology and production capacity to fill the gap,” said Hu of the National University of Singapore.

China has backed its concept of connectivity with a strong funding model: The $100-billion Asian Infrastructure Investment Bank (AIIB) and the $40-billion Silk Road Fund for investment in the countries along the Belt and Road route.

China should not be in a hurry, it should try to hold the trust and confidence of ASEAN and individual nations separately.

In recent years, China has increased its investments in ASEAN’s infrastructure sector. State-owned COSCO, one of the world’s largest shipping and logistics companies, has a 49 percent stake in the COSCO-PSA terminal in Singapore. Beibu Gulf Holding has a 38 percent equity share in a consortium that received a 30-year concession to manage, operate and develop Kuantan Port in Malaysia.

The convergence of interests is very clear, said Rajagopal Dhar Chakraborti, head of the department of South and Southeast Asian Studies, University of Calcutta.  “But China should not be in a hurry. It should try to hold the trust and confidence of ASEAN and individual nations separately,” Chakraborti said.  “There should be more coordination between each other. One should not be competitive but complementary to each other.”

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