Blogs relating to geopolitical risks or issues.

China’s Belt & Road Initiative – Blog #20

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(Image credit: srilankabrief.org)

This is the twentieth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (52 pg, 262 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #20 – How China Benefits – What to Watch, What to Do

WHAT TO WATCH

‘What to Watch’ depends on the impact you are striving to understand.  This Whitepaper seeks to inform and alert supply chain managers worldwide to the complex risks inherent in ‘Belt and Road.’  It is intended to be a primer for those with little understanding of the “Belt and Road Initiative”.

Deciding ‘What to Watch’ requires that the supply chain manager understand in detail and ideally with contemporaneous updating of the supply chain intersections of his/her organization with ‘Belt and Road,’ both directly and indirectly.  This includes suppliers and sub-suppliers of ingredients needed to produce its product(s) and entities between the organization and the end-users of the organization’s product(s).

The first 27 pages (179 endnotes) are intended to develop basic information about the “Belt and Road Initiative” and provide extensive endnotes for the reader to conduct further research and to identify the information sources used in this Whitepaper.  The balance of the pages (83 endnotes) make a variety of observations about the potential consequences of actions by China and key benefits to China.  Beware – this information is changing constantly.  The information sources for this Whitepaper were collected in the last 10 months but relevant news and information emerge almost daily.

The structure and the components of the ‘Belt and Road’ serve Chinese economic and political interests first.  However, they can and often do simultaneously benefit the other participating countries. These benefits are often ancillary but still important.  In many cases, infrastructure is provided to less-developed countries which they could not otherwise afford.  These countries also may benefit from being located in an Economic Corridor that puts them into the path of growing trade flows using the applicable infrastructure.

Unfortunately, there is a downside.  When a recipient country does not have the financial ability to repay its infrastructure loan(s), it has sometimes lost control of the infrastructure assets, particularly when the infrastructure is collateral for the development loan.  This financial jeopardy also can adversely impact suppliers of goods to such a country should a project be terminated, fail or be significantly delayed.  This has already happened in several places (Indonesia, Kazakhstan, Bangladesh[1] and others) and, as noted earlier, at least eight ‘Belt and Road’ partner countries are in sovereign debt default danger.  Suppliers to entities in such countries must be constantly aware of applicable credit risks.

Political instability in some major ‘Belt and Road’ ports, such as Gwadar in Pakistan, and in certain other countries with major Chinese-backed infrastructure projects, such as the Central Asian nations, also creates high supply chain risks. Pakistan has had to provide security forces for its ‘Belt and Road’ ports to quell threats of violence, kidnappings, sabotage and other dangers to port users.  Gwadar (Pakistan), Hambantota (Sri Lanka) and Doraleh (Djibouti) also have the risk of military priority being given over commercial shipping. Preference for Chinese companies in cargo handling and berth assignments in Chinese-controlled ports is another possible problem.  Supply chain managers worldwide need to understand the exposure of their supply chains (end to end) to such political instabilities and risks.

Looking to the future, as ‘Belt and Road’ evolves non-Chinese manufacturers, suppliers and shippers, both within and outside of the Economic Corridors, may find they are ‘second class citizens’ in access priority not only to ‘Belt and Road’ ports, but also to rail shipping systems, logistics hubs and other key supply chain infrastructure.  This could affect transportation times and costs, directly and indirectly through third parties providing goods or services to the supply chain or delivering products for the supply chain who are reliant on ‘Belt and Road’ infrastructure.

If ‘Belt and Road’ countries give priority to meeting the needs of Chinese-financed projects and industries within them or to the Chinese economy, as has happened in the case of rare minerals such as cobalt and energy resources including coal and LNG, export-oriented manufacturing supply chains in other countries may need to be re-aligned to access other input sources for businesses to stay competitive.

The reduction in land transport time between China and Western Europe is a game-changer.  U.S. based manufacturers who ship goods to Europe primarily trans-ocean, may find Chinese competitors can reach those European markets faster and cheaper than they can if they use current means of goods transport and shipment points. Companies may have to look for possible new manufacturing or assembly locations in Western Europe to close distance gaps.  Japanese businesses are already shipping or selling “automotive parts and electronic devices to manufacturing bases in Europe.”[2]

The “Belt and Road Initiative” has already enhanced Chinese efficiency in acquiring and extracting critical raw materials, such as cobalt and copper—vital components of batteries in electric vehicles—by augmenting infrastructure in the Republic of Congo between mines and ports for shipment to China.  China now has a near monopoly of both minerals.[3] It is in a market control position that poses serious threat to manufacturers and their supply chains around the world, and automotive manufacturers will need to understand the degree this affects them and what the alternative response strategies are.

Congolese copper and cobalt pose another potential global supply chain risk by reason of their labor input.  Workers in this dangerous enterprise are locals, including children, a notable exception to the Chinese practice of bringing in Chinese workers.  Because of these labor practices and unsafe conditions, there is a growing international campaign to put both minerals on the “conflict minerals” list; U.S. companies could be barred from using these minerals and/or could suffer huge fines, if the minerals are imported from the Republic of Congo.  Companies would have to check their supply chains, including second and third-tier suppliers, to ensure they are in compliance with U.S. regulations.[4]

In the long run many producers may need to look to alternative markets and suppliers.  In the short term, businesses may need to take supply chain detours, change shippers, or implement other defensive actions in supply chain operations to keep costs and pricing competitive. This will require foreknowledge of potential risks and close attention to rapidly developing economic, political and policy changes (in both the public and private sectors) in both input and output chains and operational resiliency to be able to respond rapidly and effectively.

What to Do

This Whitepaper is a primer on the “Belt and Road Initiative”.  It is not a primer on supply chain risk management (SCRM) planning.  However, some general SCRM thoughts may be helpful.

The Economist Intelligence Unit (EIU) has a downloadable report “Prospects and Challenges on China’s ‘one belt, one road’: a risk assessment report” which offers a useful risk taxonomy.[5]  It sets forth ten general risk categories:  security, legal and regulatory, government effectiveness, infrastructure, political instability, foreign trade and payments, macroeconomic, financial, tax policy, and labor market.

While the EIU risk classifications may seem more geared to investment or contract considerations, they are nonetheless relevant for general supply chain risk analysis.  If a company is directly involved in ‘Belt and Road’ projects as a supplier to a project or to companies to be served by a project rather than as a business simply transporting goods through a project country, it will need to understand and evaluate these risks.  Many, if not most ‘Belt and Road’ projects, are located in countries lacking solid, formal economic structures and sound governance.  Accordingly, risk analysis should go beyond a company’s ability to fulfill its ‘Belt and Road’ project contract obligations.  It must also consider what potentially adverse events and circumstances might do to the rest of its operations.

A company doing business in a ‘Belt and Road’ country will need to do a thorough risk evaluation of the entire country and look at that country’s links to the rest of the world, including the country’s supply chains, particularly those associated with key industries and resources.  It will need to review the financial status of the country, the general financial climate and market conditions (including emerging trends, prices, supply disruptions, etc.).

If a company is not involved in a ‘Belt and Road’ project but has supply chains that cross through a country in the “Belt and Road Initiative”, it must still evaluate how conditions in that country affects risks to its supply chains.  Any hope of having operational and managerial flexibility and the capacity for dynamic supply chain adaptation will require such analysis.

If there are risk points in the routes used by the Company’s supply chains, especially choke points, such as congested and delay-prone ports and airports, overburdened roads, tight and/or dangerous passages like the Strait of Malacca, lane reductions into heavily-used transportation facilities, areas with impaired communications, infrastructure failures and shortcomings, (e.g., weight limits on roads or bridges), areas with conflicts and political instability, they can be identified, evaluated and mapped well ahead of an adverse occurrence.

The business should have a company-wide written SCRM plan which starts at each production level and builds up the management chain.  It should set forth detailed responsibilities at all personnel levels for risk assessment and ranking of the company’s risks in order of magnitude and likelihood.  ‘Belt and Road’ risks should be imbedded in this master SCRM plan.

The SCRM plan can be most effective when it is connected to contemporaneous supply chain source data maintained in the company’s ERP system.  Non-ERP data can be used but must be religiously updated.  Risk assessment and planning for the impact of events on a supply chain that is stale has significantly reduced value.

If the SCRM plan has contemporaneous electronically sourced supply chain data, effective mapping becomes possible.  Mapping based on electronic contemporaneous input permits the company’s supply chain to be seen (schematically and geographically), managed and interacted with by authorized personnel at all levels of the business on a real time basis.  This combination of people and technology is fundamental to an effective SCRM plan.

Finally, if the SCRM plan is electronically based, copies of supply chain data can be made for “what-if” or “war-game” scenario planning purposes.  This permits a company to be ready for events that have not yet occurred and to understand alternatives available if needed.  This also permits time to develop alternatives if none are currently available.

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

This is the final post in the “China’s Belt & Road Initiative” Blog Series.

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] Yamada, Go.  “Is China’s Belt and Road working?  A progress report from eight countries.” Nikkei Asian Review.  28 March 2018.  https://asia.nikkei.com/Spotlight/Cover-Story/Is-China-s-Belt-and-Road-working-A-progress-report-from-eight-countries

[2] Masuda, Yuri.  Op.cit.  https://asia.nikkei.com/Business/Business-Trends/Japan-companies-board-the-Belt-and-Road-train

[3] Goldkorn, Jeffrey.  “How China controls cobalt in the Congo, and what that means for electric vehicles.” SupChina.   12 February 2018.   https://supchina.com/2018/02/12/china-controls-cobalt-congo-means-electric-vehicles/

[4] “Cobalt mining, China, and the fight for Congo’s minerals.” Lima Charlie News.  4 February 2018.     https://limacharlienews.com/africa/cobalt-mining-congo/

[5] Economist Intelligence Unit.  “Prospects and challenges on China’s ‘one belt, one road’:  a risk assessment report.”  2015.  https://www.eiu.com/public/topical_report.aspx?campaignid=OneBeltOneRoad

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #19

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(Image credit: srilankabrief.org)

This is the nineteenth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (52 pg, 262 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #19 – How China Benefits – Energy Security, Political Power

INCREASED ENERGY SECURITY

One of the primary drivers of the “Belt and Road Initiative” is China’s focus on its energy security situation.  China has long been concerned about its vulnerability to energy supply interdiction, most especially in the Strait of Malacca, its so-called ‘Malacca Dilemma.’  Eighty percent of China’s oil comes through the Malacca Strait;  hence, China’s push to move to natural gas to the degree it can, build pipelines for both oil and natural gas, engage in aggressive oil and gas exploration and extraction, build ice-class tankers to bring LNG down from the Arctic Circle, and build LNG facilities in ports it controls around the world—all strategies to reduce risk to its energy supplies.

INCREASED PRESTIGE AND POLITICAL POWER

China’s economic power through “Belt and Road Initiative” has increased its political clout, which it has used openly to advance its agendas.  Using its tightly-controlled media, publishing arrangements with newspapers in various foreign countries, and careful cultivation of local politicians and national leaders, China has succeeded in improving the odds of achieving its aims, even in the face of local public opposition.[1]  Australia is one of the few places where China’s ‘full court press’ has fallen short so far, and even there it looks like China has done a successful end-run around opposition to its plans, by getting a controlling position in the port of Darwin.

Brunei recently capitulated totally on its sovereignty claims against China for contested islands in the South China Sea, apparently to land a $6 billion Chinese investment in an oil refinery.[2]   China also induced the Philippines to drop its claims to contested South China Sea islands and reefs in return for $13.5 billion in Chinese infrastructure investment and loan pledges.[3]  These developments have raised great concern in India and several other Indian Ocean Region nations about China’s use of its economic might to intimidate other countries from engaging in actions and policies China sees as inimical to its interests.

Pressure by China to isolate Taiwan, another Chinese political goal, has been both tacit and blatant. Recently, China induced El Salvador to abandon recognition of Taiwan, apparently in return for China agreeing to fund an investment project that Taiwan had turned down, having deemed it too risky.[4]  In the E.U., Chinese pressure on Greece and Hungary encouraged these two countries to turn blind eyes both to predatory Chinese behavior in South China Sea disputes and to China’s human rights record.[5]  In the Czech Republic, China has assiduously worked for the support of Czech political and lobby groups and Czech President Zeman,[6] though so far the Czech Republic has stayed tight with the majority of the E.U. countries.[7]

The lure of money to be made from contracts for “Belt and Road Initiative” projects has been very effective.  So, too, is the hope of gaining easier entry into the massive Chinese market.  Even countries and companies in the developed world, including U.S. businesses, such as GE and Caterpillar, are eager to land pieces of the construction and management of the projects.[8]  Japanese companies have bid successfully for “Belt and Road Initiative” energy and infrastructure projects in Poland.[9]  Japan’s interests go beyond landing contracts; it also hopes  to use “Belt and Road” infrastructure to strengthen and expand its own supply chains.  “Many Japanese companies ship or sell automotive parts and electronic devices to manufacturing bases in Europe”[10] and connecting to the “Belt and Road Initiative” infrastructure makes sense for them.

The Chinese have used ‘Belt and Road’ project money for influence even when it is not Chinese money.  A bridge-highway project underway in Croatia is under contract to a Chinese SOE, the China Road and Bridge Corporation, but 85% is paid for by E.U. funds.  Large numbers of Chinese workers have arrived in Croatia to work on the project, creating some unease with the local population.  In a remarkable move, the Chinese have gotten local authorities to agree to joint Chinese-Croatian police patrols “to help resolve issues related to Chinese tourists.”[11]  The E.U. is concerned about the project because the Chinese wages are likely to undercut E.U. labor standards, the Chinese bid on the project was $100 million less than the nearest competitor, and the obvious question is how they could do this.  While the E.U. is unhappy with the way this E.U.-funded project has unfolded, the Croatians are simply happy that a long-sought project to unite the Croatian nation with a strip of Croatian land that was cut off from the rest of Croatia as a consequence of the Balkan wars, is finally underway.  China is leveraging the Croatian goodwill in every way it can, with a perceived intent to undermine the E.U. bloc, not just to get a foothold in the E.U..[12]

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

How China Benefits – What to Watch, What to Do

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1]Wade, Geoff, p. 3   Op. cit.   https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook45p/ChinasRoad

[2] Hunt, Luke.  “Has China Bought Brunei’s South China Sea Silence”?  The Diplomat. 14 February 2018.  https://thediplomat.com/2018/02/has-china-bought-bruneis-south-china-sea-silence/

[3] Chan, Irene.   Op. cit.  p. 48.   https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[4] Chin , Josh.  “Taiwan Loses Diplomatic Partner El Salvador to China. “  The Wall Street Journal.  21 August 2018.  https://www.wsj.com/articles/taiwan-cuts-diplomatic-ties-with-el-salvador-1534821829?mod=searchresults&page=1&pos=1

[5] ETNC,  “Introduction.” Op. cit. p. 13. https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[6] Furst, Rudolph.  Op. cit. pp. 41-42.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[7] Chaudry,  Dipanjan Roy.  “E.U.  envoys slam China’s Belt and Road initiative, says it will hit free trade.”   The Economic Times. 20 April 2018.  https://economictimes.indiatimes.com/news/defence/eu-envoys-slam-chinas-belt-and-road-initiative-says-it-will-hit-free-trade/articleshow/63839259.cms

[8] Bradsher, Keith.  “U.S. firms want in on China’s Global ‘One Belt, One Road’ spending.  The New York Times.  14 May 2017.  https://nyti.ms/2rePAic

[9] Masuda,  Yuri.  “Japan companies board the Belt and Road train. “ Nikkei Review.  16 July 2018.  https://asia.nikkei.com/Business/Business-Trends/Japan-companies-board-the-Belt-and-Road-train

[10] Ibid.  https://asia.nikkei.com/Business/Business-Trends/Japan-companies-board-the-Belt-and-Road-train

[11] Santora, Marc and Barbara Surk.  “For China, a Bridge Over the Adriatic Is a Road Into Europe.”  The New York Times.  11 October 2018.  https://www.nytimes.com/2018/10/11/world/europe/china-croatia-bridge-adriatic-sea.html

[12] Ibid.

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #18

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(Image credit: srilankabrief.org)

This is the eighteenth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (52 pg, 260 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #18 – How China Benefits – Ports, Sea Lanes

CONTROL OF KEY PORTS AND STRATEGIC SEA LANES

China has a key strategic objective of controlling the world’s maritime conduits and ‘Belt and Road’ plays a vital role in accomplishing this.  China declared plans to make $20 billion in investments in a year’s time, from mid-2016 to mid-2017, in nine overseas ports.[1]  China already controls or owns, through state-owned entities or private Chinese firms, the ports of Gwadar in Pakistan, Piraeus in Greece, Doraleh in Djibouti (near a Chinese naval base and a U.S. military base), Hambantota in Sri Lanka, Zeebrugge in Belgium, and ports in Myanmar, Bangladesh, Tanzania, Turkey, and Oman, plus rail lines connecting ports to major cities, such as the line between the port of Mombasa and the capital city, Nairobi, in Kenya.[2]  It has port ownership or significant port investments in 34 countries, as of September 2017, and plans for investment in an additional 12 ports in eight countries in the near future.[3]

China recently moved to acquire control of another crucial port—Haifa, Israel, with a vantage point on the eastern Mediterranean where it can have an impact on all Mediterranean maritime activities, including movements of the United States Navy’s Sixth Fleet.  The Shanghai International Port Group will take over a new private seaport at Haifa, a traditional port of call for ships of the Sixth Fleet, in 2021.[4]

All of the ports have strategic geographic locations and form a wide, well-connected maritime network. The port of Gwadar, located where the Gulf of Oman joins the Arabian Sea, is in proximity to the port of Chabahar, Iran’s only ocean port (Gwadar is about 700 km from Karachi but only 75 km from Chabahar),[5] and  provides China access to the Indian Ocean  through Pakistan by way of the land route linking Gwadar and Kashgar in China’s western Xinjiang province.[6]  It is “positioned right in the middle of energy routes between the Middle East and Asia, similarly to how Yamal LNG lies between East and West in the Arctic.”[7] (See map below, which shows ports that are militarily strategic, as well as ports owned by or that have major Chinese investments in them).

Source: C4ADS, in Asia Times, “Ports in a storm ‘stealthily’ expand China’s naval presence,” 2 June 2018 http://www.atimes.com/article/ports-in-a-storm-stealthily-expand-chinas-naval-presence/

India sees China’s Gwadar activity as a direct threat to its interests in the region: “There is little doubt in Delhi about Chinese aims to deploy Gwadar in the medium to long term as a dual use port, allowing the PLA (People’s Liberation Army) key access into the Indian Ocean as well as bolstering Pakistan’s ability to deter any Indian advantage in the naval realm.”[8]

The Chinese role in Hambantota on Sri Lanka’s east coast and the older port of Colombo on the west coast also deeply concerns India.  India is  now virtually ringed, west-south-east, by ports under Chinese control.  The Sri Lankan government has said that it will not allow China to turn Hambantota into a Chinese naval base but there is considerable skepticism about this, even though Sri Lanka has moved its own southern naval command into Hambantota, perhaps to make a point.[9]  This naval activity could interfere with commerce except for the fact that Hambantota has had little commercial traffic so far.

The port of Doraleh is not only in proximity to both U.S. and Chinese military bases, it sits on the Horn of Africa, at the mouth of Bab el-Mandeb Strait that leads to the Suez Canal, through which about 30% of the world’s shipping passes.[10]  China has recently stepped up its development in and around the port.   It has strengthened  its political support from the local government and pressed to have the Dubai firm DP World pushed out of its position as port operator and a Chinese firm replace it, giving China control of this key facility.[11]  DP World challenged Djibouti’s arbitrary termination of its contract and won an injunction from a UK tribunal and a separate verdict from London’s High Court but Djibouti responded by nationalizing the facility.[12]  In the meantime, China has built a new free trade zone at Doraleh.  It is Chinese-financed and will be Chinese-operated by an SOE—China Merchants Holdings.

The geopolitical connotations of the escalating Chinese presence in Djibouti are obvious:  “China has already built a military base at Doraleh, next door to the container terminal, and this spells trouble for the U.S., whose own military installation, the massive Camp Lemonnier, is just a short walk away.”[13]  China has already engaged in hostile actions (lasering U.S. pilots) and the fear is that if China is in full control of Doraleh, it could prevent U.S. ships from refueling there and supplying  Camp Lemonnier.    Djibouti’s debt position vis-à-vis China is already a worry.  Debt is more than 75% of Djibouti’s GDP.  This is the classic “debt trap” situation China has used to acquire ports in Sri Lanka and Pakistan.

Gwadar, Hambantota, Doraleh, Darwin, Tanjun Priok, the Melaka Gateway and other major Chinese-invested ports are located at critical shipping lane chokepoints where China not only can protect its own maritime activities but also impact the flow of all ship traffic.   Verbal assurances from the Chinese have not been sufficient to allay concerns, especially in light of belligerent actions in the South China Sea and in Djibouti.

China’s aggressive campaign to get Thailand to agree to let it build and run the Kra Canal would, if successful, afford China the ability to avoid the Malacca Strait and to control shipping in Asia.

More troubling than the sheer number of ports around the world with a major Chinese presence and/or control, is the concentration of Chinese port influence.  China now has “direct stakes in the ports that clear approximately two-thirds of the world’s container volume, aided by its role as a top sea freight handler through COSCO Shipping.”[14]

State-owned COSCO, which purchased Hong Kong’s OOCL line in July, is a giant port operator and owner.  In the words of Chinese officials, with massive state financial backing COSCO seeks “to control one of the world’s busiest trade loops. Ports on the route, running from Asia through the Suez Canal to Europe, would give priority to Chinese vessels.”[15] (emphasis added).  Since 2010, COSCO, China Merchant and China Overseas Port Holding Co. have spent more than $4 billion to buy into 21 of the top 50 container ports.[16]

China has also made major port acquisitions well outside the lines of ‘Belt and Road’, in places like Seattle, Washington, and Long Beach, California.  COSCO’s goal of control of the Long Beach terminal became a stumbling block in finalizing the takeover by COSCO of shipping rival Hong Kong-based Orient Overseas International Ltd., which owned the facility.

The Committee on Foreign Investment of the U.S. reviewed the deal and required  COSCO to separate the terminal ownership from the purchase of the shipping company, putting the facility in trust to be sold.[17]  The Long Beach terminal is one of the most important in the U.S., one of the few that is almost entirely automated and capable of handling the largest cargo ships.  It has been expanding to take on ships carrying 20,000 TEUs.[18]  Were China to gain control of the port of Long Beach, it would have significant control of both ends of a major China-U.S. trade corridor.

In addition to state-owned COSCO, another major Chinese-affiliated port owner and operator is CK Hutchison Holdings of Hong Kong.  Its portfolio also includes telecom, energy, infrastructure companies, and port-related businesses.  The firm is in 22 port locations in 18 countries across ‘Belt and Road’ and has ambitious plans for rapid expansion.[19]

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

How China Benefits – Energy Security, Political Power

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] Economist Intelligence Unit.  “China’s expanding investment in global ports.”  11 October 2017.  “China’s expanding investment in global ports.”    http://country.eiu.com/article.aspx?articleid=1125980496

[2] Ibid.  http://country.eiu.com/article.aspx?articleid=1125980496

[3] Ibid.  http://country.eiu.com/article.aspx?articleid=1125980496

[4] The Maritime Executive.  “Chinese Port Operator at Haifa Will Mean Questions for the U.S. Navy.”   14 September 2018.    https://www.maritime-executive.com/article/chinese-port-operator-at-haifa-will-mean-questions-for-u-s-navy

[5] Shahani, Imran.  “Gwadar vs Chabahar—Op Ed.” Eurasia Review.  9 February 2018.  https://www.eurasiareview.com/09022018-gwadar-vs-chabahar-oped/

[6] Singh, Sinderpal. RSIS.  “South Asia and Maritime Silk Road:  Far from Plain-Sailing – Analysis.”  30 March 2018.  https://www.eurasiareview.com/30032018-south-asia-and-maritime-silk-road-far-from-plain-sailing-analysis/

[7] Bennett, Mia.  “Will All Roads Lead to China?” The Maritime Executive . 3  December 2017.     https://www.maritime-executive.com/magazine/will-all-roads-lead-to-china#gs.RHOPQnA

[8] Singh, Sinderpal.  RSIS.  Op. cit. https://www.eurasiareview.com/30032018-south-asia-and-maritime-silk-road-far-from-plain-sailing-analysis/

[9] South China Morning Post/Agence France-Presse .  “Sri Lanka to base navy’s Southern Command at Chinese-run Hambantota port.”  30 June 2018.     https://www.scmp.com/news/china/diplomacy-defence/article/2153246/sri-lanka-base-navys-southern-command-chinese-run

[10] Manson, Katrina.  “China military to set up first overseas base in Horn of Africa.”  CNBC /Financial Times  31 March 2016.   https://www.cnbc.com/2016/03/31/china-military-to-set-up-first-overseas-base-in-djibouti.html

[11] Mooney, Turloch.  “China Merchants to revamp old port of Djibouti. JOC. Com 17July 2018.  https://www.joc.com/port-news/terminal-operators/china-merchants-revamp-old-port-d jibouti_20180717.html

[12] Ibrahim, Malik.  “Djibouti’s Attempts to Vanquish Dubai Ports Operator Spells Trouble for Washington. Geopolitical Monitor.    20 September 2018.    https://www.geopoliticalmonitor.com/djiboutis-attempts-to-vanquish-dubai-ports-operator-spells-trouble-for-the-u-s/

[13] Ibid.  https://www.geopoliticalmonitor.com/djiboutis-attempts-to-vanquish-dubai-ports-operator-spells-trouble-for-the-u-s/

[14] Chamorro, Dane.  “Belt and Road: China’s Strategy To Capture Supply Chains From Guangzhou To Greece”.  Forbes.  21 December 2017.  https://www.forbes.com/sites/riskmap/2017/12/21/belt-and-road-chinas-strategy-to-capture-supply-chains-from-guangzhou-to-greece/#467c76426237

[15] Paris, Costas.  “Chinese Shipping Giants Seek Control of ‘Maritime Silk Road.’”  Wall Street Journal.  7 April 2017.  https://www.wsj.com/articles/chinese-shipping-giants-seek-control-of-maritime-silk-road-1491557405?mod=searchresults&page=2&pos=4

[16] Ibid.  https://www.wsj.com/articles/chinese-shipping-giants-seek-control-of-maritime-silk-road-1491557405?mod=searchresults&page=2&pos=4

[17] Bloomberg News. “ Pledging to Sell Long Beach Terminal, COSCO Clears U.S. Hurdle on OOCL Deal.”  8 July 2018.  http://gcaptain.com/cosco-clears-u-s-hurdle-on-oocl-deal/

[18] Paris, Costas, and Joanne Chiu.  “U.S. Questions Cosco’s Takeover of Cargo Terminal in Long Beach.”  Wall Street Journal.  20 April 2018.  https://www.wsj.com/amp/articles/u-s-questions-coscos-takeover-of-cargo-terminal-in-long-beach-1524249281

[19] Chen, Celia and Peggy Sito.  “Here’s how Li-kashing dominates trade along the Belt and Road Initiative.”  South China Morning Post.17 May 2017http://www.scmp.com/business/companies/article/2093995/hutchison-ports-sails-winds-belt-and-road-initiative

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #17

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(Image credit: srilankabrief.org)

This is the seventeenth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (52 pg, 260 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #17 – How China Benefits – Telecommunications, Renminbi

GROWING DOMINANCE IN TELECOMMUNICATIONS

Other benefits to China from ‘Belt and Road’ include opportunities for expanded influence in telecommunications networks and acquisition of telecom technology.  China’s interests in becoming a major telecommunications player go well beyond laying cable in the Arctic.  The burgeoning smartphone market and e-commerce around the world will require significant infrastructure investment and China wants to provide and control a major share of it.  CITIC Telecom CPC, a large Chinese firm, has bought Linx Telecommunications, giving it access to Russia, Kazakhstan (and other ‘Stans’), the Baltic Sea area and Eastern Europe.[1]  In Southeast Asia, China Telecom, with Beijing’s backing, seeks to invest $5.3 billion in the Philippine telecom sector, which would break up the duopoly positions of Japanese and Singaporean firms in the Philippine market.[2]  Continuing its global push to gain interests in telecommunications, China Mobile bought an 18 percent interest in True Group, the telecommunications and broadcasting arm of Thailand’s Charoen Pokphand Group.

In late 2017, China acquired the Canadian firm, Norsat International, Inc., whose customers are mainly military, broadcast and maritime industries.[3]  This has raised national security concerns in both Canada and the U.S., as China acquires significant control not only of communications infrastructure and technology but also firms within the global communications industry. [4]

In South America, China used an economic ‘carrot’ of help to Argentina in obtaining a $10 billion credit swap to stabilize its currency in the midst of a financial crisis, in exchange for concessions that allowed it to build a closed satellite tracking station and to man it with Chinese military contractors.  Argentinian officials are permitted to enter the facility only two hours a day.  When current Argentinian President Antonio Macri, in response to American pressure, sought to convince the Chinese to close down their satellite base, the Chinese responded with pressure of their own, threatening to shut off their soybean imports from Argentina.[5]  China is reported to have obtained contracts with the Brazilian military to develop and install the SissGAAz naval radar system to defend Brazil’s lengthy  Atlantic coastline.[6]

China has launched several satellites to support its ‘Belt and Road’ initiatives and to provide ‘eyes in the skies’ to protect its economic interests and military positions around the world.  In July 2018, it launched two satellites for Pakistan that will “provide remote sensing information for the establishment of the China-Pakistan Economic Corridor, an extensive multibillion-dollar infrastructure development project between the two nations.”[7]

Expect to see an ongoing push by China for its BeiDou Navigation Satellite system and remote sensing satellite position and information services to displace GPS (US), Galileo (E.U.), and Glonass (Russia) moving from offers to train others in its use, to mandated use tied to Chinese contracts.  Achieving a dominant world position for BeiDou would facilitate any Chinese ambitions to monitor and even control global land, sea, air and space movements.

In addition to telecom company acquisitions, other recent activities by China, include laying new underwater cables and, reportedly, building “an underwater ‘Great Wall’ of seabed sensors that feed into fiber-optic cable stations on the same reefs housing the latest Chinese missiles…  If reports of the underwater Great Wall are reasonably accurate, then the system would give Beijing unrivaled information about submarine and surface vessel movements in the entire South China Sea. Like air defense identification zones, this system strengthens Beijing’s de facto control over its maritime claims—a key component of the idea that legitimacy is granted by facts, known as doctrinal unilateralism.” [8]

China has stated that it intends to intensify its use of satellite and other technology to monitor everything in the South China Sea and to enforce its disputed claims[9] to the waters, islands, and artificial islands it has created.  According to Chinese state media, by the end of 2019, China “intends to launch three new satellites with cameras and optical sensors, which will monitor shipping and surface conditions in the South China Sea.” [10]  The director of the Sanya Institute of Remote Sensing (part of the Chinese Academy of Science) has said: “Each reef and island as well as each vessel in the South China Sea will be under the watch of the ‘space eyes’…  The system will [reinforce] national sovereignty, protection of fisheries, and marine search and rescue.”[11]

RISE OF THE RENMINBI

The Bank of China has declared that ‘Belt and Road’ will make the renminbi the primary trading and investment currency in the ‘Belt and Road’ countries, and to that end, it requires contract transactions to be made in renminbi.[12]  Promotion of the renminbi is not just for Chinese prestige—it is to increase China’s ability to influence foreign exchange rates and, therefore, trade, foreign investment and other economic costs.  Chinese loan activity in ‘Belt and Road’ participating countries raises the visibility of the renminbi and Chinese and Chinese-affiliated financial institutions around the world.  China’s acquisition of well-known foreign financial firms like Delta Lloyd Bank in Belgium, also aids in raising China’s profile as a major financial player.

China recently achieved a major breakthrough in its efforts to insinuate the renminbi/yuan into Europe by setting up a financial payments network in Serbia that permits Serbians to use local credit cards overseas, as an alternative to Visa and Mastercard.  The system created by Chinese government-owned China UnionPay, is essentially “a parallel money-transfer system outside U.S. reach.”[13]Although this is a new development, China clearly hopes China UnionPay will take hold in other European countries.  China’s extensive infrastructure activity in Serbia and other Eastern European countries, including in neighboring Montenegro, will give it many opportunities to promote China UnionPay and the renminbi as an alternative to the U. S. dollar or the Euro.

In early 2018, European central banks indicated that they would move to include some of their foreign currency reserves in renminbi/yuan.  Generally speaking, however, increased use of the renminbi may be due more to Chinese requirements of its loan recipients and other economic partners than of a genuine growing acceptance in the world economy.  Its usage in international finance actually fell in 2017, compared to the year before. [14]  However, it will be important for all entities of global supply chains to stay abreast of renminbi developments in financial markets.  ‘Surprises’ could have sudden and adverse effects on their bottom lines.

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

How China Benefits – Ports and Sea Lanes

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1]Wade, Geoff. Op. cit.  p10  https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook45p/ChinasRoad

[2] Venzon, Cliff. “China Telecom’s proposed entry draws concern.”  Nikkei Asian Review.  14 December 2017.    https://asia.nikkei.com/Business/Companies/China-Telecom-s-proposed-entry-into-Philippines-draws-concern 7

[3] Wikipedia.  https://en.wikipedia.org/wiki/Norsat.  Accessed 28 July 2018.

[4] Sevunts, Leon.  “China’s Arctic Road gambit.”  Radio Canada International.  Eye on the Artic.  3 October 2017.    http://www.rcinet.ca/eye-on-the-arctic/2017/10/03/chinas-arctic-road-and-belt-gambit/

[5]Arostegui, Martin.  “James Mattis:  Latin American countries selling out their sovereignty to Russia, China.”  The Washington Times. 1 August 2018.  https://www.washingtontimes.com/news/2018/aug/16/james-mattis-south-american-countries-selling-sove/

[6] Ibid.  https://www.washingtontimes.com/news/2018/aug/16/james-mattis-south-american-countries-selling-sove/

[7] Clark, Stephen.  “China successfully launches two satellites for Pakistan.”    Spaceflight Now.  9 July 2018.  https://spaceflightnow.com/2018/07/09/china-successfully-launches-two-satellites-for-pakistan/

[8] Levick, Ewen.  “China’s Underwater ‘Great Wall’”.  The Maritime Executive – the Strategist18 June 2018.  https://www.maritime-executive.com/editorials/china-s-underwater-great-wall#gs.GFIOHeY

[9] Perlez, Jane.  “Tribunal Rejects China’s Claims in the South China Sea.”  The New York Times.   12 July 2016.        https://www.nytimes.com/2016/07/13/world/asia/south-china-sea-hague-ruling-philippines.htm

[10]  MAREX.  “China Builds Spy Satellites to Monitor South China Sea.” The Maritime Executive.  17 August 2018.   https://www.maritime-executive.com/article/china-builds-spy-satellites-to-monitor-south-china-sea#gs.TZNcnbA

[11] Ibid.  https://www.maritime-executive.com/article/china-builds-spy-satellites-to-monitor-south-china-sea#gs.TZNcnbA

[12] Wade, Geoff, p. 3. Op.  cit. https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook45p/ChinasRoad

[13] Areddy, James T.  “Trophy Infrastructure, Troublesome Debt:  China Makes Inroads in Europe.”  The Wall Street Journal.  5 November 2018.  https://www.wsj.com/articles/chinas-newest-bid-for-influence-runs-through-the-wests-backyard-1541435003?mod=searchresults&page=1&pos=1

[14] Tan, Huileng.  CNBC.” China’s currency is still nowhere near overtaking the dollar for global payments.”   2 February 2018.    https://www.cnbc.com/2018/02/02/china-currency-yuan-the-rmb-isnt-near-overtaking-the-us-dollar.html

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #16

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(Image credit: srilankabrief.org)

This is the sixteenth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (52 pg, 261 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #16 – How China Benefits – Transit Times and Supply Chain Alternatives

SHORTENED TRANSIT TIMES

The enhanced infrastructure of land connections between the Far East of China and Western Europe is expected to reduce transport time between China and Rotterdam to less than 10 days; other links of “Belt and Road” also should also see more rapid goods movement times.

As noted in Blog 4 “Arctic”, the polar routes will also significantly reduce shipping times between China and Western Europe.  These transit time improvements will facilitate Chinese export and import trade, but they obviously can benefit member countries along each Economic Corridor, assuming there is equal opportunity of access.

SUPPLY CHAIN ALTERNATIVES

China, and other “Belt and Road” countries in the network of land corridors and sea lanes and ports, have the potential to shift supply chains much faster in response to rapidly changing market conditions and political uncertainties.  Circumstances stemming from the emerging tariff war between China and the United States and the impacts on the soybean trade present a good example.

SOYBEANS

China is not only the largest importer of U.S. soybeans, it is the world’s largest soybean importer, period.  In 2018, China is expected to account for nearly two-thirds of total global soybean imports.[1]  While China is the largest market for U.S. soybeans by far–in 2016, the U.S. exported 35.85 billion tons of soybeans to China, followed by only 3.64 billion tons to Mexico, 2.58  billion tons to Indonesia, and 2.36 billion tons to Japan[2] – the U.S. is nowhere near the most important source of soybean imports for China.  China gets well over half of its soybean imports from Brazil, even excluding soybean meal and oil.[3]   Imports from the U.S. in 2017 accounted for about one-third of China’s total soybean imports.[4]

China began diversifying its soybean import sources before the 2018 tariff war with the U.S. came into play.  Several factors made imports from Brazil more attractive—lower prices, reliably abundant production, and improved transport connections between Brazilian soybean producers and ports for shipments to China.

The 25% retaliatory tariff will make the price differential between U.S. soybean imports and Brazilian soybean imports (not subject to the tariff and already lower priced than U.S. soybean exports) even more dramatic.  Brazil has considerable capacity for future production increases as it has vast areas of soybean farming-suitable land, but perhaps the most significant factor for future growth expectations for Brazil’s soybean exports to China is the dramatic improvement in land-port connections.  However, much of what already exists in port and rail development represents non-Chinese investment.  Latin American countries are not yet official members of the “Belt and Road Initiative” but China will likely use any infrastructure developed outside the ”Belt and Road” framework that speeds shipments and reduces transport costs.

The proposed freight rail connection between the Brazilian port of Santos on the Atlantic Coast and the Peruvian port of Llo on the Pacific Coast could help greatly further in that regard.[5]  In the near term, enhancement of inland ports on the Tapajos and  Amazon Rivers in the Amazon Basin, developed by agribusiness giants Cargill and Bunge (amid criticism for environmental damage), may expedite shipments north to ports on Brazil’s Atlantic Coast and then through the Panama Canal.[6]  [7]

Because several of the largest soybean-producing countries are in the Americas (besides Brazil, Argentina, Bolivia, Uruguay, Paraguay and Canada are among the top 10[8]), China’s cultivation of Latin American countries in recent years, including discussions about joining “Belt and Road”, and the improved port-producer transportation links, means that China is well-positioned to shift its import focus relatively rapidly to Latin America and away from the U.S.  At the same time, the U.S.’s other soybean importers are mainly in other Asian countries and these have not been major soybean markets for the U.S and so it may be more difficult for the U.S. to find other importers to make up for the loss of Chinese buyers any time soon.

LNG

The “Belt and Road” may also work in the current tariff wars to China’s comparative advantage with LNG (liquefied natural gas).  China is the second-largest importer of LNG in the world and accounted for 15% of U.S. LNG exports in 2017,[9] but it began cutting back on its imports of U.S. LNG before the trade war really kicked in.

China has placed 25% retaliatory tariffs on U.S. LNG exports.  The relative impacts may be muted in the short-term, but in the long-term, the current uncertainties in a volatile market may affect infrastructure investment decisions, like whether to build new pipelines and LNG-handling port facilities, around the world.

The effects of these investment decisions on LNG supply chains may be much more difficult for the U.S. and Western Europe to handle than for China as China has created more options for itself.  The U.S. is counting on the EU to take up the slack in its LNG exports caused by China’s cutbacks but that may be wishful thinking.

Closer and delivered price-competitive alternatives are available to Europe and new export competitors, such as Australia and Papua, New Guinea, who may be happy to help China shift further away from U.S. LNG.[10]  For the last several years, China has used the ‘Belt and Road’ extensively to fund and secure gas explorations, build pipelines from gas fields off-shore and in Siberia and other Arctic Circle areas and Central Asia, build ice-class tankers to carry LNG to Western Europe and port facilities to handle LNG.

The soybean and LNG examples demonstrate the need for exporters and importers to stay aware of how ‘Belt and Road’ policies and actions can affect their lines of business.  There have been and will continue to be major market shifts and changes in port conditions and international shipping.  Survival for many firms will depend on dynamic supply chain adaptation and flexibility.  This is discussed further in upcoming BRI Blogs.

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

How China Benefits – Telecommunications, Renminbi

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] Saefong, Myra P.  “ U.S. soybeans would be China’s biggest weapon in a trade war .“ Market/Watch.  22 March 2018.  https://www.marketwatch.com/story/us-soybeans-would-be-chinas-biggest-weapon-in-trade-war-2018-03-17/

[2] Statista-The Statistics Portal.  “Major countries of destination for U.S. soybean exports in 2016 (in million metric tons)” https://www.statista.com/statistics/192081/us-soybean-exports-by-major-countries-of-destination/.  Accessed 10 July 2018.

[3] Stratfor. Why China Is Hungry For Brazilian Soy.” Forbes. 10 April 2018.  https://www.forbes.com/sites/stratfor/2018/04/10/why-china-is-hungry-for-brazilian-soy/#136b0d67321d

[4] Reuters  Staff (Gu, Hallie and Josephine Mason).  “China’s June soy imports jump ahead of tariffs on U.S. shipments.”  Reuters.    13 July 2018.   https://www.reuters.com/article/us-china-economy-trade-soybeans/chinas-june-soy-imports-jump-ahead-of-tariffs-on-u-s-shipments-idUSKBN1K30EA

[5] Deorukhkar, et al.,  op. cit. p.6  http://www.iberchina.org/files/2018/OBOR-LatAm_bbva.pdf.

[6] Frayssinet, Fabiana.  “Brazil’s Amazon River Ports Give Rise to Dreams and Nightmares.” Inter-Press Service News Agency.  11 December 2015.  http://www.ipsnews.net/2015/12/brazils-amazon-river-ports-give-rise-to-dreams-and-nightmares/

[7] Stratfor  Op.cit.  https://www.forbes.com/sites/stratfor/2018/04/10/why-china-is-hungry-for-brazilian-soy/#136b0d67321d

[8] Worldatlas.  “10 Countries With Largest Soybean Production”  Last updated 25 April 2017.  https://www.worldatlas.com/articles/world-leaders-in-soya-soybean-production-by-country.html. Accessed 25 July 2018.

[9] Zaretskaya,  Victoria (principal contributor).  “China becomes world’s second-largest LNG importer, behind Japan.  Hydrocarbon Processing.  23 February 2018.   www.hydrocarbonprocessing.com/news/2018/02/china-becomes-world-s-second-largest-lng-importer-behind-japan

[10] Energy Tomorrow Blog/BreakingEnergy.   “Don’t Let U.S. LNG Exports Become Casualty of Tariff Policy.”   15 August 2018.   https://breakingenergy.com/2018/08/15/dont-let-u-s-lng-exports-become-casualty-of-tariff-policy/

 

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #15

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(Image credit: srilankabrief.org)

This is the fifteenth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (51 pg, 259 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #15 – Strategy Becomes Action – With Consequences

 

STRATEGY: PLANNED PATH OF PROGRESS

China envisions “Belt and Road” evolving from a concentration in its early years on infrastructure–particularly transportation, communications, and power infrastructure—to a focus on “softer sectors such as e-commerce, healthcare, education, and financial services.”[1]

China already has jumped to this second phase in a number of Western European countries, typically through the acquisition of existing enterprises.  However, China is quite willing to create new facilities for Chinese companies seeking to enter established markets to challenge local businesses; for example, the AliExpress venture in Poland, certainly will compete with the existing Polish competitor, Allegra.

China’s investments in the Netherlands have been more typical of its “Belt and Road” activity in Europe.  These have been mainly in advanced technology and established global networks.[2]  With the breakup and spin-off of major parts of Royal Philips, China seized the opportunity to snap up pieces that produce semiconductors, chips for cell phone towers, mobile phones, computer monitors, and flat-screen TVs.[3]

China also has a planned path of progress for building upon its network of ports, set forth in what it calls its “Ports-Parks-City” development model.[4]  This involves supporting Chinese companies to “build out  from a port to create transportation channels, an industrial park, a logistics park, and free-trade and manufacturing zones.[5]  These facilities would assist the development of land-side supply chains and provide investment opportunities for Chinese businesses.  They could also jump-start economic growth around the ports in the host countries.

There is one other type of port development that appears in Chinese plans and pronouncements that may not be so benign.   An article from a journal published under the aegis of China’s University of International Relations (a feeder school for China’s intelligence agencies) describes a concept “first civilian, then military” that is corroborated in Chinese military policy and actions, especially by the People’s Liberation Army-Navy (PLAN).  The journal article describes it as follows:

Use main ports as investment points, use local resources, establish an economic development zone, complete steel industry, shipbuilding industry, mineral processing industry [and] make these ports gradually possess the capability for offering logistical support to Chinese vessels and become China’s strategic support points in Southeast Asia to create an advantageous external environment for China’s rise.”[6]

Chinese-controlled ports in Sri Lanka, Pakistan and Djibouti are examples of dual commercial-military ports.  Non-Chinese vessels using such ports should be aware that military considerations may take priority over commercial operations.

 

CONSEQUENCE: FINANCIAL STRESS ON CHINA

It is becoming clear the cost of the “Belt and Road” vision is overwhelming China’s ability to fund it alone.  Chinese banks, who have been the primary lenders so far, have overstretched their balance sheets.[7]

China and its financial institutions are now in a push to bring in non-Chinese funding to keep the initiative alive.  China’s central bank chief has said that “China is keen to work with international organizations, commercial lenders, and financial centres like Hong Kong and London to diversify funding sources for the plan.”[8]  Drawing new investors may become more difficult, as concern for China’s exposure on its large portfolio of high-risk loans associated with the “Belt and Road Initiative” intensifies.  Because of a severe capital outflow in 2017, China instituted restrictive foreign investment and currency controls and increased caution in its own finances.  These actions do not help generate investor confidence in China’s ability to expand risky infrastructure loans indefinitely.

China is increasingly discovering that many of its “Belt and Road’ projects were driven more by politically or militarily strategic reasons than sound economic purposes—Gwadar and Hambantota for example—have large and long-term costs.  When it is clear that the client country cannot meet loan payments, Chinese banks and investors are left with the failures.  Taking over the infrastructure collateral—the ports in the cases of Gwadar and Hambantota—doesn’t automatically restart loan re-payments.

 

CONSEQUENCE: BURDENS ON PARTNER COUNTRIES AND INVESTORS

The financial burdens of the vast “Belt and Road Initiative” are taking a toll on several of the partner countries as well as posing serious risks to the Chinese banks and foreign investors making the infrastructure loans.

Major infrastructure projects are, by their nature, long-term propositions exposed to many risks, including under-financing, political pressures and interference, unexpected supply-chain problems, poorly-conceived planning, and significant time lags between initiation of projects and receipt of the anticipated economic benefits, that would help borrowers pay back the loans.

“Belt and Road” projects in developing countries are especially vulnerable to these risks.  In “Harbored Ambitions,” Mikkal Herberg succinctly describes how “the coercive capacity of Chinese capital, infrastructure loans can lead the recipient country into a debt trap that severely limits policy options.

This is particularly the case if the projects are backed by sovereign guarantees—whereby the recipient country backs the loan to mitigate risk to the investors.  Should a project fail to generate revenue, the government must fulfill the debt obligations of the guarantee; failure to repay this foreign-held public debt has led to sovereign defaults in the past.  Sovereign guarantees are relatively commonplace in infrastructure development.  However, when applied to large-scale projects in recipient countries with high preexisting foreign-held debt-to-GDP ratios, these guarantees can sabotage a country’s economic development and endow its creditor with outsized leverage.”[9]

A recent report by the Center for Global Development identified eight countries at major sovereign debt risk: Pakistan, Djibouti, Maldives, Laos, Mongolia, Montenegro, Tajikistan, and Kyrgyzstan, due in no small measure to overcommitment to “Belt and Road” projects.  The debt situation of these countries is aggravated by the fact that “China’s track record managing debt distress has been problematic, and unlike the world’s other leading government creditors, China has not signed on to a binding set of rules of the road when it comes to avoiding unsustainable lending and addressing debt problems when they arise.”[10]

In April 2018, the Managing Director of the IMF, Christine Lagarde, echoed the report’s warnings and warned against saddling these struggling countries with crushing debt levels.[11]  One “Belt and Road” energy project in Pakistan guaranteed its Chinese investors a 34% annual return, in U.S. dollars for 30 years, a completely unrealistic situation.[12]  Typical “Belt and Road” loan conditions require contracts to be given to Chinese firms and at least 50% of materials, equipment, technology and services be Chinese-sourced.  An example:   the Chinese Exim Bank (an SOE) requires recipients to use its funds to purchase Chinese products and services and to use Chinese labor and raw materials.[13]

The hard lesson that these eight countries have learned is that China’s funding comes with significant costs.  It is not an aid program; it is a Chinese government-directed business program.  Several projects have become Chinese-owned when the host country could not make loan repayments.  Other projects were stalled in various stages of completion with no guarantee of being finished but creditors will still have to be paid.

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

How China Benefits – Transit Times and Supply Chain Alternatives

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] Wijeratne, David, et al. Op. cit.  https://www.strategy-business.com/feature/A-Strategists-Guide-to-Chinas-Belt-and-Road-Initiative?gko=a98e0

[2] Van der Putten, Frans-Paul.  “Chinese Investment in the Netherlands:  A Key Role for Acquisitions in the High-Tech Sector.”  ETNC.  Chinese Investment in Europe:  A Country-Level Approach.  December 2017. https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[3] Ibid. https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[4]Thorne, Devin and Ben Spevak.  Harbored Ambitions. How China’s Port Investments Are Strategically Reshaping the Indo-Pacific. C4ADS.  2017.                                        https://static1.squarespace.com/static/566ef8b4d8af107232d5358a/t/5ad5e20ef950b777a94b55c3/1523966489456/Harbored+Ambitions.pdf

[5] Ibid.  https://static1.squarespace.com/static/566ef8b4d8af107232d5358a/t/5ad5e20ef950b777a94b55c3/1523966489456/Harbored+Ambitions.pdfhttps://static1.squarespace.com/static/566ef8b4d8af107232d5358a/t/5ad5e20ef950b777a94b55c3/1523966489456/Harbored+Ambitions.pdf

[6] Zhang Jie.   “SLOC Security and the construction of China’s strategic support points,” International Security Studies, 2, 100-118, 2015.  Cited in Thorne, Devin and Ben Spevack.  C4ADS “Harbored Ambitions.  How China’s Port Investments Are Strategically  Reshaping the Indo-Pacific,” 2017.  P. 24, footnote 80, https://static1.squarespace.com/static/566ef8b4d8af107232d5358a/t/5ad5e20ef950b777a94b55c3/1523966489456/Harbored+Ambitions.pdf

[7] Garcia-Herrero, Alicia.  Blog post.  “China cannot finance the Belt and Road alone.”  The Bruegel Newsletter.  26 March 2018.  http://bruegel.org/2017/05/china-cannot-finance-the-belt-and-road-alone/

[8] He, Huifeng.  “Is China’s belt and road infrastructure development plan about to run out of money?” South China Morning Post.  14 April 2018http://www.scmp.com/news/china/economy/article/2141739/chinas-belt-and-road-infrastructure-development-plan-about-run

[9] Herberg, Mikkal E.   “Introduction.”  Harbored Ambitions.  How China’s Port Investments Are Strategically Reshaping the Indo-Pacific. C4ADS.  2017, p. 21.  https://static1.squarespace.com/static/566ef8b4d8af107232d5358a/t/5ad5e20ef950b777a94b55c3/1523966489456/Harbored+Ambitions.pdf

[10]Center for Global Development.  Press release.  “China’s Belt and Road Initiative Heightens Debt Risks in Eight Countries, Points to Need for Better Lending Practices.”  4 March 2018.  https://www.cgdev.org/article/chinas-belt-and-road-initiative-heightens-debt-risks-eight-countries-points-need-better

[11] Deutsche Welle (DW).  “IMF’s Lagarde warns China on Silk Road debt.”  12 April 2018.    http://www.dw.c om/en/imfs-lagarde-warns-china-on-silk-road-debt/a-43354360

[12] The Wall Street Journal.  “Another ‘Belt and Road’ Hostage.” 21 August 2018.  https://www.wsj.com/articles/another-belt-and-road-hostage-1534717019?mod=searchresults&page=1&pos=1

[13] Eva, Joanna, Qi Lin, and James Tunningley.  Op. cit.  https://globalriskinsights.com/2018/01/chinas-belt-and-road-initiative-regional-outlooks-for-2018/

————————————————————————————————-

© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #14

, , , ,
(Image credit: srilankabrief.org)

This is the fourteenth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (51 pg, 259 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #14 – China-Indochina Peninsula Economic Corridor:  Cambodia, Vietnam & Indonesia

 

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

Nestled between Thailand and Vietnam, with a coastline across the Gulf of Thailand not far from the potential site of the Kra Canal, Cambodia has become an investment magnet to China.  Along with Laos and Vietnam (and Myanmar), Cambodia has a rapidly-growing economy (over 6% in 2014)[1] and low wage rates.  Chinese investors have found the seaside village of Sihanoukville very attractive and have developed casinos and resort properties, pushing real estate prices into the stratosphere.[2]  Chinese interests in Cambodia go well beyond such real estate.  One of China’s largest real estate investment companies—R&F Properties—is engaged in a $2 billion massive project called R&F City.[3]  This full-fledged city, with retail and recreational amenities, is aimed at the growing population of Chinese investors and workers as well as upward-striving Cambodians.

Source:https://www.firstpost.com/india/thailands-kra-canal-project-is-chinas-masterplan-to-secure-beijings-interests-assert-influence-in-asean-indian-ocean-region-4420647.html. (Image courtesy: kracanal-maritimesilkroad.com)

Chinese investments in Cambodia also center on much-needed infrastructure projects.  A 2016 visit to Cambodia by Chinese President Xi Jinping yielded 31 signed economic agreements that included $237 million in soft loan projects and cancellation of $89 million in Cambodian debt.[4]  With a $7.3 billion stake in Cambodia’s energy sector (hydroelectric), China is Cambodia’s largest foreign investor.  Several major dams are in the works or already under construction but there have been problems.  Several of the dams have failed to meet international standards, created serious environmental issues (such as blocking fish migration routes, thereby threatening fisheries upon which much of the population depends), displaced thousands of Cambodians—often without compensation, entailed controversial land concessions, and charges of human rights violations.[5]

China has funded contracts for transportation projects, including bridges, highways, railways and ports.  The Sihanoukville Autonomous Port, the country’s sole deepwater port, has received some upgrades by the Chinese and, adding a little international competition in infrastructure investments, Cambodia is negotiating with the Japan International Cooperation Agency (JICA) for funding for further expansions.  Plans include a new $200 million container terminal that will more than double the port’s capacity.[6]  If the Kra Canal in Thailand were to be built, Sihanoukville is in a position to benefit hugely.

Geographically, Vietnam is important to China’s plans for Southeast Asia in the “Belt and Road Initiative” but it has few “Belt and Road” projects.  One of the few “Belt and Road” projects is the northern port of Haiphong in Vietnam.  This port will receive a major facilities upgrade.  Its geographic location is important because it is at the nexus of two major trade routes:  one, connects Nam Ninh, Lang Son, Hanoi and Haiphong, and the second connects Kunming in China, to Lao Cai, Hanoi and Haiphong.[7]

The reasons for the dearth of “Belt and Road” projects in Vietnam are probably mainly political (Vietnam and China are engaged in heated controversy over islands in the South China Sea/East Sea and Vietnam is very wary of China’s heavy influence), but also economic.

Vietnam’s strongly growing economy has made it a competitor of China’s for a range of export manufactured products that China used to dominate, such as textiles and clothing, and in recent years, information and communications products, automotive, and medical devices.[8]

Labor costs in Vietnam are about 50% of those in China, and the country has a rapidly-growing, “inexpensive, young, and increasingly highly skilled” workforce.[9]  The government has adopted a number of successful initiatives aimed at attracting foreign investment and companies who want to do business in Vietnam.  Samsung, for example, has invested over US$10 billion in Vietnam, with the intent of turning Vietnam into a “global manufacturing base for its products.”[10]

At the same time, Vietnam’s burgeoning consumer market is a magnet for Chinese exports.  China accounts for nearly a third of Vietnam’s imports,[11] though there has been a growing shift in both imports and exports to South Korea and Japan since the Trans-Pacific Partnership was signed (even after the U.S. withdrew).[12]  However, China surely will continue working to develop the routes and markets it needs for its exports, and Vietnam will be vital to that.

Indonesia, with its extensive coastal exposure to the Java Sea, the Timor Sea, Arafura Sea, Banda Sea, the Sulawesi Sea, Sulu Sea, the Indian Ocean, and most especially the South China Sea—and critical maritime chokepoints—the Straits of Malacca, Sunda, and Lombok—is an important player in the maritime world and the world of power politics.  China is keen to invest in (and control) key ports in Indonesia, such as Tanjung Sauh on the island of Batam, and build rail lines.

Indonesia chose to partner with China, over Japan, which also expressed participatory interest in the high-speed rail link between Jakarta and Bandung, but Indonesia appears to be consciously trying to contain Chinese influence by engaging other countries in its infrastructure investment, such as India.  India has had a major role in developing the port of Sabang,[13] strategically located in a collection of islands off the tip of Aceh province in Sumatra, in the Andaman Sea and at the entrance to the Strait of Malacca.

Indonesia has offered Chinese investors a “deliberately ‘limited’ portfolio of projects” in which they would be allowed to invest.[14]  Indonesia Investment Coordinating Board Chairman Thomas Lembong indicated an Indonesian preference for concentrating on maritime projects dealing with transportation, telecommunications, tourism, industrial estates, energy and power.[15]  While this ‘wish list’ may seem broad, China’s funding commitments to Indonesia to date have been modest, $5 to $6 billion, as of 2017, while it has invested over $62 billion in Pakistan and $32 billion in Malaysia.  Indonesia is eager for foreign help in funding its large infrastructure needs but it is cautious about how much control to concede to China.

China has sought to tie “Belt and Road” with Indonesia’s ‘Global Maritime Fulcrum’ vision, in which Indonesia gives top priority to development of the maritime sector.  What this means is unclear so far as the ‘Global Maritime Fulcrum’ policy is very vague.  Mainly, China seems to be currying favor with the Indonesian government to get a favorable response to Chinese projects that are put under the “Belt and Road” umbrella.[16]  However, Luhut Panjaitan, Indonesia’s Coordinating Minister for Maritime Affairs has said: “We don’t want to be controlled by the Belt and Road…We are also promoting our Global Maritime Fulcrum…It is to balance the One Belt, One Road (emphasis added).”[17]

Indonesia and China have sparred over claim to the Natuna Islands in the South China.  These islands are actually outside of China’s “Nine-Dash Line” that virtually claims the South China Sea and everything in it for China.  The Nine Dash Line would, however, include the territorial waters of the Natuna Islands and their exclusive economic zone and Indonesia has been firm in its claim to the islands[18]  An uneasy standoff exists.

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

Strategy Becomes Action – With Consequences

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] Chen, Irene.  Op. cit.  https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[2] Murdoch, Lindsay and Kate Geraghty.  “The next Macau?  China’s big gamble in Cambodia.”  The Sydney Morning Herald.  20 June 2018.  https://www.smh.com.au/world/asia/the-next-macau-china-s-big-gamble-in-cambodia-20180615-p4zlqg.html

[3] Meng, Siv. “China giant R&F pushing ‘Belt and Road’ initiative in Cambodia.  Phnom Penh Post.  14 August 2018.  https://phnompenhpost.com/supplements-post-property/china-giant-rf-pushing-belt-and-road-initiative-cambodia

[4] Lin, Qi.  “Money talks:  China’s belt and road initiative in Cambodia.”  Global Risk Insights.  7 January 2018.  https://globalriskinsights.com/2018/01/money-talks-chinas-belt-road-initiative-cambodia/

[5] Ibid.  https://globalriskinsights.com/2018/01/money-talks-chinas-belt-road-initiative-cambodia/

[6] Chan, Sok.  “Port unveils $200m expansion.”  Khmer Times.  https://www.khmertimeskh.com/news/38014/port-unveils–200m-expansion/

[7] Chan, Dr. Markus Patrick.   “China’s One Belt One Road Initiative—Invest Vietnam Chapter.”   Medium.  9 September 2017.   https://medium.com/@markuspatrick/chinas-one-belt-one-road-initiative-invest-vietnam-chapter-c29f5d1dd8c8

[8] Mai, Dam Thi Phuong and Edward Barbour-Lacy.  “An Introduction to Vietnam’s  Import & Export Industries.” Vietnam Briefing.   3 February 2015.   www.vietnam-briefing.com/news/introduction-vietnams-export-import-industries.html/

[9] Mai, Dam Thi Phuong and Edward Barbour-Lacy, Op. cit.  www.vietnam-briefing.com/news/introduction-vietnams-export-import-industries.html/

[10] Ibid.  www.vietnam-briefing.com/news/introduction-vietnams-export-import-industries.html/

[11] Observatory of Economic Complexity/MIT Media Lab.  https://atlas.media.mit.edu/en/profile/country/vnm/ (Accessed 15 August 2018)

[12] Ahn, Phan.  “Vietnamese firms turn their backs on China for Japan, S. Korea:  report.” VN Express International.  9 April 2018.  https://e.vnexpress.net/news/business/vietnamese-firms-turn-their-backs-on-china-for-japan-s-korea-report-3733354.html

[13] The Wire.  “Indonesia’s Balancing Act:  A Road with China, a Port with India.”    30 May 2018.   https://www.thewire.in/diplomacy/indonesia-china-india-modi-belt-and-road

[14] Devonshire-Ellis, Chris.  “Indonesia Targets Maritime in OBOR Investment Push.”  Indonesia Briefing.  23 May 2017.  www.indonesiabriefing.com/news/indonesia-targets-maritime-obor-investment-push

[15] Ibid.  www.indonesiabriefing.com/news/indonesia-targets-maritime-obor-investment-push

[16] Supriyanto,  Ristian Atriandi.  “The Indian Ocean and Indonesia’s Global Maritime Fulcrum: Relevance To ASEAN”. ASEAN and the Indian Ocean:  The Key Maritime Links.   P.56.  https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[17] The Wire.  Op. cit.  https://www.thewire.in/diplomacy/indonesia-china-india-modi-belt-and-road

[18] Yu, Miles.  “Et tu, Jakarta?”  The Washington Times.  19 November 2015.  https://www.washingtontimes.com/news/2015/nov/19/inside-china-china-concedes-natuna-islands-to-indo/

————————————————————————————————-

© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #13

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(Image credit: srilankabrief.org)

This is the thirteenth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (51 pg, 258 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #13 – China-Indochina Peninsula Economic Corridor:  Laos & Malaysia

 

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

Malaysia is having serious second thoughts about its “Belt and Road” involvement.  The newly elected government canceled the high-speed bullet train project between Kuala Lumpur and Singapore in May 2018, because it believes the costs outweigh the benefits to Malaysia.

On July 4, 2018, it was announced that work on the 688 km East Coast Railway Link had been suspended. The project’s costs had soared to nearly 50% more than the original estimate.[1]  The loans for the project are a heavy debt burden for Malaysia.  The planned line, which has strategic significance for China, but less so for Malaysia, would “connect the South China Sea at the Thai border in the east with strategic shipping routes of the Straits of Malacca in the west.”[2]  Malaysia is insisting that the deal be renegotiated before it will allow it to proceed.

Time savings of Thai/Kra Canal compared to alternative routes

Source:https://www.firstpost.com/india/thailands-kra-canal-project-is-chinas-masterplan-to-secure-beijings-interests-assert-influence-in-asean-indian-ocean-region-4420647.html. (Image courtesy: kracanal-maritimesilkroad.com)

Other Chinese infrastructure developments in Malaysia include a port complex in Malacca—the Melaka Gateway port on the Strait’s northern shore and the Kuantan port on the South China Sea.[3]

The Melaka Gateway port project is very important both to China as a means of protecting its interests in the Strait of Malacca and to Malaysia as a potential challenger to Singapore’s commercial and maritime supremacy in the Strait.  The project includes one artificial island and three reclaimed islands.

One island will have a container and bulk terminal, shipbuilding and ship repair facilities, and a ‘maritime industrial park.’[4]  But, with nearby Port Klang planning to double its capacity, the need for another port (Melaka Gateway) is questionable.  Indeed, a World Bank study concluded that “there was no need for a new port on Malaysia’s west coast because existing facilities had not reached capacity.”[5]

The ownership and control of the project have already raised concerns.  It has been reported that “the reclaimed islands would allegedly be given freehold status while the port would allegedly be granted a 99-year concession,” conditions called “rare and generous.”[6]  Recently, Malaysia has indicated that it is reassessing the project before it allows it to proceed.[7]  Having Chinese-owned islands sitting in the middle of a strategic major international maritime passageway poses serious reasons for concern.

China appears to have a liking for artificial islands as development sites.   Private Chinese investment in Malaysia includes a noteworthy magnet for Chinese capital and the creation of overseas residential real estate development.  Located in the middle of the vitally-important Strait of Johore that separates southern Malaysia and Singapore and well within Malaysia’s territorial waters, is the first of four planned artificial islands of the $100 billion Forest City project.

This is to be a high-tech, futuristic, ultra-‘green’ master-planned new city, with a state-of-the art security surveillance system.[8]  It is intended to be a largely autonomous Chinese outpost in a foreign land.  Sales by the Country Garden Pacificview joint venture—between Country Garden, a powerful Chinese real estate developer and a company controlled by Sultan Ibrahim Sultan Iskandar—to Chinese buyers were booming until Beijing became alarmed at the degree of private Chinese capital flight it was experiencing.

Over the last decade, an estimated $3.8 trillion in Chinese wealth flowed out of the country, a substantial portion into offshore real estate.  In 2017, Beijing instituted sharply restrictive capital transfer controls that essentially shut off further purchases by Chinese nationals.[9]  The remaining properties are being marketed to foreigners from other countries, such as Dubai, Thailand and Japan.  Long-term visas and paths to citizenship incentives that had been offered to Chinese buyers have caused a backlash in Malaysia and became a campaign issue in recent elections in which a former prime minister, who opposes such incentives, was elected.

Laos has strategic location for China as a land bridge between China and the mainland Southeast Asian states of Myanmar, Thailand, Cambodia, and Vietnam.  In its “Belt and Road” scheme, China regards Laos as a key transshipment node for commerce and a generator of electric power for the region.  Thus, “Belt and Road” projects in landlocked Laos have been concentrated in energy development (hydroelectric dams) and transportation.  Both the Laotian “Belt and Road” transportation and energy projects build upon projects begun in the 1990s under the Asian Infrastructure Bank (AIB), as opposed to the Chinese-created Asian Infrastructure Investment Bank (AIIB).[10]

Laos is part of a $6 billion (also estimated at $7 billion) rail project to link eight Asian countries.[11]  The Pan Asian Railway will run from Kunming in southern China to Singapore.  From Singapore, plans call for the railway to go north through the Malay Peninsula into Thailand.  When the line reaches Bangkok, it will split into three routes, all going to Kunming, China, one through Myanmar, one through Cambodia and Viet Nam, and the third (Kunming-Vientiane) going through Laos.[12]  The portion passing through Malaysia may be in jeopardy, as the government elected earlier this year has put the brakes on most planned or in-process Chinese projects.  The Kunming-Vientiane link “will be paid for by the Laotian government with concessionary loans from China, with Laos’ mineral wealth as collateral.“[13]  Construction in Laos has been slowed by mountainous terrain necessitating bridges and tunnels for more than 60% of the line and clearing land mines left over from the Vietnam War.

The benefits to Laos are diminished by the fact that the labor force is almost entirely Chinese and much of the construction material is brought in from China or made in on-site Chinese factories, such as the cement required for tunnel construction.[14]  A Chinese feasibility study confirmed that the railway would run at a loss for at least for the first eleven years.  The project costs are running at nearly half of Laos’s GDP and are putting the country at sovereign debt risk.  Government debt, mainly due to Chinese project loans, accounts for about 70% of the country’s output.[15]

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

China-Indochina Peninsula Economic Corridor:  Cambodia, VietNam and Indonesia

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] South China Morning Post.  Diplomacy & DefenceBelt and Road Initiative. “Chinese engineering firm told to suspend US$20 billion East Coast Railway Link in Malaysia.”4 July 2018.  https://www.scmp.com/news/china/diplomacy-defence/article/2153801/chinese-engineering-firm-told-suspend-us20-billion-east

[2] EurasiaReview/Benari News.  “Malaysia Reviews China-Backed Rail Link, Scraps Bullet Train Project.”  30 May 2018. https://www.eurasiareview.com/30052018-malaysia-reviews-china-backed-rail-link-scraps-bullet-train-project/

[3] Eva, Joanna, Qi Lin, James Tunningley.  Op. cit. https://globalriskinsights.com/2018/01/chinas-belt-and-road-initiative-regional-outlooks-for-2018/

[4] Negaraku, Bangkitlah.   “Malaysia and China ink $7.3 bn Melaka Gateway project.”   Najibrazak.com.    3 September 2016.  https://www.najibrazak.com/en/international-news/malaysia-and-china-ink-7-3bn-melaka-gateway-project/

[5] Free Malaysia Today.  “Analyst: Is RM43b Melaka Gateway for China trade or military? “   14 November 2016.    www.freemalaysiatoday.com/category/nation/2016/11/14/analyst-is-rm43b-melaka-gateway-for-china-trade-or-military/

[6] Ibid.   www.freemalaysiatoday.com/category/nation/2016/11/14/analyst-is-rm43b-melaka-gateway-for-china-trade-or-military/

[7] Mahorm, Ardi and Roshidi Abu Samah.  “Melaka Gateway project being reassessed.”  The Star Online.    2 June 2018.  https://www.thestar.com.my/news/nation/2018/06/02/melaka-gateway-project-being-reassessed/

[8] Larmer, Brook.   “A Malaysian Insta-City Becomes a Flash Point for Chinese Colonialism — and Capital Flight.”  The New York Times.  13 March 2018.  https://nyti.ms/2GkOE4p

[9] Ibid.   https://nyti.ms/2GkOE4p

[10] Lim, Alvin Cheng-Hin.  “Laos And The Silk Road Economic Belt – Analysis.”  The Eurasia Review.  30 July 2015.  http://www.eurasiareview.com/30072015-laos-and-the-silk-road-economic-belt-analysis/

[11] Perlez, Jane and Yufan Huang.  Op.cit.  https://www.nytimes.com/2017/05/13/business/china-railway-one-belt-one-road-1-trillion-plan.html

[12]Lim, Alvin Cheng-Hin and Yufan Huang.  Op. cit.  http://www.eurasiareview.com/30072015-laos-and-the-silk-road-economic-belt-analysis/

[13]Lim, Alvin Cheng-Hin and Yufan Huang. Op. cit.  http://www.eurasiareview.com/30072015-laos-and-the-silk-road-economic-belt-analysis/

[14]Perlez, Jane and Yufan Huang. Op. cit.   https://www.nytimes.com/2017/05/13/business/china-railway-one-belt-one-road-1-trillion-plan.html

[15] Emont, Jon and Myo Myo.   “Chinese-Funded Port Gives Myanmar a Sinking Feeling.”   Wall Street Journal.  15 August 2018.    https://www.wsj.com/articles/chinese-funded-port-gives-myanmar-a-sinking-feeling-1534325404?mod=hp_listc_pos1

————————————————————————————————-

© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #12

, , , ,
(Image credit: srilankabrief.org)

This is the twelfth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (49 pg, 243 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #12 – China-Indochina Peninsula Economic Corridor:  Thailand

 

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

Both state-owned and privately-owned Chinese-controlled or affiliated businesses have made extensive investments in Thailand.  Hutchison Ports, a subsidiary of CK Hutchison Holdings Ltd. (Hong Kong), is undertaking a major port expansion and renovation at Laem Chabang.  When complete, it will feature a fully-remote-controlled container terminal that will add 3.5 million TEUs to the port’s capacity.[1]  The newly installed technology is expected to reduce labor needs by 25%, which is actually a benefit to the Thai economy that is currently experiencing a labor shortage.  The port upgrades should position the port well for the projected increase in trade stemming from the “Belt and Road Initiative”.[2]

A major, planned “Belt and Road” infrastructure project is the Kra Canal (also called the Thai Canal) which would provide China with an alternative to using the Strait of Malacca, by connecting the Gulf of Thailand with the Andaman Sea.[3] (See map below). However, it is uncertain as to when this might be realized.

Discussions and studies of a potential canal across the Thai peninsula have gone on for more than three centuries.  While the concept looks good on maps, the economic, political and technical realities pose major roadblocks.  Nevertheless, China’s persistent push to get work started seems to have paid off, although Thailand has made a guessing game about whether work has actually begun.  Earlier this year, Thai officials stated that the Kra Canal project was “not a priority” and it was still “under review.”[4]

Technically, the canal poses significant engineering challenges.  A long, granite mountain ridge runs down the center of the peninsula; its height varies from 250 to 4,600 feet above sea level.  Digging through this would be a massive undertaking, but the alternative of building a series of locks increases the canal cost prohibitively 10 to 20-fold.[5]  The amount of excavation material, whether the canal is at sea-level or uses locks, poses a huge, environmentally-hazardous disposal problem.  The problem would continue with a sea-level canal, due to the constant dredging that would be required in this location, which is subject to siltation and monsoons.

Politically, the project is charged as it would definitely upset the status quo and create ‘winners’ and ‘losers’ in the maritime arena, change national military advantages, and raise fears about growing Chinese dominance in all of Asia as well as the Middle East.

Singapore could lose nearly a third of its share of sea traffic between the Indian and Pacific Oceans.[6] Ports in other countries in the region would also see changes in their traffic, some more, some less.  Assuming the canal is built to widths and depths to accommodate the largest ships, the canal could draw a sizable share of post-Panamax vessels.   The Strait of Malacca is a true bottleneck, being just 2.7 km wide at its narrowest point and a minimum depth of only 25 meters, insufficient for the larger ships.  These mega-ships have had to go the long way around the Indonesian archipelago.[7]

Economically, the canal could be a large boon to the Thai economy—if Thailand retains control and administration of it and can charge transit rates that cover costs, including loan servicing, and yield a profit.  That is not a sure thing at this point.  The cost of construction has been estimated to be around US$28 billion, not including the cost of creating facilities to provide the ancillary shipping services to make it competitive with Singapore, such as drydocks, repair, and resupply facilities.

A special economic zone complementing the canal, would cost an additional US$22 billion.  Plans describe it in ambitious terms:  The new zone includes the “addition of cities and artificial islands, which will enhance new industries and infrastructure in the region.  This would make Thailand into a ’logistic hub’ and link Thailand to countries from all over the world.”[8]

How much the Thai economy would benefit from the construction of the canal is open to question.  Longhao, a Chinese construction company likely to be a project lead, anticipates bringing over 30,000 Chinese workers to build the canal.  This would account for the large workers’ community shown on the map below.

Chinese proposal for Kra Canal

Source: IIMS, “The Kra Canal Project.” (http://www.iims.org.uk/wpcontent/uploads/2015/01/kra-canal.png)

China reportedly has proposed to make $28 billion in loan funds available for the Kra Canal project, but Thailand also has been soliciting funding from other sources, including Japan, South Korea, India, and other ASEAN countries.[9]  The lessons of what happened to Hambantota in Sri Lanka and Gwadar in Pakistan with entirely Chinese loans have not been lost on Thailand.  It would be unacceptable if China were to be the primary lender, Thailand defaulted, and China took control and ownership of the canal.

The shipping time and cost savings proponents of the canal see are shown in the second map below.   They are significant and could become all the more important as the Malacca Strait reaches maximum throughput capacity, projected to occur in just a few years.  Over 84,000 ships per year pass through now, and with expectations of economic growth, that number will rapidly increase.[10]

Another big “Belt and Road” infrastructure project in Thailand is a high-speed rail line that will link Thailand’s border with Laos to ports and industrial centers in eastern Thailand.  This is part of China’s great scheme to link eight Southeast Asian countries with China and key access points to the Maritime Road.  The project has been off to a rocky start as Thailand balked at China’s first price tag of $16 billion for this rail link and negotiated the cost down to $5 billion.[11]Other points of contention arose over design issues and terms of the contract, such as interest rates.[12]

Time savings of Thai/Kra Canal compared to alternative routes

Source:https://www.firstpost.com/india/thailands-kra-canal-project-is-chinas-masterplan-to-secure-beijings-interests-assert-influence-in-asean-indian-ocean-region-4420647.html. (Image courtesy: kracanal-maritimesilkroad.com)

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

China-Indochina Peninsula Economic Corridor:  Laos and Malaysia

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] The Maritime Executive.  “Remote-Controlled Terminal to Open in Thailand.”  10 May 2018. https://www.eurasiareview.com/30032018-south-asia-and-maritime-silk-road-far-from-plain-sailing-analysis/

[2] The Maritime Executive/ MAREX.  “Remote- Controlled Terminal to Open in Thailand.” 10 May 2018. https://maritime-executive.com/article/remote-controlled-terminal-to-open-in-thailand#gs.syvzOHQ

[3] Gamage, Rajni.  “Bay of Bengal:  What Implications for ASEAN?”   Op.cit.  P. 66. https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[4] The Straits Times.  “Proposed Kra Canal not a priority for  Thai govt.”  13 February 2018. https://www.straitstimes.com/asia/se-asia/proposed-kra-canal-not-priority-project-for-thai-govt

[5] Micallef, Joseph V.  “The Geopolitics of the Kra Canal.” Military.com.  10 April 2017.  https://www.military.com/daily-news/2017/10/04/geopolitic-kra-canal.html

[6] Lay, Belmont.  “Thais called to support S$38.2 billion Kra Canal construction that will bypass S’pore ports.”  Mothership.   10 August 2017.  https://mothership.sg/2017/08/thais-called-to-support-s38-2-billion-kra-canal-construction-that-will-bypass-spore-ports/

[7] Stratfor/ Worldview.  “Avoiding Dire Straits in Southeast Asia.” 17 November 2017.  https://worldview.stratfor.com/article/avoiding-dire-straits-southeast-asia#/entry/jsconnect?client_id=644347316&target=%2Fdiscussion%2Fembed%3Fp%3D%252Fdiscussion%252Fembed%252F%26title%3DAvoiding%2BDire%2BStraits%2Bin%2BSoutheast%2BAsia%26vanilla_category_id%3D1%26vanilla_identifier%3D285409%26vanilla_url%3Dhttps%253A%252F%252Fworldview.stratfor.com%252Farticle%252Favoiding-dire-straits-southeast-asia

[8] Menon, Rhea.  “Thailand’s Kra Canal:   China’s Way Around the Malacca Strait.”  (Op. ed.)  The Diplomat.  6 April 2018.   https://thediplomat.com/2018/04/thailands-kra-canal-chinas-way-around-the-malacca-strait/

[9] China Daily Mail.  “China to build Kra Canal across Thailand to bypass Malacca Strait.”  https://chinadailymail.com/2018/04/08/china-to-build-kra-canal-across-thailand-to-bypass-malacca-strait/

[10] FirstPost.  “Thailand’s Kra Canal project is China’s masterplan to secure Beijing’s interests, assert influence in ASEAN, Indian Ocean Region.”  6 April 2018.  https://www.firstpost.com/india/thailands-kra-canal-project-is-chinas-masterplan-to-secure-beijings-interests-assert-influence-in-asean-indian-ocean-region-4420647.html

[11] Reuters.   “Thailand, China agree on $5 billion cost for rail project’s first phase.”  21 September 2016.  https://www.reuters.com/article/us-thailand-china-railway-idUSKCN11R0Q1

[12] Hunt, Luke.    “Construction of Thailand-China Railway Finally Gets Underway.”  The Diplomat.  28 December 2017.    https://thediplomat.com/2017/12/construction-of-thailand-china-railway-finally-gets-underway/

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #11

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(Image credit: srilankabrief.org)

This is the eleventh Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (49 pg, 243 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #11 – Bangladesh-China-India-Myanmar Economic Corridor

 

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

Myanmar and Bangladesh may get heightened interest from China in the near future, due to recent discovery of major mineral deposits in pretty much all of the waters surrounding these countries, and in the Kaveri, Godavari, and Krishna basins off the east coast of India.  Nickel, cobalt, iron, and sulfide deposits of manganese, copper, iron, zinc, silver, and gold have been found on the seabed and titanium, zirconium, tin, zinc, and copper in Indian Ocean sediments.

The Indian Ocean is also a very rich fishing ground, accounting for about 15 % of the world’s total catch.[1]  Chinese fishing fleets have long operated here as they have in waters around the world, often illegally (poaching), using predatory techniques that threaten to exhaust fish stocks.[2]

The Sri Lankan port of Hambantota, strategically located on the Bay of Bengal in the middle of the Indian Ocean, is a massive project financed with Chinese loans.  The debt burden was more than Sri Lanka could manage and so it was forced to sell a 70% stake (also reported as 80%[3]) in the port to a Chinese SOE for 99 years.[4]

The other major Chinese port project in Sri Lanka is the $500 million Colombo South Container Terminal, in the port of Columbo, on the opposite Sri Lankan coast.  The Colombo Port City project, now known as the Colombo International Financial City to reflect the expanded role China has for it, has had a rocky history.

As it became more concerned about the degree of Chinese influence, the Sri Lankan government suspended project work in 2015, in line with its ‘rebalancing’ foreign policy strategy towards India, Japan, and the West.

Hard economic realities following the country’s balance of payments crisis in early 2016, forced the government to rescind the ‘rebalancing’ policy and to re-engage the China Harbour Engineering Corporation to finish work on the project.[5]  China’s strong interest in Sri Lanka will likely increase as Chinese trade with East Africa grows.  The country is equidistant from the east coast of Africa and Indonesia.[6] Having secure and adequate port capacity to provide for the transshipment of goods from Africa is essential to the efficiency of the “Belt and Road Initiative”.

China has made several large infrastructure commitments to Bangladesh but it has encountered competition from Japan and India in infrastructure funding and political influence, and some political resistance from the Bangladesh government.  India, in particular, is anxious to contain Chinese influence in the region, and has extended a $2 billion line of credit to Bangladesh.[7]

The $8.7 billion, Chinese-funded Chittagong port project in Bangladesh is continuing, but the Bangladesh government shelved the plans for a new deep-sea port at Sonadia in mid-2016.  It is possible that it may be resurrected later.[8]

Major upgrading of the Chittagong port is essential.  Chittagong, through which about 90% of Bangladesh’s exports and imports pass, has been plagued by extreme port clearance delays for more than the past two years.  The reasons for these delays are both on the seaside (insufficient feeder vessels for lightering and local tugs to navigate the tricky port access channel, a tidal basin that limits access to high tides and constantly changing sea bed at the port’s entrance) and on the portside (a variety of infrastructure deficiencies).

Container vessels have had to stay 7 to 10 days and cargo ships 25 to 30 days in the outer anchorage and then face further delays portside, due to inadequate berthing facilities to handle the crush of vessels. Complicating the situation is the fact that two gantry cranes were out of commission for a lengthy period, following an accident.[9]

The under-capacity of container-handling facilities (the shortfall of container storage was more than 10,000 TEUs in April 2018)[10] forces the port to give priority to moving containers and ships as fast as possible but that complicates efforts of port management to get necessary channel and port dredging done.  Chittagong’s port is located by the estuary of the Karnaphuli River and is constantly clogged by silt.

Other Chinese-funded infrastructure projects in Bangladesh include a 1,320-megawatt power plant, highways, railways, and information technology development.[11] It is likely that China will take up Bangladesh’s offer of exploration rights to confirmed reserves of 200 trillion cubic feet of natural gas at Barakpuria.[12]  Should studies show extraction of these reserves economically feasible, it is likely that China will move quickly to make production a reality.

China’s SOE CITIC, is taking a 70% control position of the $7.3 billion deepwater port of Kyaukphyu, Myanmar, on the Bay of Bengal, and an adjacent special economic zone.  Chinese development of Kyaukphyu into a port able to handle 4.9 million containers a year has been in the talking and planning stage for years.

Outside observers have questioned the value of this facility to Myanmar, which would have to make burdensome loan payments on the 30% of the loans covering the government’s share.  It is distant from Myanmar’s commercial capital of Yangon and therefore, land transport costs to and from the port are significant.

The benefits to China are obvious—the port is intended to connect to China’s landlocked southwestern Yunnan province.  It is also already a terminal for oil and gas pipelines that could guarantee China a way to get 10% of its needed energy imports.[13]  However, the gas pipeline has operated at only one-third of capacity since it was opened in 2013.[14]  Myanmar is pressing China to re-negotiate the terms, “anticipating a potential debt default, which could lead to losing control of Kyaukpyu,”[15] a scenario that has been repeated in several countries with Chinese port investments.

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

China-Indochina Peninsula Economic Corridor:  Thailand

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] Gamage,  Rajni.   “Bay of Bengal:  What Implications for ASEAN?” In ASEAN and the Indian Ocean:   The Key Maritime Links.  P. 66.  https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[2] Hong, Soon-do.  “Chinese Illegal Fishing Threatens  World Waters.”  Asia Today/Huffington Post.    6 December 2017 (updated).    https://www.huffingtonpost.com/asiatoday/chinese-illegal-fishing-t_b_10425236.html

[3]Ibid.  https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[4] Eurasia Review. RSIS.  “South Asia And Maritime Silk Road: Far From Plain-Sailing – Analysis”.  30 March 2018.

[5] Gamage, Rajni.  “Bay of Bengal:  What Implications for ASEAN?”  Op.cit. .  P. 66, footnote 9  https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[6] Eva, Joanna, Qi Lin, James Tunningley.  “China’s Belt and Road Initiative:  Regional Outlooks for 2018.”  Global Risk Insights. https://globalriskinsights.com/2018/01/chinas-belt-and-road-initiative-regional-outlooks-for-2018/

[7]The Maritime Executive.  Reuters.  China Set to Offer Bangladesh Port Funding.  14 October 2016.      https://maritime-executive.com/article/china-set-to-offer-bangladesh-port-funding#gs.tVWINA0

[8] Gamage, Rajni.  Op.cit.   P. 66. https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[9] Hussain, Anwar.  Dhaka Tribune.  “Chittagong  port congestion may result in huge losses for businesses.”  20 July 2017.  https://www.dhakatribune.com/business/2017/07/20/businesses-fear-loss-vessel-congestion-hits-chittagong-port/

[10]Barua, Dawaipayan. The Daily Star.  “Ctg. Port choked by container congestion.”  18 April 2018.  https://www.thedailystar.net/business/ctg-port-choked-container-congestion-1563988

[11] The Maritime Executive.  Reuters. “ China Set to Offer Bangladesh Port Funding. “ 14 October 2016  https://maritime-executive.com/article/china-set-to-offer-bangladesh-port-funding#gs.tVWINA0

[12] Eva, Joanna, Qi Lin, James Tunningley.  Op. cit.  https://globalriskinsights.com/2018/01/chinas-belt-and-road-initiative-regional-outlooks-for-2018/

[13] The Economist.  “Gateway to the globe.”  26 July 2018.  https://www.economist.com/briefing/2018/07/26/china-has-a-vastly-ambitious-plan-to-connect-the-world

[14] Fickling, David.   “Soviet Collapse Echoes in China’s Belt and Road.”  MSN/Bloomberg Opinion.     12 August 2018.    https://www.msn.com/en-us/news/msn/soviet-collapse-echoes-in-china’s-belt-and-road/ar-BBLOpUL#image=4

[15] ANI.  “Myanmar keen not to lose Kyaukpyu Port to China.”12 June 2018 (updated).  https://www.aninews.in/news/world/asia/myanmar-keen-not-to-lose-kyaukpyu-port-to-china201806121807450001/

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.