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?

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BRI Blog next Monday will be:

China-Indochina Peninsula Economic Corridor:  Thailand

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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.