China’s Belt & Road Initiative – Blog #14

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(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?

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BRI Blog next Monday will be:

Strategy Becomes Action – With Consequences

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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] 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/

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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.