By David Brewster 14 August 2017 07:22 AEDT
Recent reports that Thailand, with Chinese money, is planning to build a new canal between the Pacific and Indian Oceans have set off a new wave of alarm bells over China’s plans to dominate the region. If – and it is a big if – the project goes ahead, it will create some big winners and losers.
The project would involve carving a US$28 billion, 135km canal through the Thai isthmus between the Gulf of Thailand and the Andaman Sea, cutting some 1200km (or two to three days) off journeys between the Indian and Pacific Ocean. It would be the Asian equivalent of the Suez Canal or the Panama Canal, and would be substantially more difficult to build.
The idea has been around for a long time. A really long time. The British and French looked at it in the nineteenth century. They decided it was too hard, but the British still extracted a promise from the King of Siam that no-one else would be allowed to do it. In the 1930s, there was a scare about Japanese plans to build it, which would have allowed the Japanese fleet to bypass the British base at Singapore. Here’s a classic 1940 British newsreel that explains everything you need to know on the subject (including a real Samurai).
Video of Kra! A Pathetone Special (1940) (The video can be viewed at https://www.lowyinstitute.org/the-interpreter/kra-canal-double-bypass)
New plans to build the canal have been kicking around since the turn of this century, but no-one has been able to make the project economic. Maybe this time it will go ahead with Chinese Belt and Road funding.
Some security analysts worry that the Canal would solve China’s famous ‘Malacca Dilemma’ by allowing its oil tankers to avoid the narrow, crowded and vulnerable Malacca Strait and even give the Chinese navy a new route into the Indian Ocean. The Chinese navy is certainly going to get a lot more active in the Indian Ocean in coming years, as was well demonstrated last month when China opened its first overseas naval base in Djibouti.
But the likely impact of the Kra Canal is less about battleships and more about shipping containers.
The Canal is like building a new highway that will bypass a town, leaving the local service stations and cafés stranded while creating opportunities to build new service centres elsewhere. Kra would permit ships transiting between the Indian and Pacific Oceans to bypass Singapore, potentially damaging Singapore’s hold on shipping services and helping to open up that space for China and its friends.
Since Singapore was established as a way station for the Indo-Pacific opium trade it has relied on geography for its prosperity, helping it become one of the world’s biggest transhipment hubs and provider of shipping and all its related services, from banks to law firms. That is now under threat from Chinese-funded port projects being developed right across Southern Asia.
The biggest winner from the Canal could be Sri Lanka, which lies astride the busy sea lanes of the northern Indian Ocean, making it an obvious choice for a new shipping hub. Much of China’s investment on the island over the last few years has been aimed at building up that island’s shipping infrastructure. This has included building a new port at Hambantota, which China has recently taken control of. A much bigger project is the controversial Colombo Port City, which involves building a whole new business district to service the port, largely under Chinese control.
Colombo is already by far the biggest transhipment hub for India, while Singapore’s volume of Indian transhipment is falling. If Chinese-owned ships are able to take a short cut through Kra, then Sri Lanka’s competitive advantage only improves. India is responding with its own greenfield port projects, but there are significant doubts that it has the ability to bring all the necessary elements together.
Sri Lanka has long aspired to become an Asian trading hub like Singapore and successive governments have seen Singapore’s model for development as having special significance. Sri Lanka now hopes to break through the many problems left over from its 30-year civil war with the help of China’s Maritime Silk Road initiative. It may also be in a position to play off other big investors, such as Japan.
Sri Lanka is doing well in the transhipment market, assisted by the woeful state of most Indian ports, which can’t handle large capacity container ships. But a far bigger prize than the competitive and low-margin transhipment trade would involve ‘opening the boxes’ and moving up the value chain just as Singapore did, and potentially turning Colombo into a regional hub for logistics, maintenance, engineering and financial and legal services – sitting just off India’s coast. That is a lot of what the Colombo Port City project is about.
Singapore, always keenly aware of its own vulnerabilities, is already concerned about the potential for Sri Lanka to become a competitor, although it is also aware how many systemic problems Sri Lanka must overcome before it can compete in providing sophisticated, high value services.
For the moment, the Kra Canal may be just a dream. That’s what they once said about Panama before the US, then a rising regional power, decided that the canal was necessary to give it access to its second ocean.
Source: The Interpreter of Lowy Institute “The Kra Canal: Double bypass”
Note: This is Lowy Institute’s article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.
Shihar Aneez July 25, 2017 / 3:30 PM / 10 hours ago
COLOMBO (Reuters) – Sri Lanka’s cabinet cleared a revised agreement for its Chinese-built southern port of Hambantota on Tuesday, the government said, after terms of the first pact sparked widespread public anger in the island nation.
The port, close to the world’s busiest shipping lanes, has been mired in controversy ever since state-run China Merchants Port Holdings, which built it for $1.5 billion, signed an agreement taking an 80 percent stake.
Under the new deal, which Reuters has examined, the Sri Lankan government has sought to limit China’s role to running commercial operations at the port while it has oversight of broader security.
Chinese control of Hambantota, which is part of its modern-day “Silk Route” across Asia and beyond, as well as a plan to acquire 15,000 acres (23 sq miles) to develop an industrial zone next door, had raised fears that it could also be used for Chinese naval vessels.
Sri Lankans demonstrated in the streets at the time, fearing loss of their land, while politicians said such large-scale transfer of land to the Chinese impinged on the country’s sovereignty.
Details of the new agreement have not yet been made public. But according to parts of the document seen by Reuters, two companies are being set up to split the operations of the port and allay concerns, in India mainly but also in Japan and the United States, that it won’t be used for military purposes.
China Merchants Port Holdings will take an 85 percent stake in Hambantota International Port Group that will run the port and its terminals, with the rest held by Sri Lanka Ports Authority. The company’s capital will be $794 million.
A second firm, Hambantota International Port Group Services Co, with capital of $606 million, will be set up to oversee security operations, with the Sri Lankans holding a 50.7 percent stake and the Chinese 49.3 percent, according to the document.
Ports Minister Mahinda Samarasinghe said that several foreign missions had sought clarification from Colombo about whether the Chinese navy would be using Hambantota port as it steps up its presence in the Indian Ocean.
“We told China that we can’t allow the port for military use and that 100 percent responsibility of security matters should be with the Sri Lankan government.”
China has been building ports in Pakistan, Sri Lanka and Bangladesh and smaller island nations in what military officials call a “String of Pearls” in the Indian Ocean, or a network of friendly ports where its warships can refuel.
China Merchants Port Holdings also agreed to reduce its stake in the Sri Lankan joint venture running the commercial operations of the port to 65 percent after 10 years, the document says.
“The cabinet approved the deal and now it needs parliament approval. We will send it for approval this week,” cabinet spokesman Dayasiri Jayasekera said.
He didn’t provide details. A Chinese embassy spokesman said it had no comment to make on the deal. A source close to the Chinese Embassy in Colombo said both sides had reached a compromise and that Sri Lanka’s concerns had been addressed.
“They emphasized that they wanted to maintain balanced relations with other countries. But the deal is still beneficial for China in terms of revenue,” the source said.
The latest agreement relates to the port while the pact for the industrial zone will be handled separately, Sri Lankan officials said.
The revised deal comes weeks after President Maithripala Sirisena reshuffled his cabinet, naming Samarasinghe to the ports ministry after his predecessor had strongly opposed a majority equity stake for the Chinese firm and raised a red flag over possible military use.
Two Sri Lankan sources familiar with the deal said the Sri Lankan Ports Authority would have the right to inspect ships entering Hambantota.
“Sri Lanka will have control over port activities including security, which various parties have raised concerns over earlier,” one source told Reuters. “The agreement clearly says no military ships will be allowed in the port.”
New Delhi in 2014 was alarmed when a Chinese submarine docked in Colombo, where another Chinese firm is building a $1.4 billion port city on reclaimed land.
India has long considered Sri Lanka, just off its southern coast, as within its sphere of influence and sought to push back against China’s expanding maritime presence. In May, Sri Lanka turned down a Chinese request to dock a submarine.
Writing by Sanjeev Miglani; Editing by Nick Macfie
Source: Reuters “Exclusive: Sri Lanka’s cabinet ‘clears port deal’ with China firm after concerns addressed”
Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.
By Shihar Aneez | COLOMBO Wed Feb 15, 2017 | 6:10pm EST
China will delay a planned $1.1 billion investment in a port on its modern-day “Silk Road” until Sri Lanka clears legal and political obstacles to a related project, sources familiar with the talks said, piling more pressure on the island nation.
Heavily indebted Sri Lanka needs the money, but payment for China’s interests in Hambantota port could be delayed by several weeks or months, the sources added.
After signing an agreement last December, state-run China Merchants Port Holdings had been expected to buy an 80 percent stake in the southern port before an initial target date of Jan. 7.
Beijing also has a separate understanding with Colombo to develop a 15,000-acre industrial zone in the same area, a deal that Sri Lanka was hoping to finalize later.
But Colombo’s plans to sell the stake and acquire land for the industrial zone have run into stiff domestic opposition, backed by trade unions and former President Mahinda Rajapaksa.
A legislator close to Rajapaksa is also challenging the government’s plans in court.
Now Beijing has linked the signing of the port deal with an agreement to develop the industrial zone, saying it would hold off on both until Colombo resolved domestic issues, officials on both sides of the talks said.
“China has said that when they start the port, they want the land also,” Sri Lankan Finance Minister Ravi Karunanayake said, although he added that China had not made it a precondition.
Yi Xianliang, Chinese ambassador to Sri Lanka, said the two deals were related.
“If we just have the port and no industrial zone, what is the use of the port? So you must have the port and you must have the industrial zone,” he said.
A source familiar with China’s thinking said it may wait until May, when Sri Lankan Prime Minister Ranil Wickremesinghe visits Beijing, to sign both deals.
The Chinese foreign ministry did not respond to a request for comment.
The previously unreported setback for Sri Lanka suggests Beijing is digging in its heels as it negotiates its global “One Belt, One Road” initiative to open up new land and sea routes for Chinese goods.
SPEED BUMPS, MOUNTING DEBTS
President Maithripala Sirisena is struggling to contain popular opposition to land acquisition for the huge Chinese industrial zone, including from Rajapaksa, who remains an influential opposition legislator.
The deal for the port development and industrial zone has also been challenged in court, which means it is stuck at least until the next hearing on March 3.
Asked whether the agreement would be delayed until the court had ruled, Yi, the Chinese ambassador, said: “Oh yes. We will follow the rule of law. We have the patience to wait.”
Rajapaksa’s role, the court case and violent protests by people afraid they could be evicted from their land underlined how Beijing does not always get its own way even in countries that badly need investment. Sri Lanka wants Chinese money to help alleviate its debt burden; the government had expected to have the proceeds from the stake sale within six months of signing the agreement before Jan. 7.
Sri Lanka has been under pressure from the International Monetary Fund to cut its deficit, shore up foreign exchange reserves and increase tax revenues as part of a $1.5 billion loan agreement struck in 2016. At least part of the money from the port deal would have gone toward paying down some of the more expensive loans on the government’s books, some of which are from China, a senior Sri Lankan government official said.
Hambantota port and a nearby airport were built from 2008 by the Rajapaksa government with the help of $1.7 billion in Chinese loans.
When Sirisena unseated Rajapaksa in an upset victory in 2015, he froze all Chinese investments, alleging unfair dealings by his predecessor.
Sirisena eventually negotiated a new deal with the Chinese government that involved the stake sale and further plans for the Chinese to develop an industrial zone.
The Chinese government expects to invest about $5 billion to develop the area within 3-5 years. Sirisena also agreed to give land to the Chinese on a 99-year lease. The terms did not go down well with port trade unions, which have asked the government to reduce the Chinese stake to 65 percent and lease period to 50 years.
Hundreds of protesters clashed with police in January when a demonstration against the planned industrial zone turned violent.
(Additional reporting by Ranga Sirilal; Editing by Mike Collett-White and Paritosh Bansal)
Source: Reuters “Exclusive: China ‘Silk Road’ project in Sri Lanka delayed as Beijing toughens stance”
Note: This is Reuters report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.
By Shihar Aneez | HAMBANTOTA, Sri Lanka Thu Feb 2, 2017 | 5:06am EST
China signed a deal with Sri Lanka late last year to further develop the strategic port of Hambantota and build a huge industrial zone nearby, a key part of Beijing’s ambitions to create a modern-day “Silk Road” across Asia.
The agreement was welcome relief for the island nation of 20 million people. As they try to reduce the country’s debts, officials in Colombo see China’s plans to include Sri Lanka on its “One Belt, One Road” initiative as an economic lifeline.
China has spent almost $2 billion so far on Hambantota and a new airport and wants to spend much more.
But Beijing now faces a new and unpredictable challenge to its presence in Sri Lanka and broader Silk Road project.
Hundreds of Sri Lankans clashed with police at the opening last month of the industrial zone in the south, saying they would not be moved from their land. It was the first time opposition to Chinese investments in Sri Lanka turned violent.
Leading the campaign against the latest deal, which he says is too generous to China, is former President Mahinda Rajapaksa, an influential opposition politician who first allowed Chinese investment in Sri Lanka when he was leader from 2005-15.
The clashes, in which demonstrators threw stones and police used tear gas and water cannon, underlined the depth of resentment at China’s expansion felt by some local people, who feared they would be forced from their homes.
The Chinese foreign ministry said Beijing was doing what was best for both countries. The Chinese embassy in Colombo did not respond to a request for comment on investments in Sri Lanka.
The Sri Lankan protests are not the first sign of opposition to China’s One Belt plans to build land corridors across Southeast Asia, Pakistan and Central Asia and maritime routes opening up trade with the Middle East and Europe.
Rail links from China through Laos and Thailand have hit the buffers over resistance to what they say are Beijing’s excessive demands and unfavorable financing.
“IMPINGES ON SOVEREIGNTY”
Under the original deal negotiated by Rajapaksa during his tenure, the container terminal at Hambantota was to be operated by a joint venture between China Harbor Engineering Co. and state-run China Merchants Port Holdings for 40 years.
The Port Authority of Sri Lanka would retain control of all other terminals in the harbor, as well as a 6,000 acre industrial zone.
But last month, the administration of Rajapaksa’s successor President Maithripala Sirisena, who came to office threatening to cancel high-value Chinese contracts on the grounds they were unfair, approved a deal to lease 80 percent of the port to China Merchants Port Holdings for $1.12 billion.
The company also got the lease for 99 years.
Officials said Sirisena’s hand was forced by the country’s high debt burden and the fact that inflows from countries including India and the United States were less than expected, despite a $1.5 billion, three-year IMF loan program agreed last year.
“A 99-year lease impinges on Sri Lanka’s sovereign rights, because a foreign company will enjoy the rights of the landlord over the free port and the main harbor,” said Rajapaksa.
“This is not an issue with China or with foreign investors. It is about getting the best deal for Sri Lanka,” he told Reuters in an interview.
The government also announced the lease of a much bigger 15,000 acres of land around the port for an industrial zone controlled by China Merchants Port Holdings, which has become a lightning rod for protests.
The demonstrators said they feared eviction from their land to make way for the site, a concern that China put down to a misunderstanding.
“Chinese companies have from the very start upheld the holding of talks and consultations with Sri Lanka on the basis of one’s own free will, equality and mutual respect according to market principles,” said Chinese foreign ministry spokeswoman Hua Chunying.
China Merchants Port Holdings declined to comment on the protests.
“WE ARE NOT LEAVING”
China has spent $1.7 billion building Hambantota port and the adjacent Mattala Rajapaksa airport, named after the former president, both of which are under-utilized and losing money.
Losses at the port added up to around $230 million in the five years to the end of 2016, according to the Sri Lankan finance ministry.
China’s ambassador to Sri Lanka, Yi Xianliang, said the country would invest $5 billion more in the next three to five years and create 100,000 jobs “if everything goes well.”
Last week, a policeman stood guard at the foundation stone of the proposed new zone in a forest clearing in Hambantota to prevent protesters from marching on the area.
“We are firmly against this project. We don’t want our land to be given to the Chinese. We are not leaving the area,” said Upul Dhammika, a farmer whose land is located where the government has tried to survey for the industrial zone.
Rajapaksa questioned the need for the Chinese to be given 15,000 acres, which he said was more than three times the area of all other economic zones in the country combined.
Isolated from the West over allegations of human rights abuses during the country’s civil war, Rajapaksa struck major deals with the Chinese when he was in power, including Hambantota and the nearby airport.
Sirisena, elected two years ago, vowed to review some of those agreements, including a $1.4 billion “port city” in the capital Colombo which was put on hold in 2015.
That, said a Chinese source with knowledge of the recent negotiations, upset Beijing, and so it pushed for the best possible deal on Hambantota.
“They (China) were really angry with the new government, until it agreed (to) an 80 percent port deal,” the source said, speaking on condition of anonymity because of the sensitivity of the talks.
The Chinese embassy in Colombo did not respond when asked about that aspect of the negotiations.
Beijing also threatened lawsuits when the new administration sought to review some of the old agreements, an official in the international trade ministry said.
China’s position was that it won the contracts on merit and a change of government should not have a bearing on these deals.
Sri Lankan Port Minister Arjuna Ranatunga said Hambantota port was losing money and the government had to go for a debt-for-equity deal to reduce the financial burden on the country.
Sri Lanka’s national debt stands at around $64 billion, or 76 percent of gross domestic product, one of the highest among emerging economies. It owes China over $8 billion.
For now, Hambantota remains a sleepy outpost. Four years after the port and airport were completed, there is one flight a day and barely five to six ships docking each week.
The highway leading to the town is largely deserted, a new conference hall is unused and even a large cricket stadium built by the Chinese is used mainly for wedding receptions.
(Additional reporting by Ranga Sirilal, Ben Blanchard in Beijing and Brenda Goh in SHANGHAI; Writing by Sanjeev Miglani; Editing by Mike Collett-White)
Source: Reuters “China’s ‘Silk Road’ push stirs resentment and protest in Sri Lanka”
Note: This is Reuters report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.
There will be quite a few advantages for Chinese President Xi Jinping’s Silk Road economic belt and 21-century maritime Silk Road (One Belt, One Road) initiative.
The most important is trade security by establishment of land trade route to Europe through Russia and Central Asia and safer maritime route through Indian Ocean with ports in Bangladesh, Sri Lanka and Pakistan.
The other also very important advantages include:
Finding an outlet for China’s overcapacity in its industries of construction, construction material, energy, transport, etc.;
Exploiting investment opportunities for China’s surplus capital; and
Moving China’s labor-intensive industries through development of infrastructures in the belt to the countries in the Belt where labor and other resources are much cheaper.
Reuters says in its report “Sri Lanka launches China-led investment zone amid protests” that the zone will create 100,000 jobs, which undoubtedly will mostly be jobs in labor-intensive enterprises moved from China.
According to Reuters, China’s port, airport and investment zone make “some countries, including India and the United States, nervous with Sri Lanka’s proximity to shipping lanes through which much of the world’s trade passes en route to China and Japan.
Those are trade passes to China and Japan not US or India, why shall they be nervous?
Anyway, we see from the developments Xi’s wisdom and vision. US president-elect Trump’s threat of a trade war may create difficulties for the export of China’s labor-intensive industrial goods, but Xi has taken a step earlier in building infrastructures abroad for China to move such industries to poor countries for export to the US. Xi has been subduing the US with his wise One Belt One Road strategy before the US starts the trade war.
The best way in military conflict is to subdue the enemy with strategy, the next, with diplomacy, the next, with fighting… Sun Tzu
Comment by Chan Kai Yee on Reuters’ report, full text of which can be found at http://www.reuters.com/article/us-sri-lanka-china-investment-idUSKBN14R0JG.
Sri Lanka will sell to a Chinese company 80 percent of a $1.5-billion port in its south, where China has also been offered an investment zone, in a bid to cut the country’s debt burden, Finance Minister Ravi Karunanayake said.
The move follows an offer made by Prime Minister Ranil Wickremesinghe during a visit to China in April, to swap equity in Sri Lankan infrastructure projects against some of the $8 billion in debt the Indian Ocean island owes to China.
The Hambantota port was built with the help of Chinese loans and contractors in 2010 under former leader Mahinda Rajapaksa, as part of efforts to boost development of infrastructure after the conclusion of a 26-year-long civil war in 2009.
But the port, and a nearby airport, also Chinese-financed, had been seen as a white elephant because it was not financially viable, the current government has said.
“For somebody like the Chinese, it is the silk route transit point,” Karunanayake told a meeting of the country’s Foreign Correspondents Association late on Thursday.
China’s interest in the port is seen as part of its ambitions to build a “Maritime Silk Route” to the oil-rich Middle East and onwards to Europe.
That makes some countries, including India and the United States, nervous, with Sri Lanka sitting near shipping lanes through which much of the world’s trade passes en route to China and Japan.
“The value will be more than $1 billion and the deal will be signed around the second week of November,” Karunanayake said, adding that a Chinese port operator would get 80 percent of the port stake. He declined to identify the company involved.
“The money from the deal will be used to repay expensive foreign loans,” Karunanayake said, adding that the government was also in final talks over a 15,000-acre (6,100-hectare) investment zone near the port.
The investment zone deal would be signed as “soon as possible”, Karunanayake said.
President Maithripala Sirisena suspended most of the Chinese infrastructure projects in Sri Lanka, including a $1.4-billion luxury property deal, allegedly because the proper procedure had not been followed, or costs had been inflated under his predecessor.
However, faced with a debt and balance-of-payments crisis, the new government eventually allowed all the projects to go ahead.
(Reporting by Shihar Aneez; Editing by Clarence Fernandez)
Source: Reuters “Sri Lanka to sell 80 percent of southern Hambantota port to Chinese firm”
Note: This is Reuters report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.
Due to US and Indian influence, in 2015, the newly-elected Sri Lankan president put on hold the Colombo port project that his predecessor awarded to a Chinese company, but now due to the country’s economic difficulties and the lack of alternative from India or the US, the Chinese company has been told to resume construction of the project.
It proves that verbal strength has to be supported by financial strength.
Comments by Chan Kai Yee on Reuters report titled “China, Sri Lanka keen to push Colombo port project: Chinese diplomat”, full text of which can be viewed at http://www.reuters.com/article/us-china-sri-lanka-idUSKCN0X41SH.