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26 February 2015
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Benefit-sharing is key to region’s rail connectivity

KunmIng to bangkok raIlroad a wIn-wIn InItIatIve for all three natIons, but laos must be Involved from the outset

On the sidelines of November’s Apec Summit in Beijing, China and Thailand agreed to cooperate on railway development that will eventually link Kunming to Bangkok and Thailand’s eastern seaboard, and could go all the way to Singapore in the longer term. This is not a new idea – improved connectivity in the Greater Mekong Subregion (GMS) has been accepted as a key strategy that can benefit all countries concerned. Roads to improve connectivity in the GMS have already been built, with more under construction and planned. The Kunming-Bangkok rail link will further reduce transport costs along its north-south corridor passing through Laos, particularly for freight traffic, and is a potential win-win development for all three countries concerned.

For China, sustained growth over many years has led to rising costs in major manufacturing areas along the eastern coast. This has reduced China’s competitiveness. At the same time income disparities between eastern coastal provinces and the hinterland are still very high and in some cases rising.

Accelerate development

For example, in 2013 Yunnan’s per capita GDP was less than half (42.85 per cent) that of Guangdong. Such income gaps can trigger social tensions and political problems, particularly for a socialist country. One remedy lies in creating a larger manufacturing base in inland provinces such as Yunnan, which would help accelerate development. But the high cost of transporting exports from inland provinces remains an obstacle. A north-south rail link to ports in Thailand could help reduce those costs and facilitate growth of manufacturing in Yunnan and neighbouring inland provinces, thereby reducing income disparities. In addition, China stands to benefit from selling her rail technology for the railway corridor.

For Laos, the corridor could be turned into a zone of economic activity, attracting transport-related activities such as packaging, storage and distribution facilities, as well as industrial estates and export processing zones. The rail corridor would also be a significant addition to the mere 3.5 kilometres of line Laos currently boasts – from the Friendship Bridge in Nong Khai to Thanaleng station across the border.

For Thailand, the most advanced economy of the GMS, the logistics upgrade of the rail link to Yunnan would generate new trade and investment opportunities. New distribution hubs for Chinese products that make use of Thailand as a major distribution centre are already being studied. Demand for port services to ship out Chinese products will increase substantially. The faster growth of China’s inland provinces will increase the demand for products from Thailand, though, of course, Chinese products will also have more access to the Thai market.

Increased economic activity

Another major benefit should be increased economic activity near Thailand’s border areas, such as distribution hubs and processing zones for exports to China. This should help improve, or at least stabilise, the income gap between the poorer border regions and Bangkok, which, as in China, has been widening for many decades and creating social and economic problems.

A key point about the rail link is that though it will be a trilateral project, China and Thailand stand to gain far more from it than their smaller neighbour. Laos has a population just 6.7 million and a GDP of only about 5.6 per cent that of Yunnan’s, so its direct benefits from the rail corridor will be tiny compared to those of China and Thailand.

Though Laos is a landlocked country, it prefers to see itself as a land-linked country. That reflects the fact that most major corridors linking Laos’ neighbours need to go through Laos, whether the north-south rail corridor, or east-west corridor linking Thailand and Vietnam. This makes Laos the main transit country and raises the issue of appropriate benefit sharing for a transit country.

Europe offers experiences to draw upon here.

Both Switzerland and Austria play the role of transit countries for land transport between Germany and Austria. Because Austria belongs to the EU while Switzerland does not, their approaches to sharing the benefits of the transit corridor are very different. Switzerland pays for all the infrastructure investment but charges high tolls to recoup its investment. This means that the logistics costs of using the corridor are high, which reduces its connectivity effectiveness. Of course, a transit country will be concerned about impacts on its environment, road damage, accidents, congestion etc, and thus may want to limit transit traffic. Austria, meanwhile, shares the infrastructure and maintenance costs with its EU neighbours in return for low tolls. EU vehicle and safety standards also help to control environmental impacts, road damage and accidents.

For Laos, the Swiss model is not applicable. Most importantly, Laos does not have the financial resources to invest in a huge rail project: For Laos to benefit sufficiently it would need a 500km rail link from Vientiane to the Chinese border.
So the Austrian model is more appropriate; however, in the absence of an EU-like institution for the GMS, Laos, China and Thailand will need serious discussions to reach agreement on such issues as the design of the project – gauge, tracks, speed, fuel, environment and safety standards, etc – as well as the funding and sharing mechanism for investment and maintenance, the institutional and business operation models, the fares, etc.

Waste of public money

At present, we are nowhere near such discussions. The bilateral memo of understanding for the project signed by China and Thailand is not a good sign. Laos needs to be brought into the discussions right at the beginning. As the land-link, if Laos does not go along with the project, then the planned double track of standard-gauge electrified rail line from Bangkok will simply end at Nong Khai and be a waste of public money. So a trilateral project needs to be initiated and mechanisms set up to work out all the fine details. Only then can a truly effective north-south rail link from Kunming to Bangkok and Thailand’s eastern seaboard, and possibly on to Singapore, finally be implemented.

Chalongphob Sussangkarn is a distinguished fellow at the Thailand Development Research Institute.


First Published:  The Nation, February 23, 2015


Chalongphob Sussangkarn, Ph.D.
Distinguished Fellow / Acting Program Director