Sunday, September 14, 2008

Thailan'd's 'Suez Canal' across the Isthmus of Kra

China’s silicon sea route via Thailand
Boon to Hambantota, but threat to Singapore

Trade between China and East Mediterranean, flourished for several centuries using the land bridge called the Silk Road. While that Silk Road is now being revitalized, economic security imperatives and globalization has shifted China’s focus towards ensuring alternatives, to the most vulnerable, congested international trade lane through the pirate-infested Malacca Straits. Though predicting in shipping is hazardous, I would dare predict that a revolutionary change to the Asia Europe Sea route will occur within the next two decades. There is enough evidence to support this prediction.

My second prediction flowing from the first is that this change in the sea route via Thailand has the potential to transfer the hub port of Singapore to Hambantota. The object of this article is therefore to draw the attention of our planners to that momentous change in the making. For the benefit of the readers, a brief background and history may be necessary to understand the full implications of the changes.

Lee Kuan Yew, architect of modern Singapore, observed in an interview with the BBC in the early 70’s that China plans for the next 50 to 100 years, while other countries plan for the next 10 years. China’s achievements since then have proved that he was dead right. Today even the experts in the west agree that the 21st Century may belong to China. Hannah Beech in an article in the Time magazine (September 8) stated that "2008 Olympics heralded China’s assumption of the role of future super power." Its buoyant economy is producing jumbo ships to micro chips. China’s astronauts are expected to raise the red flag on the moon. Most importantly for us in Sri Lanka revitalizing the silk route for intra regional trade and above all a revolutionary change in the Asia Europe shipping route, are bound to have a major impact on Sri Lanka. Unless we monitor these changes as they occur and plan to reap the benefits from the huge range of favourable possibilities, our competitors could seize the opportunity ahead of us.

Mao Tse Tung wrote "to solve a problem, investigate the present facts and its past history - conclusions invariably come after investigation and not before". He added "investigation may be likened to the long months of pregnancy and solving a problem the day of birth" (selected works of Mao Tse Tung – Vol. iv P.454). Hence a brief look at the past history of trade routes could be helpful to understand the present importance of sea lanes for both security and international trade.

Silk Route and Sea Routes

Begun before Christ, international trade between China and Europe using the silk route flourished for several centuries after Christ. By that trade, China taught two lessons to the world centuries before WTO. First that international trade could be done peacefully without invading countries, without wars and not even trade wars. Secondly that trade flows could overcome even obstacles such as deserts, mountains or the sea.

The Silk Road linked as a land bridge Xian Province in China with the East Mediterranean, skirting the Northern edge of Taklimakan desert and passed through Turkistan. It covered a distance of 6,400km. Cargo was moved along the trail in caravans. After reaching India some goods were transported by sea up the Persian Gulf to Seleucia. While no country along the route was invaded or captured by China, excellent relations with Parthian or the Persian Empire ensured safety for the route. The Silk Route passed through Parthian territory for nearly 1,000 miles. Although silk was the principal commodity exported by China, other items such spices gems and pearls were also sold to the merchants along the route. In return the west gave China, Christianity and opium, including the infamous Opium War.

UNCTAD 2007 annual report on Maritime Transport reports that "revitalization of the silk road as a commercial land bridge between Asia an Europe is receiving a great deal of attention in China. China announced in 2006 that it would build 12 highways in its North West Province of Xin Jing better connecting the Chinese road system to roads in the Russian Federation, Kazakhstan, Pakistan and other countries (page 97 UNCTAD Review of Martine Transport 2007). A railway completed in 1963 follows the Chinese part of the silk route.

In sharp contrast to this peaceful international trade along the silk route, the colonial powers of the west, the Portuguese, Dutch, British, French and Spanish, using their sea power invaded countries in Latin America, Africa and Asia killing millions, destroying their culture and exploiting their resources. The goods traded included not only gold, spices ivory and gems, but also humans for the slave trade. Numerous naval battles were fought in the Indian Ocean including around Sri Lanka between the Dutch British and the French to control the sea lane. The Suez Canal (1868) and Panama Canal (1915) were cut to create short navigational routes. Suez reduced navigational time by 24 hours.

Most interestingly, and many may not be aware of the fact, that UK which benefited enormously from the Suez Canal, used its colonial powers immediately after World War II, to prohibit Thailand from cutting a canal across the narrow isthmus of Kra where is isthmus narrows to just 75 miles. A canal across Thailand at this narrow point would save 1,500 nautical miles for ships on the Asia Europe sea route and trillions of dollars on fuel and for east west trade. The British target by prohibiting Thailand from cutting the canal was not only Thailand, but also the defeated enemy Japan. That highly secretive act of Great Britain, connects with the main story of this article. Today the proposed Kra Canal across Thailand has assumed a far more complex complexion than in the 1940s. But first the events that lead to the current focus on the third major canal after Suez and Panama.

The Secret Pact between Britain and Siam (Thailand)

Thailand, then known as Siam, was treated by the British as an ally of Japan and therefore an enemy country during WWII. On the conclusion of the war, one of the most secretive acts performed by the colonial government of India, on behalf of Britain, was the signing of a peace treaty with Siam on January 1, 1946 at the Government House, Singapore. The treaty contains 24 articles. Out of this, Article 7 assumes importance and relevance in the context of this article.

Article 7 states " Siam undertakes to construct no canal linking the Indian Ocean and the Gulf of Siam (that is across the Kra Isthmus) without British consent" (Keesing’s contemporary archives 1946-1948 Vol. 6 page 7695). The signatories were for Britain Moblery Denning, Political Advisor to Louis Mountbatten and for Siam, Prince Viwat Anajai Jaiyant. This abuse of imperial power by Britain against both Thailand and Japan, the vanquished enemy, has caused unimaginable harm to international shipping and trade, costing trillions of dollars for both shipping and trade. This condition imposed on Thailand also denied Thailand economic benefits a canal would have provided like the Suez Canal and the Panama Canal. Besides punishing both Japan and Thailand economically, Great Britain sought most importantly to protect Singapore Colony and it’s strategic importance for shipping and security.

China and Kra Canal

Fortunately for international trade and global economy, compelling security and economic concerns of China, coupled with the trade and economic interests of Thailand and Japan in particular and other far eastern countries, have shifted the focus to the proposed Kra Canal.

Not surprisingly, the project is already causing negative concerns to both the super power USA and its new ally in South Asia – India. It is well known that both US and India were hoping and planning to block the choke point Malacca Straits, in the event of a war with China.

The oil route from the Persian Gulf to China as well as the East Asia - Europe sea route are vital to China both for security and economic reasons.

China’s current oil consumption is around 6m barrels per day and is expected to rise to 20m within a decade. Domestic output is less than 1/3rd of the consumption. Although China has already established what the Pentagon calls a `string of pearls’ or naval bases to secure the oil route, 80% of China’s energy supplies pass through the pirate infested and highly vulnerable Malacca Straits which is 1,000 km long, but only 2.4km wide at its narrowest point, making it an easy target for enemy attack.

According to UNCTAD, 90 to 95% of China’s cargo in the Asia Europe trade is transported by sea through the Malacca Straits. Naturally this is a major concern for China. Architects of India’s naval doctrine and even the former President Abdul Kalam have made their intentions clear in public, of blocking the Malacca Straits to starve China of oil in the event of a war.

It is therefore not surprising, that Thai and Chinese authorities have been discussing the proposal to build a canal across the Kra Isthmus which would allow ships to by pass the Malacca Straits. This Asian Panama Canal is estimated to cost USD 30bn. Former PM of Thailand Thakskin, who realized the importance of the canal for the Thai economy, pleaded with Chian to undertake the project. Thai authorities also proposed an alternative plan for a USD700m Kra oil pipeline and a refinery.

The revolutionary but favorable changes Kra Canal could make to the security of China is so great and so evident, that Washington is naturally watching its development closely. Time Magazine of 28.03.05 reported State Department Official saying "we know that the Chinese are looking a variety of things with regard to security of Malacca Straits. We have a particular interest that these proposals are not exclusionary or against our interests."

Kra canal would avoid for ships a detour of 1,500 nautical miles down the Malaysian coast via the Straits of Malacca and up the Gulf of Thailand into the Indian Ocean. The saving on fuel alone could be staggering, beside the enormous economic benefits for Japan, East Asian countries and nations of the Pacific Rim of Asia. Experts believe that these benefits are so great that some countries like Japan may even decide to fund the USD30bn project

Impact on Sri Lanka

Political, security and economic impact and fall out of the Kra Canal for the entire region would be staggering - positive for many and negative for a few. Thailand, Malaysia and Sri Lanka are likely to be the principal beneficiaries. The Singapore hub port could be the principal loser. Whereas Britain in 1946 protected the strategic importance of Singapore for international shipping by the secret pact with Thailand, there is nothing to prevent China from safeguarding its interest by cutting a canal which would deny Singapore its strategic importance and value.

The new sea route across Thailand and avoiding Malacca Straits is bound to provide ideal conditions to develop hub ports in Thailand with China and Malaysia as hinterlands; while Malaysia is also bound to compete vigorously to retain its two hub ports of Kelang and Pelepas.

Singapore’s inevitable loss could be Sri Lanka’s gain. Kra Canal will place Hambantota port directly on the Asia - Europe sea route, even more than the existing route. Beside India, the hinterland of Hambantota could be Bangladesh, Myanmar and even Indonesia and the Philippines. Currently cargo from India and Bangladesh to the Far East is trans-shipped mostly via Singapore. Kra Canal is bound to divert that cargo to Hambantota.

Three countries, Thailand Malaysia and Sri Lanka, are most likely to compete for a new hub port to replace Singapore. That won’t be easy. Long term planning with an eye for post Kra canal, investments on oil refineries and other maritime and ancillary industries are essential. Above all the new hub port will have to be even more, but not less efficient than Singapore in providing all the services a shipping line would need. That is the challenge the Kra Canal will present to the Hambantota port within the next decade or two. The key to the golden era of the Southern Province, would the Kra canal across Thailand.

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