This is part 1 of a two-part blog post on the One Belt, One Road or Belt and Road Initiative and the opportunities and risk this poses for Singapore as a regional HUB for the region. In part 1 we look at Malaysian port developments and potential threats from across the causeway and in Part 2, we will be looking at competition from other regional maritime and land-side developments to take a holistic view of what, exactly, One Belt, One Road means to Singapore.
The “One Belt One Road Initiative” (OBOR) is one of the key geopolitical and strategic developments shaping the world today. Touted as the 21st century Maritime Silk Road, OBOR aims to connect the eastern part of China’s coastal cities with Europe via the Indian Ocean and South China Sea.
OBOR, officially announced by China in 2013, stretches through 65 countries that collectively have 60% of the world’s population. These 65 countries also produce around 33% of global GDP. The China Development Bank has already set aside close to $900 billion to finance 900 projects. Some commentators misguidedly add to the hype by including infrastructure projects that are not part of the OBOR initiative in their analyses. Still, regardless of the monetary figures and actual number of official projects, this trading network will deepen and broaden the country’s strategic engagement with Southeast Asia, Central Asia and Europe. Figure 1 illustrates the maritime trade routes, economic corridors, rail networks and gas pipelines that will connect these key markets.
Figure 1 – “One Belt One Road” Map (Source: Mercator Institute for China Studies)
China’s rise and involvement in the OBOR initiative is inexorable. The Euro-centric model of economic relations that have predominated discussions since the Renaissance and Industrial revolution is beginning to be displaced. In the 1980s, China’s share of world GDP was only 2.7%. However, over the past three decades, China’s share of world GDP has risen to almost 16%. China’s investment in infrastructure has expanded its global footprint. It is currently the largest trading network with many countries and has already overtaken US GDP in terms of Purchasing Power Parity.
Countries have reacted to OBOR in a varied manner. Some have welcomed it. Others have expressed suspicion that OBOR acts as a pretext for China to dominate the Asia-Pacific and beyond. Regardless, the strategic imperatives for states located along the evolving trade route and potentially affected – directly or indirectly – by OBOR are clear. For a tiny trading nation like Singapore, adapting and leveraging on these changing circumstances are key to long-term prosperity.
Leaders in Singapore have taken turns to repeatedly state that there are significant opportunities for Singapore and Singaporean businesses. Nevertheless, there are concerns, in some quarters, that OBOR will adversely affect Singapore, and this blog looks to explore if and how Singapore can maintain its maritime dominance amidst the development of OBOR infrastructure projects?
Malaysian Port Developments – Threats from across the Causeway?
Currently, Singapore, as the world’s leading transhipment port and regional oil node, facilitates trade traffic worth almost US$5 trillion. The port, strategically located at the southern tip of the South China Sea, also ships oil in bulk valued at around US$600 billion annually. There has been some mention of how the construction of a new deep-sea port off Malacca (jointly developed by Chinese and Malaysian companies) and extensions in Port Klang will challenge Singapore’s maritime hub status. The US$10 billion project in Malacca and developments in Port Klang could position Malaysia to be a key element of China’s bold OBOR initiative in Southeast Asia.
The developments of these Malaysian ports raise two primary concerns for Singaporeans. First, if these ports, positioned to the north of Singapore deliver to their full potential, fewer ships will need to pass through Singapore.
Also, the deep-sea ports will have the operational capacity to serve both containerized and bulk cargo using Malaccamax vessels. Whilst Malaysian ports have previously tried to rival Singapore, they have not had the generous fiscal backing that current maritime developments enjoy from Chinese investors. The Chinese, pragmatic and hard-headed as they are, have backed up their promises by opening up the purse strings.
In light of these developments, there are four counter arguments as to why these fears are misplaced. First, it is crucial to probe deeper into why the Chinese are so keen on building a port in Malacca. For China, up to 80% of its energy needs pass through the Straits of Malacca. This over-reliance was characterised as the “Malacca Dilemma” and identified as a strategic issue by former President Hu Jintao fifteen years ago.
The Straits of Malacca is a vital sea lane especially since it is patrolled by the US navy and was previously used by Americans to send warships to Taiwan at a time when tensions between China and Taiwan escalated in 1996. While China and the US are searching for a peaceful modus vivendi in the Asia-Pacific, there is no guarantee that the Straits of Malacca will be devoid of flashpoints in future.
Hence, while there are crucial strategic interests for China, it is questionable if commercial imperatives are foremost priorities for them. Possibly not. Additionally, a World Bank study commissioned by the Malaysian government concluded that a port in the Western coast of Malaysia is unnecessary especially while operations in Port Klang are currently expanding. Therefore, since there seems to be little commercial value derived from the construction of the Malaccan port, it remains to be seen if the port can rival Singapore’s maritime dominance in the region.
Second, the growth in the size of container ships must be matched by the expansion of ports as well. For instance, when giant ships arrive at ports, there needs to be a complementary infrastructure that enables more storage space, wider distribution channels and enhanced container gantry cranes. Currently, only twenty ports in the world can accommodate 19,000 TEU (Twenty-Foot Equivalent Unit) cargo vessels. There are only two in Southeast Asia. One is in Tanjung Pelapas while the other one is in Singapore. While this does not give reason for Singapore to be complacent or take its place for granted, the port nation enjoys a significant head start over its competitors.
Third, PSA, Singapore's port, is not resting on its laurels either. The expansion of the Pasir Panjang terminal by 50% will enable it to reach a capacity of 50 million TEUs. PSA is investing S$3.5 billion to use the latest port technology and reduce the manpower needs of managing the port. For instance, there will be automated container yards and unmanned rail-mounted gantry cranes that will support intelligent systems. It will be a state-of-the-art, modern and “smart” port that will stay ahead of the competition. Furthermore, when the next-generation port in Tuas is completed by 2040, it will be able to handle 65 million TEU of cargo annually. This is twice the capacity that the port is currently handling.
Fourth, the port in Malacca is primarily designed to add oil storage and bunkering facilities. It does not seem to offer container handling services and could thus have a more minimal impact on Singapore’s operations. Furthermore, the planned oil storage capacity of the Malaccan port is 1.5 million cubic metres. Meanwhile, Singapore’s current capacity is 20.5 million cubic metres. Hence, the Malaccan port, due to its capacity constraints and focus on bunkering facilities, rather than on transhipment of cargoes, might not displace Singapore’s maritime dominance.
The port in Malacca is only one of the challenges to Singapore’s hub position. The East Coast Rail Link (ECRL), as shown in Figure 2, will link ports on the Eastern and Western peninsulas of Malaysia. The ECRL, akin to the “Mini Land Bridge” in the US, could alter regional trade routes that are currently used to ply the busy Straits of Malacca and the South China Sea via Singapore. The ECRL will enable China-bound goods from Port Klang to be transferred to Kuantan using freight trains without having to go south to Singapore.
Figure 2 – Malaysia’s East Coast Rail Link (Source: Spad.Gov.My, Straits Times Graphics)
It remains to be seen if the economic value of shipping cargoes to Port Klang, unloading it and then re-transporting it via another railway, unloading it again at Kuantan and reshipping from there will provide a significant cost differential. Also, there are still doubts about the projected estimates of annual freight transport via the ECRL once it is fully built.
There are certainly other factors such as corruption, political stability and moderation and workforce capability that needs to considered when making this analysis around OBOR is made and we will explore this further in our next post.
***This Talking Trade blog post was written by Raymon Krishnan, Head of Corporate Advisory Services at Asian Trade Centre, and Bhargav Sriganesh, Research Assistant at ATC in Singapore***