Will Kra Canal ‘kill’ Singapore?
AN immediate assumption by observers is that the proposed building of a shipping canal across the Kra Ithmus in south Thailand will cause cargo ships to bypass Singapore and will eventually, if not almost immediately, bring a very serious economic decline of the island nation. But is that true? The canal has actually been proposed since 1677 (340 years ago) when Thai King Narai asked the French engineer de Lamar to study the possibility of building the canal.
Interest in it has been revived lately, and the canal seems headed for a serious implementation.
In its August 7, 2017 issue, Nikkei Asian Review reported that a group of retired generals has formed an organisation called the Thai Canal Association for Study and Development, to study and push for the building of this canal.
This was to follow up in the 2016 survey on the proposed project by researchers from Beijing’s Peking University and a relatively unknown Chinese company.
This Chinese company is reported to have provided funding for the Kra Canal study, even though it is not part of China’s official Belt and Road Initiative.
Initially the project, which by the most optimistic projection, can be completed in five years, is expected to cost US$28 billion (RM118.78 billion).
The canal would shorten shipping route from west to the east, and vice versa, by 1,200 km, or up to five days off routes, saving ships some $350,000 in fuel costs.
In comparison, this saving in travel distance is small compared to Suez Canal’s saving of 7,000 km. and Panama Canal’s 13,000 km.
Suez and Panama Canals bypass whole continents (Africa and South America) while Kra Canal would only pass the Malay Peninsula.
In January this year, Thailand’s new monarch, King Vajiralongkorn, had expressed support for the project.
Many key leaders in Thailand have also expressed their desire in seeing the 102 km canal become a reality.
Reportedly, Thailand and China have signed an MOU for the project to proceed but both countries have so far denied this.
As expected, there are two projections on how this proposed canal would affect Singapore.
Tom Peepinsky, Associate Professor in the Government Department at Cornell University, believes that Singapore is not under serious economic threat of the project.
This is because Singapore today has set itself apart from its neighbours with its “political stability, contract predictability, logistical efficiency, and trade openness.”
He says Thailand, with the Kra Canal, would need to outperform Singapore across all of these dimensions to be able to threaten the island nation. And it’s not easy to do.
This is because “nearly every country in Southeast Asia has experimented to one degree or another with free trade zones, and these have not done much to unseat Singapore’s dominance in logistics and trade.
The Port of Singapore is a hub not because ships have to float past Singapore, but because ships choose to load and unload there.”
The entrepot facilities in Singapore have been developed so much for so long that no other port in the region can match it in terms of efficiency and profitability.
Port Klang in Selangor and Tanjung Priok in Jakarta, had tried to compete with Singapore without much success.
Even “if a sophisticated logistics operation could be developed that rivaled the remarkable Port of Singapore, this would not be enough,” writes Pepinsky.
Singapore is also now a powerful financial hub that rivals Hong Kong.
As a finance and investment centre in the region the island nation’s economic strength doesn’t lie solely in the shipping business.
Other regional players, such as Labuan, have tried to create financial hubs to rival Singapore but with limited success.
“Much like Hong Kong’s historic position with respect to greater China, Singapore’s strategic economic advantage is that it is literally an island of political stability and contract enforceability in a region where such political and economic institutions are rare.
“Could Thailand and China create such institutions in, say, Hat Yai? Almost certainly not,”¨ says Pepinsky.
Indeed, Singapore’s geoeconomic strength today is not determined by its shipping role in the Southeast Asian region (by having a position along a vital sea lane), but also by its relative political stability and administrative integrity where contract enforceability is a prime aspect of its commercial and industrial reputation.
However, for all we know, Singapore may eventually be saved from the threat of this canal because it may never be built.
This is because, having been proposed for so long, the venture is still seen as “far too risky.”
The saving of shipping distance of 1,200 miles is tiny compared to those saved by Suez ad Panama Canals.
David Khoo, a data engineer at Singapore Airlines, writes that, among others, the risks are: “The region [the canal] is supposed to pass through is home to a violent insurgency.
“The Thai government is unstable. The terrain is mountainous, so the proposed designs require a slow series of locks to carry ships up and down (or nukes to cut through the mountains), which increases the cost of the project and decreases the potential savings or efficiency gains.”
Singapore is also not merely a bunkering or entrepot port but a transshipment, petrochemical, manufacturing and air hub, so ships have little reason to bypass it.
The ‘New Silk Road’ of rail and pipeline links across Asia from China to Europe may be built, providing an even cheaper means of shipment and rendering this all moot.”
Apparently the Kra Canal may yet wait for some years of study to determine its viability, so Singapore has good reasons to give a sigh of relief.