Kra and caution

What would a Thai Canal mean for India? From an economic perspective, having an alternate route to the Pacific Ocean is a good thing

Five years ago, Wang Jing, a tycoon with close links to the Chinese government and Daniel Ortega, Nicaragua’s president announced a $50 billion plan to cut a 278-km long canal in the Central American isthmus (see “The New Cuba?” Business Standard, November 2014). Despite the scale of environmental damage it would cause, Ortega’s government quickly cleared the decks for the project, and counted on China’s reputation for rapid execution of big infrastructure projects to have the canal ready by 2020.

Well, not much sand has been dug out of the ground. On the other hand, Wang’s infrastructure company quietly moved out of its glamorous office in Hong Kong’s tallest skyscraper last year, without even leaving a forwarding address. The Nicaraguan government ran out of money in 2017 after a political crisis in Venezuela, its long time aid provider, closed the tap. Ortega cut social security payments, triggering nationwide protests. A brutal crackdown put down the “Tropical Spring”, but Nicaragua now finds itself in the doghouse after the United States imposed sanctions on the Ortega regime. Ironically, the only respite came from Taiwan — in the form of a $100 million loan and port call by a Taiwanese warship — because Nicaragua is among the few countries that still recognise it as the real China.

The Nicaraguan canal project, however, is dead. In the meantime, China and Panama are getting along famously after the latter ditched Taiwan for Beijing in 2017. An unspecified amount of “non-reimbursable aid” was announced during Xi Jinping’s visit in December 2018, and Chinese firms are now building a port, a bridge and a convention centre in Panama. Like many other Caribbean and Central American countries, Panama has found Chinese presence and assistance a useful hedge against US dominance.
 

Was the Nicaraguan canal project a stratagem to win Panama over? It is hard to be sure. Note that Wang’s venture with Ortega was opaque. He is now in financial trouble, but certainly has connections to the Chinese government. In recent years, he has tried to buy a port in Crimea, a satellite company in Israel and a key manufacturer of aircraft engines in the Ukraine. Beijing, however, can plausibly claim that he is a private entrepreneur and his projects are his own. Still, the prospect of a China-supported competitor in Nicaragua would have weighed on the minds of the Panamanian authorities, contributing to their decision to switch to Beijing’s side.

The question closer to home is whether a similar game is afoot in Thailand, where there is renewed interest in building a canal somewhere near the Isthmus of Kra, creating a direct passage between the Andaman Sea and the South China Sea. Like the Nicaraguan canal, the Thai canal is an alternative to an existing route that is congested, and which China does not control.

The economic case for the Thai canal is at best marginal — the route makes sense only for the largest ships on long haul voyages, when fuel prices are high, if transit fees are low and if the Straits of Malacca are congested. The Thai proponents like it because the canal project will be accompanied by special economic zones that will boost their economy. As in the case of the Nicaraguan project, the Chinese investor is a ‘private’ firm. It will invest over $28 billion over ten years and bring in 30,000 Chinese workers. The project is entirely dependent on China’s willingness and ability to sink tens of billions of dollars into the project.

While such a canal would have dealt a severe blow to the Singapore economy five decades ago, it will, at worst, merely shave off some of its market share in ports and maritime sector today. Malaysia’s ports might lose a bigger share, but the Thai canal is no longer an existential threat to the two economies. Indeed, if the sovereign wealth funds of the two countries acquire stakes in the Thai Canal, they will be able to offset some of the losses from the lost marine traffic. Yet, to the extent that Singapore and Malaysia would want to avoid the competition they, like Panama, will be ready to please China. Beijing can squeeze concessions from Singapore and Malaysia instead of building the canal.

What would a Thai Canal mean for India? From an economic perspective, having an alternate route — even one managed by Chinese operators — to the Pacific Ocean is a good thing.

The main concerns are geopolitical and strategic. Chinese firms will have a vantage point in the Bay of Bengal and the PLA Navy will have a faster, friendlier route into the Indian Ocean. However, India is suitably placed, literally, to address these concerns by making appropriate investments in the Andamans and in our naval force structure. Given the convergence of interests, Singapore and even Malaysia will be even more interested in engaging us. Similarly, the United States, Japan and Australia will have stronger reasons to co-operate with us in the Bay of Bengal region.

Ultimately, the canal project cannot move forward until Thai politics gains stability. That will take some time. Furthermore, after observing what happened to Ortega and Nicaragua, Thailand’s political leaders are bound to be more careful than enthusiastic.

So should we be worried? Only to the extent that we fail to make use of the opportunities that have arisen.