Thailand’s Kra Canal: Economic and Geopolitical Implications

For 330 years, visionaries have thought of dredging a great canal 150 km. across the Kra Isthmus in southern Thailand so that vessels sailing from the Indian Ocean to the Pacific could cut hundreds of kilometers off their voyage and avoid the Bugis pirates of Indonesia that for centuries have haunted the Strait of Malacca.

Economically it has never made sense – until now, as China’s burgeoning maritime traffic packs the 800 km Strait, a seagoing funnel that narrows to only 64 km near Singapore, with only a half dozen kilometers of that usable because of its shallow depth.

Accordingly, Beijing signed a Memorandum of Understanding on the canal project in Guangzhou in 2015 with the China-Thailand Kra Infrastructure Investment and Development Company and Asia Union Group. The Chinese envision the huge enterprise as a linchpin in its Belt and Road Initiative, a development strategy designed to link as many as 70 countries into a vast economic web with Beijing at the center, the land-based Silk Road meshing with the Maritime Silk Road, all focusing on connectivity and cooperation between the countries.

The Malacca Strait is estimated to reach saturation in 2024 when more than 140,000 vessels seek to pass through the narrow waterway, which can only accommodate 122,640 vessels per year. The vessels would therefore have to opt for longer alternative routes passing through the Straits of Sunda and Lombok further south unless a more feasible route through the Kra Isthmus is developed.

Moreover, the shallowness of the Malacca Straits presents a problem for the oil supertankers, which need a draft of 21.2 meters. The strait’s shallowness reduces the sea lane to only 4 kilometres in width, making passing ships vulnerable to maritime accidents, piracy and terrorism by religious fanatics. Another serious concern is the environmental impact from oil leaks from supertankers.

Given the near saturation of the Malacca Strait as well as potential security and environmental risks, it is therefore unavoidable that a viable alternative shipping route has to be found sooner than later. The Thai Canal would offer the shortest link between the Indian and the Pacific Oceans compared to other routes. It would reduce the travel time by about 700 km and two to six days depending on the route, substantially reducing the shipping cost.

One proposal is to build a canal from the ground up to accommodate large vessels. The ground would be first leveled and walls would then be built to eliminate the need to dig deep into the ground, greatly reducing construction time and costs. Two separate waterways would run parallel to facilitate navigation. The canal would take 10 years of complete at a cost of US$28 billion. A special economic zone would parallel the canal and a deep-sea port would be built in Thailand’s southern province.

In procuring enormous foreign investment for the canal project, in addition to the IMF and the World Bank, new monetary systems such as China’s Asian Infrastructure Investment Bank (AIIB) and the BRICS Bank, apart from international financial syndicates, are eager to lend.

Based on the foregoing, the rationale for the Thai Canal project is impeccable, save for the matters relating to the sources and method of funding. The reservations of the naysayers that the canal would separate Thailand’s southern provinces or impact Thailand’s sovereignty and security or cause environmental degradation are easily refutable and can be thrown out of the window. Conversely, the project would strengthen national security as the Thai naval forces do not have to pass through foreign territorial waters. It will also be a key stimulus for economic development in southern Thailand.

As China continues to expand its economic influence across the maritime domain, it proffers to fund mega infrastructure projects in developing Asian and African countries through China’s Ex-Im Bank and other financial institutions, one of which is AIIB. However, many recipient countries have begun to have apprehensions with China’s aggressive mercantilistic practices and to complain that they are often overburdened with the delays and unsustainable cost overruns, not to mention unfavourable conditions that do not benefit the host countries.

Such manipulative tactics have made many client countries suspicious of Chinese economic overtures. As Asia Sentinel has reported in a series of stories, Pakistan, Sri Lanka, Maldives and other nations have found themselves in economic thrall to China that has been extended to political thrall. There is no better example than Thailand’s neighbor Cambodia, which in 2016 blocked an Association of Southeast Asian Nations resolution aimed at China’s growing hegemony over the entire South China Sea at China’s behest. Beijing is seeking to extend its hegemony to Africa as well through loans and infrastructure projects.

It should be mentioned that a high rate of economic growth has enabled China to also devote a good part of its resources to military modernization in addition to its economic advances. Priority has now been shifted from maintaining territorial integrity to a more forward military posture that may pose existential threat to some of its Asian neighbors as well as the pre-eminence of the US military forces in the Pacific. With economic prowess and abundant resources, China has been able to project its regional dominance in both economic and military spheres as evidenced by the construction of a belt of military bases across Southeast Asia, including a two-mile runway and radar installation in the Spratly Islands which technically belong to the Philippines.

While the US under Trump presidency spins the ‘America First’ narrative and abandons Trans-Pacific Partnership (TPP), cash-rich China, with US$4 trillion in foreign reserves, pushes its own agenda by launching Regional Comprehensive Economic Partnership (RCEP), followed by the Belt and Road Initiative to pull its Asian neighbors into China’s orbit by its attractive offers of mega infrastructure investments consistent with its own design of Asia connectivity.

Thailand, under the military regime which is eager to gain international acceptability, has already been attracted by the Chinese funding of its high-speed railway projects as well as other projects and may be tempted by China’s offer to fund the Thai Canal project.

The much heralded “Asia pivot” under the Obama administration was never been matched by tangible action until the advent of the Trump administration, which has elected to face the threat of China’s military build-up in South China Sea and North Korean nuclear threat head-on, although the latter may be too little, too late.

China’s aggressive military posture could be a de facto fault line that would pit China against the US whereby the Malacca Straits could be a potential military choke point through which 80 percent of China’s oil has to pass. The Thai Canal, when in operation, would be another military choke point in such a military face-off.

As the Thai Canal would be built across Thailand and does not pass through other countries, it would naturally come under the sole jurisdiction of Thailand unless its sovereignty and neutrality are compromised by investment conditions set by international financiers. Any full feasibility study on the canal must therefore include a realistic cost-benefit analysis. In negotiating with foreign financial institutions, the Thai government must strive to maintain its economic independence and neutrality in geo-political sense.

With international condemnation and ‘soft sanctions’ by western countries weighing on the present military regime, which came to power by a military coup, the regime may not have maximum maneuvering room to strike a fair deal. Over-reliance on Chinese direct investment may put Thailand at a disadvantage.

Nonetheless, if Thailand were to incur a large public debt in constructing the Thai Canal, it is well advised that the project be undertaken by a government democratically elected by the people with the blessings of a fully-elected parliament, and not by a regime which has no accountability to the people.

Pithaya Pookaman is a retired Thai diplomat living in Bangkok. He is a regular contributor to Asia Sentinel.