AIIB: Boosting China With Rail Connectivity

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CEIC ASEAN Data Talk - October 8, 2015 The Asian Infrastructure Investment Bank (AIIB)i will play an integral role in promoting China’s One Belt, One Roadii (OBOR) initiative. ASEANiii stands to benefit from China’s OBOR initiative as it complements the bloc’s Master Plan for ASEAN Connectivity (MPAC)iv . With authorized capital of US$100 billion, the China-led AIIB will help pick up some of the US$8 trillion the Asian Development Bank (ADB) estimates Asia will need to fill the infrastructure spending gap between 2010-2020. Given that the AIIB is a development bank with a pan-Asian scope, ASEAN will benefit from AIIB infrastructure financing by prioritising MPAC projects that benefit overall ASEAN connectivity and, most importantly, contribute to ASEAN’s economic linkages to China. ASEAN Can Benefit from AIIB Infrastructure Financing by Prioritising Tangible Projects A 2013 study by the World Economic Forumv found that supply chain barriers are far more significant impediments to trade than tariffs. With the AIIB, China can mobilise finance from international capital markets to reduce the vast gaps in ASEAN's economic infrastructure. The Singapore-Kunmingvi Rail Link (SKRL) is a tangible infrastructure project prioritised under the MPAC that aims to improve ASEAN land transport infrastructure connectivity among member states and China. The SKRL spans 7,000 kilometers, linking seven ASEAN member states - Cambodia, Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam - to China. This project will help improve the ASEAN Economic Community's (AEC) production and distribution networks, thereby contributing to overall ASEAN connectivity while also strengthening trade, tourism and investment linkages to China. China has taken notice and has already responded. Two of China's top state-owned railroad equipment makers, China CNR Corporation and CSR Corporation, merged to form CRRC Corporation in June 2015; CRRC Corporation is now the second-largest industrial company worldwide after General Electric. The merger will help China compete for rail contracts globally and in ASEAN. China has already signed agreements with the Thai and Laotian governments to construct rail link portions of the SKRL connecting Kunming, the Laos capital Vientiane, and Bangkok. Construction on the rail links connecting China, Laos, and Thailand is set to commence at the end of 2015 and will be completed by 2020. China has a stake in leveraging the AIIB to bring the completion of the SKRL to fruition, which will link China to ASEAN ports, offering alternate access to strategic shipping lanes and helping reduce supply chain barriers. A Completed SKRL Can Feed China by Enhancing Tourism and Trade Flows with ASEAN Aside from improving ASEAN land transport connectivity and providing China strategic shortened access to global sea routes, the SKRL will strengthen tourism and trade linkages between China and ASEAN. Current tourist flows are 'one-way dominated', with China sending record numbers of visitors to ASEAN. Chinese visitor arrivals to the ASEAN 5vii member states accelerated from 4.1 million in 2009 to 9.9 million in 2013 (growing at a 5-year compound annual growth rate (CAGR)viii of 24.8%), while Chinese visitor arrivals to the CLMVix member states increased from around 1 million in 2009 to 3 million in 2013 (growing at a 5-year CAGR of 24.2%). In contrast, ASEAN 5 visitor arrivals to China have grown incrementally from 3.7 million in 2009 to 4.4 million in 2013 (growing at a 5-year CAGR of 3.6%). The completion of the SKRL connecting Kunming in southern China to the seven mainland ASEAN member states would help increase cross-border tourist flows. Moreover, tourism cuts across many sectors of the economy and acts as a catalyst for furthering economic integration by improving transport networks and enhancing free trade and investment. Note: Visitor arrival statistics are measured in millions of persons. Note: Visitor arrival statistics to China from Cambodia, Laos, Myanmar and Vietnam (CLMV) are unavailable from prime sources. Visitor arrival statistics are measured in millions of persons. China has been ASEAN's largest trading partner since 2009x and since 2011 ASEAN has been China's third largest trading partner. In 2014, ASEAN's total trade with China reached US$366 billion (14.5% of ASEAN's total global trade); ASEAN's exports to China totalled US$150 billion (11.6% of ASEAN's total global exports), while ASEAN's imports from China totalled US$216 billion (17.5% of ASEAN's total global imports). ASEAN countries play critical roles in China's manufacturing supply chain network, providing the necessary intermediate goods and raw materials used in the re-export of China's manufactured goods. Aside from offering competitive labour costs and playing critical roles in China's supply chain, the AEC is home to a large and young consumer market of over 600 million people. The SKRL will further Chinese trade and tourism links with ASEAN. Chinese trade and tourism will be supported by expanding consumer markets, falling dependency ratiosxi , and the emergence of more middle-class consumers. Competitive Wages and Supply Chain Linkages to China Make ASEAN an Attractive Production Base Rising Incomes Support Cross-Border Trade and Tourism Note: CEIC provides the 3-Year CAGR for Myanmar as statistics required to generate the 5-Year CAGR are unavailable.

Contributed by Derrick Metriyakool, CEIC Analyst


i. The Asian Infrastructure Investment Bank (AIIB) is a China-led multilateral development bank headquartered in Beijing. 57 economies have signed up to be Prospective Founding Members (PFMs), including all 10 member states of the ASEAN Economic Community (AEC). ii. One Belt, One Road (OBOR) is a development strategy and framework with the goal to increase China’s role in global affairs and expand trade through a modern silk road; the strategy is comprised of two components, the land based Silk Road Economic Belt and the sea-based Maritime Silk Road. iii. ASEAN, the Association of Southeast Asian Nations, consists of ten Southeast Asia economies: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. iv. The Master Plan for ASEAN Connectivity (MPAC) aims to achieve ASEAN connectivity through enhanced physical connectivity (transport, communication, and energy infrastructure), institutional connectivity (trade liberalisation and regulatory harmonization), and people-to-people connectivity (educational, cultural, and tourism exchanges). v. The 2013 World Economic Forum study is titled Enabling Trade Valuing Growth Opportunities. vi. Kunming is the capital city of Yunnan Province in Southwest China. As of 2014, the city had a population of 6.6 million residents and nominal GDP totalling around US$60.3 billion. vii. ASEAN 5 consists of: Indonesia, Malaysia, Philippines, Singapore, and Thailand. viii. The compound annual growth rate (CAGR) measures the constant rate of return over a specified period of time. ix. CLMV member states consist of Cambodia, Laos, Malaysia and Vietnam. x. ASEAN and China entered into a Free Trade Agreement (FTA) on January 1, 2010. xi. The ratio of the sum of the populations aged 0-14 and aged 65 years and over to the population aged 15-64; this reflects the ratio of the economically dependent compared to the economically active. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog

8th October 2015 AIIB: Boosting China With Rail Connectivity

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