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Economic Interconnectedness: AEC & Regional Trading Blocs

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Kin Chong Choi, Senior Vice President, KASIKORN BANK Public CO.,Ltd.[Photo/China.com.cn]

Name: Kin Chong Choi, Senior Vice President, KASIKORN BANK Public CO.,Ltd.

Title: Economic Interconnectedness: AEC & Regional Trading Blocs

Full Text:

The One-Belt-One-Road Initiative proposed by Mr. Xi Jinping, China President, has undoubtedly generated great attention and hope to the regional economies. We firmly believe that the Initiative would encourage and promote economic exchange and prosperity to the countries involved.

The G20 Summit was successfully held in Hangzhou in early September.The Summit gave China an excellent opportunity to share her wonderful economic reform and market restructures experience. In his speech, President Xi Jinping expressed the important needs of reform, innovation, promotion of equity and sharing of development outcomes, and the achievements of common prosperity, sustainable growth and inclusive development. President Xi pointed out that we should build an open global economy and continue to promote facilitation and liberalization of trade and investment. The building of an open world economy and promotion of free trade and investment are indeed in compliance with the prospects outlined by the One-Belt-One-Road Initiative.

In order for the One-Belt-One-Road Initiative to receive respective response from and maximum involvement by the nations along the Belt and Road, in my opinion, the Initiative must connect to the regional economies. My presentation today will be on Thailand Transport Infrastructure Development: New Era of Regional Connectivity. We believe that the Thai transport infrastructure will be the key component and important contributor to the success of the One-Belt-One-Road as far as the AEC(ASEAN Economic Community) is concerned.

A. The Importance of Greater Mekong Subregion Connectivity to Thailand

(1) Thailand has been playing a significant role in ASEAN connectivity thanks to the country's strategic location at the center of Mainland ASEAN. We are at the center of the East-West Economic Corridor. We share borders with Malaysia, Cambodia, Laos and Myanmar. We have extensive and well-equipped transportation networks which have strengthened Thailand's role as regional logistic hub.

(2) The biggest benefit from the transport linkage is the promotion of border trades. For countries like Myanmar, Cambodia and Laos, the border trades represent major portions to their total trade value. For instance, in year 2015 the value of border trades in Myanmar, Laos and Cambodia were 82%, 91%, and 66% of their total national trades, respectively. The prosperous growth of border trades has pinpointed the urgent need for infrastructure upgrading.

(3) By the end of last year, we've entered the brand new AEC era. The synergy of production in ASEAN implies extensive cross-border flows of goods and services and Thailand could play a major role in AEC as the regional manufacturing and service hubs. As a Manufacturing Hub, Thailand's capital-technology intensive manufacturing process can be complementary to the labor-intensive manufacturing process in its neighbouring countries. Meanwhile as a Service Hub, Thailand can offer services on finance, logistics, regional training center, health care and other lifestyle related services.

(4) Thai government has set up several Border Special Economic Zones ("SEZ") in promoting the fast growing border trades. We have Tak SEZ in connecting trades with Myanmar, India, and Southern China, we have Songkhla SEZ in connecting trades with Malyasia, we have Mukdahan SEZ for trades with Laos, Vietnam, and Southern China, we have Sa Kaeo SEZ for trades with Cambodia and Vietnam, and we have Trat SEZ in connecting trades with Cambodia.

(5) Thai logistics businesses are facing new prospects thanks to the transportation infrastructure development plan endorsed by Thai government with focus on projects with urgent necessity and value creation to general public. The funding for the project development will come from government budget, borrowings and PPP financial arrangement. The infrastructure development plan can be divided into several categories incl. construction and upgrade of road & railway, development of airport & water transports and establishment of border special economic zones.

(6) The constructions of new railways & dual-track systems undoubtedly will increase the efficiency and reduce the costs of transportation. A dual-track railway system will be constructed along existing railways to reduce traffic problems and to cut the time lost in rail switching that limit railway transport efficiency.

(7) In Thailand domestic transportation is heavily relied upon road, road transportation contributes about 92% of domestic logistics. Thai government has determined to promote railway transportation as the rail transport is regarded as the strongest link in the logistic chain. The proposed new Thai railway and dual-track systems will surely reduce the logistic expenses to a large margin.

(8) There is strong need in improving trade facilitation in order to cut logistic costs. The implementation of ASEAN Single Window (ASW) and Cross-Border Trade Agreement (CBTA) will significantly facilitate the investments and trades between ASEAN and China as the times and costs of cross-border freight transportation will be reduced significantly.

B. Thai Government's Immediate Construction Plan in 2016

(1) Thai government has been pushing for a large construction project this year, by taking consideration of the urgent need to enhance the transportation system in the country. There are total 20 infrastructure projects in the pipe line with investment total THB1.8 trillion, of which 34% will come from government budget, 28% will be covered by debt management plan, i.e. borrowings, and about 24% will be managed by PPP.

(2) In the next few years, public investment, which will likely be boosted by new mega projects, will be a main driving force for the construction industry in Thailand. We predict that in 2016 the value of government construction will be ranging from 692.6 bil to 708.5 bil baht.

(3) Here are the Transport InfrastructureAction Plan 2016 Projects Status. As we can see, the double-track railway and road network projects are currently under construction. Several projects have already in the TOR & bidding process while some others are waiting for cabinet's final approval.

(4) Currently most of Thailand's railway network are single-track. In comparison with the existing railway network, the new proposed Railway Projects focus on system upgrade and dual-track rail routes, which will significantly improve the transportation efficiency.

(5) One of the mega projects endorsed by the government this year is the Mass Rapid Transit Projects (MRT). Bangkok is one of very few cities in ASEAN owns the efficient electric train transport system. The development of greater Bangkok electric train network will allow the nation capital to further reach out and connect to its nearby provinces. The local economies will be greatly benefited from the extensive & efficient transportation link.

(6) Another big project approved by the government is the development of Suvarnabhumi International Airport. The designed annual capacity of the capital airport is 45 mil passengers, however last year there were over 52.4 mil passengers arrived the airport. As more visitors are projected to come to Thailand in near future thanks to its booming tourism,Thai government has decided to conduct the airport expansion phase 2 project. The decision is indeed in line with the government's ambitious goal of driving Thailand toward becoming ASEAN's investment and transportation hub.

C. Future Regional Collaboration

Here are few good examples on the regional collaboration. (1) The Belt Road Initiative proposed by Chinese President Xi Jinping, is to promote Intra-and international exchanges of trades & investments and to ensure the energy security. There is strong evidence showing that China's infrastructure project lending has shifted its focus to Asia. A good news indeed to the AEC region.

(2) There have been several funding channels assisting regional development, including the World Bank and the Asia Development Bank.At the meantime Asia Infrastructure Investment Bank (AIIB), established in the year 2015 and mainly backed by China with nearly 35% share subscription, will be the new driving force to narrow the infrastructure gap in the Asian region. Thailand is the 12th biggest contributor in the AIIB. Thailand's participation in the AIIB, with its share subscription of approximately 2%, should help further support infrastructure development in CLMV countries, transforming this region into logistics linkage with other regions, i.e. South and East Asia.

Key to One-Belt-One-Road's success is the development of an unblocked road and rail network between China and the countries involved. The proposed Sino-Thai railway project will be an important part of the One-Belt-One-Road project. We firmly believe that the railway project will bring tremendous benefits toThailand's economic growth in near future. The latest news I received is that the railway project would get its kick start by end of this year. This is a very good news indeed.

I hereby conclude my presentation. I look forward to having further discussions in more details with you all after this meeting. Thank you!

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