China’s Grand Plan At Work To Bypass Strait of Malacca, South China Sea For Oil and Trade

IRSHAD SALIM; Oct 29, 2018: On September 9, Beijing signed a memorandum of understanding (MOU) with Myanmar’s government to establish the China-Myanmar Economic Corridor (CMEC) under its ambitious Belt and Road initiative (BRI) whose flagship project underway in Pakistan is called the the China-Pakistan Economic Corridor (CPEC).

Both projects which are being led from the Chinese side by its National Development and Reform Commission will provide the top global importer of oil alternate routes bypassing the Strait of Malacca–a 500-mile long narrow passageway southeast of the South China Sea, where tensions have been on the rise in recent months, with regular US B-52 bomber flights through the region and Chinese PLA Navy warships challenging American military ships and aircraft that venture too close to Chinese territories in the disputed waterway.

40% of China’s oil passes through the Strait of Malacca, and over 64 percent of China’s maritime trade valued at US$1.472 trillion transited the South China Sea in 2016.

China’s reliance on the South China Sea therefore leaves it vulnerable to maritime trade disruptions as it positions itself to replace USA as the numero uno in global trade and economy.

The Strait of Malacca also like the Strait of Hormuz in the Persian Gulf are two of the seven critical choke points with the highest risk for oil shipments that if blocked could cause an oil price super spike.

Therefore, the potential risk stresses the need to solve this “Malacca Dilemma” by exploring alternative shipping routes, according to Chinese leadership and scholars.

While CPEC’s 2,700km route starts on the Pakistani Arabian Sea port of Gwadar, in Balochistan province, climbs along the Karakoram highway through the Khunjerab pass in Gilgit-Baltistan, before crossing into the Kashgar prefecture in China’s Xinjiang region, the CMEC will connect Yunnan Province in China to Kyaukphyu in Myanmar’s Rakhine State by an estimated 1,700 kilometer-long-corridor of roads and railroads beginning with a deep-water port at Kyaukphyu on the Bay of Bengal. More specifically, the CMEC will connect Kunming, the capital of China’s Yunnan Province, to Myanmar’s major economic checkpoints—first to Mandalay in central Myanmar, and then east to Yangon and west to the Kyaukphyu Special Economic Zone (SEZ).

The corridor will essentially align with China’s newly laid oil and gas pipeline running south-to-north from Kyaukphyu to Yunnan.

In the 15-point MoU, China and Myanmar agreed to collaborate on infrastructure, construction, manufacturing, agriculture, transport, finance, human resources development, telecommunications, and research and technology.

Hailed as one of the key parts of the BRI, the CMEC project once fully operational, will also open a path from China’s landlocked southwestern provinces to the Bay of Bengal/Indian Ocean, just as the CPEC will open a path from China’s landlocked northwestern province of Xinjiang–an autonomous region. The ancient Silk Road trade route linking China and the Middle East passed through this vast region of deserts and mountains.

Myanmar and Pakistan are to be a part of both the 21st Century Maritime Silk Road and the Silk Road Economic Belt – the maritime and overland aspects of the BRI.

A new MOU has just been signed between two Chinese and Burmese railway companies to conduct a feasibility study of a rail link between Muse and Mandalay, which will be a part of the CMEC.

Myanmar occupies a unique geographical position in the BRI, lying at the junction of South Asia and Southeast Asia, and between the Indian Ocean and southwestern China’s landlocked Yunnan province. The region is known for its large number of ethnic minorities.

Pakistan also occupies a unique geographical position in the BRI. It is located at the junction of Middle East and South Asia, and between the Arabian Sea and China’s Xinjiang province, home to many ethnic minority groups specially Muslims.

For China, both the projects (CPEC and CMEC) are not only geostrategic in nature but geoeconomic in essence, while providing the two host countries opportunities for economic windfall — a win-win deal from potential costs and benefits standpoint. But many BRI critics say BRI could end up becoming a debt-trap for these countries if not hosted and managed by them with prudence.

According to a report, the cost of the Kyaukphyu port has been negotiated down to $1.3 billion from the initially agreed cost of $7.3 billion due to concerns about a debt trap, and the Myanmar government is in the process of negotiating a change in the stake ratio of the project in Myanmar’s favor.

In the case of Pakistan, the Gwadar deep-water Port –entry point of the CPEC, as well as an International airport in Gwadar, are being built 100 percent with Chinese grant. Therefore, both federal projects facilitating the CPEC are not financially under any “debt trap”.

The business model envisages 9% gross revenue of Gwadar port and 15% gross revenue of Free trade zone of Gwadar.

The annual revenue from toll collection is projected at around $5bn by 2022, which would counter the balance of payment issues in future. The power projects funded by China –almost half of the $62 billion CPEC package are all on IPP mode and built in Sindh and Punjab on public-private partnership basis.

China’s approach is to expand its influence around the globe through economic prosperity rather than military might.

For Pakistan and Myanmar, the concept complements their national interests and supplements their economic needs much to the dismay of the US and India –once launched, the CMEC project will unleash a massive inflow of of Chinese funds to Myanmar which will further weaken Indian influence over its eastern neighbor, just as US influence has weakened over its long-term ally Pakistan.

The US and India–two defense and strategic partners in the region now–have joined hands with Japan and Australia called the “Quad” and launching the Indo-Pacific Economic Vision–part of the Trump administration’s Indo-Pacific strategy to counter China’s growing influence in the region and beyond. ‘That’s Called Competition’, said U.S. Secretary of State Mike Pompeo last week in Mexico City.

In a related development, US State Department’s Principal Deputy Assistant Secretary for the Bureau of South and Central Asian Affairs Alice Wells last week traveled to Dhaka and met with senior government officials to discuss strengthening the U.S.-Bangladesh partnership, support for the upcoming (December) elections and collaboration on building a prosperous, secure, and interconnected Indo-Pacific region.

But China’s grand Belt and Road is in the works, with more countries in the region such as Tibet, are expected to follow Pakistan and Myanmar’s example.

(The writer is a business & construction consultant, analyst, and Editor-in-Chief of PKonweb, DesPardes and BE2C2 Report)

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