Thailand, long used to China’s carrots, now gets the stick

China’s Belt and Road Initiative (BRI) is its new grand strategy. Chinese leaders have emphasised that the initiative is a win-win solution whose economic benefits will be shared across continents.

South-east Asia has become a major focus of this strategy because it constitutes a significant sea lane for China’s maritime trade.

Therefore, it is not a surprise that China first declared its nascent idea of reviving the maritime Silk Road in Indonesia during Premier Li Keqiang’s visit in October 2013.

Mainland South-east Asia also offers China alternative routes to seaports for its landlocked provinces. The sub-region is hence included in Beijing’s plan to develop transport links and industrial parks.

Thailand has realised that situating itself in China’s blueprint is economically beneficial.

Thai leaders have expressed their support for the BRI since it was launched. Thai Prime Minister General Prayuth Chan-ocha, for example, has lauded this initiative for its potential to enhance the Thai-Chinese strategic partnership.

However, General Prayuth was not among the heads of government attending the inaugural Belt and Road Initiative Summit on May 14 and 15 this year in Beijing; five Thai ministers attended instead. How can we interpret this event?

How are we to understand the current stage of Sino-Thai relations and South-east Asia’s general relations with China?

The Sino-Thai relationship has been cordial, marked by no major conflicts. Beijing’s endorsement of the 2014 military coup in Bangkok has even deepened ties, as the Thai military has since favoured China’s policy in many aspects.

Therefore, the recent lack of an invitation for Thailand’s premier to the BRI summit raised eyebrows.

The Thai Foreign Ministry explained that China did not extend an invitation to Gen Prayuth because Beijing had already invited him to another important event — the Ninth Brics Summit scheduled to be held in Xiamen next month.

In the broader context, in fact, the Thai Prime Minister was not alone; leaders from Brunei and Singapore were also excluded from the summit.

However, Thailand is an active player in continental South-east Asia and a long-term friend of China.

It is also within the Indochina Corridor — one of six major economic corridors in the BRI blueprint that links south-western China to Singapore.

It appears that the unresolved deal on the Sino-Thai high-speed railway project had become an irritation for Beijing and was the main reason for China not inviting the Thai leader to the summit.

This was confirmed to me by a Thai government official on May 25, who added: “There are a number of issues still unsettled, such as the bringing in of Chinese workers and others that contravene domestic laws and regulations.”

Why is the railway project in Thailand so important to China? In fact, Thailand and China had shared the idea of expanding the transport network between China and mainland South-east Asia since the early 1990s.

In 1993, the two countries developed a sub-regional framework called Quadrangle Economic Cooperation, which focused on this issue. However, the Asian Development Bank subsumed it under its broader Greater Mekong Sub-region framework because of Thailand’s economic difficulties in 1997.

The tangible outcome was the completion of the Western Sub-corridor route in 2010, linking Kunming to northern Thailand via Laos and Myanmar.

With that continuing idea, China’s focus has shifted from roads to railways. There is also a strong sentiment in Thailand in favour of upgrading the country’s outmoded infrastructure, and the expansion of the rail network has emerged as an option.

Therefore, BRI is not totally new but rather a more expansive and ambitious version of an older plan.

OPENING A PANDORA’S BOX IN SINO-THAI RELATIONS

Thailand and China have discussed the construction of a high-speed rail since 2010, when the Abhisit Vejjajiva government was in power.

The two countries signed a memorandum of understanding (MOU) to set up a joint venture company in which Thailand would hold a 51 per cent share.

Thailand agreed to allow China to utilise the land along the existing railway for 50 years. However, the agreement was aborted when Parliament was dissolved in 2011. The second attempt took place during the Yingluck Shinawatra government in 2012, which proposed four lines for the high-speed trains, stretching from Bangkok to the north, the north-east, the east, and the south.

Thailand invited China to invest in the north-eastern line, as it would connect to the China-Laos high-speed railway running from Kunming to Vientiane, opposite the Thai border.

The two countries signed MOUs in 2012 and 2013 for feasibility studies and the training of Thai personnel.

However, the project drew public criticism, especially from anti-government groups concerned with its cost and potential for corruption.

The Constitutional Court finally vetoed the project in early 2014, and the Yingluck government was ousted by a military coup later that year.

After the coup, the Prayuth government reviewed the project and sought to start construction in May last year to commemorate the 40th anniversary of Sino-Thai diplomatic relations.

Both signed another MOU in late December 2014 that would let China build a railroad from Nongkhai province to Bangkok and to Thailand’s Eastern Seaboard, covering a total distance of 867km, but running at speeds of only 180kmh.

Thailand agreed to take a Chinese loan, to be repaid in cash and in kind — in the latter case with agricultural products, especially rice and rubber.

However, the long process of negotiations opened a Pandora’s box for the Thai government. The initial problems were related to the shareholding structure and to the interest rate on the Chinese loan.

Thailand proposed that China hold a 70 per cent share in the project, but China insisted on a 60 per cent share unless it received the same benefits as in the case of the Chinese-Laos railway project.

In that case, China had received the rights to develop the land along the railway and adjacent to stations for 50 years. Also, Thailand proposed that China lower the interest from 2.5 per cent to 2 per cent.

Early last year, China finally agreed to offer a 2 per cent interest rate if the project was scaled down from a dual-track to a single track in the face of rising costs.

At the Lancang-Mekong Cooperation Summit from March 22 to 24 last year in Hainan province, the Thai and Chinese premiers surprisingly announced that Thailand would finance the entire project through domestic loans and that the speed would be 250kmh. China would only invest a 60 per cent share in work on the rail system and train operations, including the construction of bridges and tunnel excavation.

To put the exclusion of Gen Prayuth from the BRI Summit in May in the context of the long process of negotiation, one may be able to infer how China has been asserting pressure on the Thai government.

It was reported that the 17th meeting of the Sino-Thai joint committee on rail collaboration held on April 9 and 10 this year met with difficulties in coding construction materials from the Chinese coding system into the Thai system.

The Thai Transport Ministry accepted that it might take a long time to do so. Without that, the committee cannot set the medium price in the project’s terms of reference and check whether the materials needed are available in Thailand.

According to Thai law, such a joint venture cannot use foreign materials. However, the sentiment of the subsequent 18th meeting on May 24, nine days after the BRI Summit, turned positive.

The two parties nearly reached an agreement on outstanding issues. The Thai Transport Ministry will now submit the detailed project to the Thai Cabinet for approval and aims to start construction by this month.

Although details of the negotiations were not revealed, there was already a tendency for Thailand to accommodate China’s requests. In early June, a Thai deputy prime minister consulted the Councils of Engineers and Architects to resolve the technical issues and the use of Chinese personnel in Thailand. He proposed that the Prime Minister exercise his executive power under Section 44 in the interim Constitution.

On June 8, Gen Prayuth showed his irritation with the progress of the project during an address to the National Legislative Assembly: “I have lost my face so many times and we (Thailand)couldn’t conclude the deal. I will exercise my prerogative on this railway project. It must be started within this year.”

On June 15, the junta issued Decree No 30/2017 in the Royal Gazette to clear existing legal issues and allow the project to start.

The decree exempts Chinese engineers and architects from taking Thai professional licence exams and allows the use of up to 25 per cent Chinese materials.

The recent 19th meeting early last month concluded that the construction will start in October this year.

‘SHAME OFFENSIVE’: A NEW DIPLOMACY?

The hurdles in the Thai-Chinese railway project offer several lessons.

Chinese discontent suggests that Thailand is important to Beijing’s strategic planning in the BRI initiative. Certainly, the ultimate plan to link China with continental Southeast Asia would be impossible without progress in Thailand. Therefore, Thai policy makers may be able to utilise this advantage wisely to attract foreign investment to upgrade the country’s economy.

Second, Thai policy makers cannot take China for granted and need to update their understanding of China. A history of cordial ties matters, but so does distance in time and generations.

The new blood in Chinese leadership may not value the historical ties as much as its predecessors did. Hence, Beijing is less likely to compromise its national interest for the sake of maintaining a warm relationship with Bangkok.

Third, China’s diplomacy has been a charm offensive focused on carrots, but now it is more willing to use the stick. Beijing is not reluctant to adopt shaming and intimidation when its national interests are affected. It is apparent that the absence of the Thai leader from the BRI summit was directly linked to the delay of the high-speed railway project. It looks like minor diplomatic intimidation, but it allowed Beijing to send a message about its unhappiness with the current situation.

Furthermore, Beijing’s more assertive approach may also develop into a situation in which regional states need to choose sides. In the case of Southeast Asia, Beijing is now pressuring the region to favour China’s regional leadership. In Thailand’s case, the likelihood of Thai-American appeasement may also play a role besides the railway issue.

Before the BRI summit, United States President Donald Trump made a phone call to three South-east Asian leaders — those of the Philippines, Singapore, and Thailand — with invitations to Washington.

While Philippine President Duterte was non-committal, the Thai government accepted the invitation and has enthusiastically arranged an official visit. Beijing is perhaps sending a signal that it is unsatisfied being treated only as a political cushion and secondary power on which Bangkok can fall back whenever its relations with Washington grow rough.

South-east Asia may need to realise that its attempt to engage with Beijing is not a one-way process. China is not only learning to cooperate through regional engagement. It also expects smaller neighbours to accommodate its rise and leadership.

China’s use of diplomatic pressure indicates that South-east Asia may face more difficulties in dealing with Beijing in the future.

While China’s power is growing, it may see the region’s old tactics such as silence, delays, indecisiveness, or enmeshing of multiple external powers as obstacles to its growing influence and interests in its own backyard.

Beijing putting more pressure on South-east Asia to choose policies that at least do not obstruct Chinese interests is a likely future scenario. However, this situation benefits neither China nor South-east Asia. China’s punitive approach, if sustained, will only leave a negative image of Beijing and deepen suspicion of its intentions in the region.

The mantra of peaceful rise and win-win cooperation may sound less and less convincing, and that could lead to repercussions that escalate tensions between China and Southeast Asia. However, the question is how South-east Asia can communicate this concern to Beijing and whether the latter will listen and re-evaluate its policy approach.

ABOUT THE AUTHOR:

Pongphisoot (Paul) Busbarat is Visiting Fellow at ISEAS-Yusof Ishak Institute. This is adapted from a longer piece that first appeared in ISEAS Perspective.