22 LOGISYM MAGAZINE SEPTEMBER/OCTOBER 2017 | ONE BELT ONE ROAD – OPPORTUNITIES AND RISKS FOR SINGAPORE

One Belt One Road –

Opportunities and Risks
for Singapore
 LOGISYM MAGAZINE SEPTEMBER/OCTOBER 2017 | ONE BELT ONE ROAD – OPPORTUNITIES AND RISKS FOR SINGAPORE
The “One Belt One Road Initiative”
(OBOR) is one of the key geopolitical
and strategic developments shaping
the world today. Touted as the 21st
century Maritime Silk Road, OBOR
aims to connect the eastern part of
China’s coastal cities with Europe via
the Indian Ocean and South China Sea.
OBOR, officially announced by
China in 2013, stretches through 65
countries that collectively have 60%
of the world’s population. These 65
countries also produce around 33% of
global GDP. The China Development
Bank has already set aside close to
$900 billion to finance 900 projects.
Some commentators misguidedly add
to the hype by including infrastructure
projects that are not part of the
OBOR initiative in their analyses. Still,
regardless of the monetary figures
and actual number of official projects,
this trading network will deepen
and broaden the country’s strategic
engagement with Southeast Asia,
Central Asia and Europe. Figure 1
illustrates the maritime trade routes,
economic corridors, rail networks and
gas pipelines that will connect these
key markets.
Figure 1: “One Belt One Road” Map (Source: Mercator Institute for China Studies)
With OBOR, China is attempting a
bold recreation and expansion of the
ancient Silk Road. The Silk Road, first
established during the Han dynasty in
China, consisted of trade routes that
linked great commercial cities of the
past including Samarkand, Bukhara
(Uzbekistan), Merv (Turkmenistan).
The Silk Road did not just connect
traders. While its key aim was to
boost connectivity, ideas pertaining
to science, technology, religion and
culture also spread. For instance,
Buddhism’s birthplace might have
been in India but its germination and
growth to China was facilitated by the
Silk Road.
China’s rise and involvement in the
OBOR initiative is inexorable. The
Euro-centric model of economic
relations that have predominated
discussions since the Renaissance
and Industrial revolution is beginning
to be displaced. In the 1980s, China’s
share of world GDP was only 2.7%.
However, over the past three decades,
China’s share of world GDP has risen
to almost 16%. China’s investment in
infrastructure has expanded its global
footprint. It is currently the largest
23
trading network with many countries
and has already overtaken US GDP in
terms of Purchasing Power Parity.
Countries have reacted to OBOR in a
varied manner. Some have welcomed
it. Others have expressed suspicion
that OBOR acts as a pretext for China to
dominate the Asia-Pacific and beyond.
Regardless, the strategic imperatives
for states located along the evolving
trade route and potentially affected
– directly or indirectly – by OBOR are
clear. For a tiny trading nation like
Singapore, adapting and leveraging
on these changing circumstances are
key to long-term prosperity.
So, how is OBOR going to impact
Singapore? Leaders in Singapore have
taken turns to repeatedly state that
there are significant opportunities
for Singapore and Singaporean
businesses. Nevertheless, there are
concerns, in some quarters, that
OBOR will adversely affect Singapore,
especially if there is a perceived
deterioration of diplomatic relations
with China due to a variety of reasons
(E.g. Singapore speaking out on the
recent tribunal ruling on the South
China Sea that ruled against China’s
“historic rights” claims over vast swaths
of sea and conspicuous absence of
Prime Minister Lee Hsien Loong at the
OBOR summit in May this year).
Many of these fears were blown out of
proportion and have been allayed by
subsequent diplomatic engagements.
Still, there is a pivotal question that
this article seeks to examine further:
Can Singapore maintain its maritime
dominance amidst the development
of OBOR infrastructure projects?
 24 LOGISYM MAGAZINE SEPTEMBER/OCTOBER 2017 | ONE BELT ONE ROAD – OPPORTUNITIES AND RISKS FOR SINGAPORE
Malaysian Port Developments –
Threats from across the Causeway?
This section will examine how port
developments in Malaysia could
impact Singapore’s maritime hub
status. Currently, Singapore, as the
world’s leading transhipment port and
regional oil node, facilitates trade traffic
worth almost US$5 trillion. The port,
strategically located at the southern
tip of the South China Sea, also ships
oil in bulk valued at around US$600
billion annually. There has been some
mention of how the construction of a
new deep-sea port off Malacca (jointly
developed by Chinese and Malaysian
companies) and extensions in Port
Klang will challenge Singapore’s
maritime hub status. The US$10 billion
Currently, Singapore,
as the world’s leading
transhipment port and
regional oil node, facilitates
trade traffic worth almost
US$5 trillion. The port,
strategically located at the
southern tip of the South
China Sea, also ships oil
in bulk valued at around
US$600 billion annually.
1
Having a length of 333 metres and tonnage of 300,000 DeadweightTonnage (DWT),
Malaccamax carriers are often used to ship oil.
project in Malacca and developments
in Port Klang could position Malaysia
to be a key element of China’s bold
OBOR initiative in Southeast Asia.
The developments of these Malaysian
ports raise two primary concerns for
Singaporeans. First, if these ports,
positioned to the north of Singapore
deliver to their full potential, fewer
ships will need to pass through
Singapore.
Also, the deep-sea ports will have
the operational capacity to serve
both containerised and bulk cargo
using Malaccamax1 vessels. Whilst
Malaysian ports have previously tried
to rival Singapore, they have not
had the generous fiscal backing that
current maritime developments enjoy
from Chinese investors. The Chinese,
pragmatic and hard-headed as they
are, have backed up their promises by
opening up the purse strings.
In light of these developments, there
are four counter arguments as to why
these fears are misplaced. First, it is
crucial to probe deeper into why the
Chinese are so keen on building a
port in Malacca. For China, up to 80%
of its energy needs pass through the
Straits of Malacca. This over-reliance
was characterised as the “Malacca
Dilemma” and identified as a strategic
issue by former President Hu Jintao
fifteen years ago. The Straits of
Malacca is a vital sea lane especially
since it is patrolled by the US navy
and was previously used by Americans
to send warships to Taiwan at a time
when tensions between China and
Taiwan escalated in 1996. While
China and the US are searching for a
peaceful modus vivendi in the Asia-
Pacific, there is no guarantee that
the Straits of Malacca will be devoid
of flashpoints in future. Hence, while
there are crucial strategic interests for
China, it is questionable if commercial
imperatives are foremost priorities
for them. Possibly not. Additionally, a
World Bank study commissioned by
the Malaysian government concluded
that a port in the Western coast of
Malaysia is unnecessary especially
while operations in Port Klang are
currently expanding. Therefore, since
there seems to be little commercial
value derived from the construction
of the Malaccan port, it remains to be
seen if the port can rival Singapore’s
maritime dominance in the region.
Second, the growth in the size of
container ships must be matched
by the expansion of ports as well.
For instance, when giant ships
arrive at ports, there needs to be a
complementary infrastructure that
 LOGISYM MAGAZINE SEPTEMBER/OCTOBER 2017 | ONE BELT ONE ROAD – OPPORTUNITIES AND RISKS FOR SINGAPORE
Figure 2: Malaysia’s East Coast Rail Link (Source: Spad.Gov.My, Straits Times Graphics)
enables more storage space, wider
distribution channels and enhanced
container gantry cranes. Currently,
only twenty ports in the world can
accommodate 19,000 TEU (Twenty-
Foot Equivalent Unit) cargo vessels.
There are only two in Southeast Asia.
One is in Tanjung Pelapas while the
other one is in Singapore. While this
does not give reason for Singapore
to be complacent or take its place
for granted, the port nation enjoys
a significant head start over its
competitors.
The ECRL will enable
China-bound goods from
Port Klang to be transferred
to Kuantan using freight
trains without having to go
south to Singapore.
Third, PSA is not resting on its laurels
either. The expansion of the Pasir
Panjang terminal by 50% will enable
it to reach a capacity of 50 million
TEUs. PSA is investing S$3.5 billion
to use the latest port technology
and reduce the manpower needs of
managing the port. For instance, there
will be automated container yards and
unmanned rail-mounted gantry cranes
that will support intelligent systems.
It will be a state-of-the-art, modern
and “smart” port that will stay ahead
of the competition. Furthermore,
when the next-generation port in
25
Tuas is completed by 2040, it will be
able to handle 65 million TEU of cargo
annually. This is twice the capacity that
the port is currently handling.
Fourth, the port in Malacca is primarily
designed to add oil storage and
bunkering facilities. It does not seem
to offer container handling services
and could thus have a more minimal
impact on Singapore’s operations.
Furthermore, the planned oil storage
capacity of the Malaccan port is 1.5
million cubic metres. Meanwhile,
Singapore’s current capacity is 20.5
million cubic metres. Hence, the
Malaccan port, due to its capacity
constraints and focus on bunkering
facilities, rather than on transhipment
of cargoes, might not displace
Singapore’s maritime dominance.
The port in Malacca is only one of
the challenges to Singapore’s hub
position. The East Coast Rail Link
(ECRL), as shown in Figure 2, will link
ports on the Eastern and Western
peninsulas of Malaysia. The ECRL,
akin to the “Mini Land Bridge” in the
US, could alter regional trade routes
that are currently used to ply the
busy Straits of Malacca and the South
China Sea via Singapore. The ECRL will
enable China-bound goods from Port
Klang to be transferred to Kuantan
using freight trains without having to
go south to Singapore.
There are commercial factors that
could deter the ECRL project from
becoming a success. It remains to be
seen if the economic value of shipping
cargoes to Port Klang, unloading it
and then re-transporting it via another
railway, unloading it again at Kuantan
and reshipping from there will
provide a significant cost differential.
Also, there are still doubts about
the projected estimates of annual
freight transport via the ECRL once
it is fully built. For instance, the cost
 26 LOGISYM MAGAZINE SEPTEMBER/OCTOBER 2017 | ONE BELT ONE ROAD – OPPORTUNITIES AND RISKS FOR SINGAPORE
justification for the ECRL is premised
on the estimate that it will carry
almost 50 million tonnes of freight
by 2030. By 2035, it is expected to
carry 60 million tonnes. However, this
could be a significant overestimation
since Keretapi Tanah Melayu (KTM)
only carries about 6 million tonnes
every year on its nationwide network.
Furthermore, to complicate matters,
McKinsey and Company has estimated
that the costs of mega rail projects are
45% more than the projected amount.
Meanwhile, expected demand is
usually overestimated by two times.
Figure 3: Kra Canal Route (Source: Picsora)
Therefore, if the high expectations of
this project are not fulfilled by tangible
commercial gains, the ECRL will incur
a significant loss that will have to be
borne by Malaysian taxpayers paying
back Chinese loans.
Competition from Regional
Maritime Developments
Even if Singapore staves off
competition from Malaysian ports,
regional developments could
adversely affect Singapore’s pole
position.
First, the Kra Canal has often and
repeatedly been labelled as a potential
competitor to the Singapore port. As
demonstrated in Figure 3, the Kra Canal,
if it is ever built, would cut through
the Southern Isthmus of Thailand,
connecting the Gulf of Thailand with
the Andaman Sea. It would provide
an alternative to transiting through
the Straits of Malacca, thus shortening
transit distance for shipments of oil
to East Asian countries by 1,200 km.
In turn, this can save time and cost.
Previously, China has referred to this
project as part of its plans for OBOR.
Nevertheless, the commercial
considerations for the construction of
the Kra canal do not look promising.
First, constructing canals like the Suez
and Panama were more feasible. They
were surrounded by waterbodies that
could be connected to form larger
canals. Conversely, constructing
the Kra canal is significantly more
cumbersome and costly since builders
have to hew solid mud and rock.
Additionally, the benefits accrued are
rather marginal. While the Suez and
Panama canals cut travel distances by
8,000km and 5,000km respectively,
the distance saved by the construction
of a Kra Canal is only slightly more
than 1,000km. Therefore, considering
that that the benefits due to the
construction of the canal are marginal,
it remains to be seen if this project will
genuinely pose a threat to Singapore’s
maritime hub status.
Some commentators have argued
that the port in Hambantota, once
fully developed, could also pose
a challenge to Singapore’s port.
Hambantota’s port will be an excellent
transshipment waypoint across the
Indian Ocean, stretching to the Far East
and Europe. The pendulum of trade
could, in theory, swing from Africa and
South Asia through Sri Lanka into the
west coast of Malaysia and up into the
hinterland of Southeast East Asia. The
construction of the Kra canal could
also expedite the movement of goods
into the hinterland. Either way, with
or without the Kra canal, the change
in trading routes could result in ships
bypassing Singapore altogether.
In July 2017, a deal was signed
between two state firms – the Sri
Lanka Ports Authority (SLPA) and
China Merchants Port Holdings – to
handle the commercial operations
of the loss making Hambantota port,
located approximately 240km from
the South of Colombo. On top of the
sale price, the Chinese firm will also
invest another $600 million to develop
Hambantota port and a 15,000 acre
industrial zone. This is a similar modus
operandi, albeit on a reduced scale, to
what China has done to Piraeus port
in Greece, where as much as 60% of
China’s exports are shipped through
to the rest of Europe. Hambantota
could potentially become the gateway
to expanding economies in South Asia
and Africa.
 LOGISYM MAGAZINE SEPTEMBER/OCTOBER 2017 | ONE BELT ONE ROAD – OPPORTUNITIES AND RISKS FOR SINGAPORE 27

Still, Hambantota could be blighted

by the same issues that might affect
the Malaccan port. The rationale
Reinventing and
for the involvement of China in the
construction and operation of the
adapting to changing
port in Hambantota is primarily
strategic to counter-balance India’s circumstances is a
ceaseless strategic
maritime strength in the South Asian
region. Furthermore, the operation
of the port is also in the hands of
China Merchant Ports Holdings.
Since Colombo was not able to repay imperative for
Singapore.
the loans of around $1.6 billion to
China Merchants Ports Holdings, the
Hambantota port operators were
forced to sell a 70% stake to their
counterpart. Therefore, it is unclear if Singapore’s hub status, the author strategic imperative for Singapore.
regional developments – construction pointed out that these capacities It is notable that the decline of the
of Kra Canal and Hambantota port – are interlocking and complement port in most major cities has often
can dislodge Singapore, considering each other effectively. When working precipitated their fall from grace. In
the thorny issues that they would have in tandem, it might be hard for fact, some of the commercial capitals
to overcome. Meanwhile, Singapore OBOR projects to displace this “soft” that flourished during the ancient
enjoys a healthy head start over its infrastructure. Silk Road period have lost their lustre
competitors and is poised to capitalise today. This is a salutary warning that
on this. Reinventing and adapting to Singapore’s maritime dominance can
changing circumstances is a ceaseless never be taken for granted.
Conclusion

To conclude, one should be mindful

that physical infrastructure alone will
not be enough to displace Singapore
from its prime position. Recently,
Singapore’s Minister for Home Affairs
and Law, Mr K Shanmugam said that
Dr. Raymon Krishnan
the Chinese understand infrastructure. President
Yes, this is true. However, operating a Logistics and Supply Chain Management Society (LSCMS)

port and making it a success is not just Dr. Raymon Krishnan is President of the Logistics and Supply Chain Management Society
and Director of Corporate Advisory at the Asian Trade Centre, Singapore. He has more
about cranes, gantries and dockyards.
than 25 years of experience in logistics and supply chain management.
This is the “hard” infrastructure. The
harder part is to replicate the “soft”
infrastructure.

In Singapore, investing in infrastructure

has been combined with creating a
supply chain ecosystem that develops
technological, financial, legal, banking
and a myriad of other supporting
Bhargav Sriganesh is currently a Research Assistant at the Asian Trade Centre, Singapore
mechanisms. These capabilities are
overlaid with a stable, corruption-
free government and competent
workforce. In a recent article about
Bhargav Sriganesh
Research Assistant
Asian Trade Centre, Singapore
and will be pursuing a Masters in Political Science and Political Economy at the
London School of Economics and Political Science (LSE). He recently completed his
undergraduate studies in International Politics with a First Class Honours at
King’s College, London.