Thailand, China sign agreement to construct a new strategic Kra Canal

Thailand and China have signed a memorandum of understanding (MOU) in Guangzhou last Friday to jointly cut a shipping passage across Kra Isthmus in southern Thailand, the narrowest part of the Malay Peninsula.

Update - officials from both Thai and Chinese governments deny involvement in plan to build the Kra Canal - story here

The proposed waterway, named Kra Canal, likened to the maritime shortcuts of the Suez Canal and Panama Canal, will allow ships to bypass the Malacca Strait and ply directly between the Pacific Ocean and Indian Ocean, shortening voyage by some 1,200 km.

The vessel’s voyage would also be reduced by two to five days, and a 100,000-dwt oil tanker could save some $350,000 in bunker fuel costs on a single voyage.

Would building the Kra Canal make sense?

The ambitious new canal would be 102 km long, 400 metres wide and more than 20 metres deep, potentially a wider two-way maritime passageway than the existing Suez Canal and Panama Canal. Observers said that the Kra Canal’s dimensions would be able to accommodate any types of the present-day large-sized ships, including VLCCs.Kra Canal

The Kra Canal, which would have a significant impact on shipping trade in Southeast Asia pypassing the Malacca and Singapore Straits, would take 10 years to develop at a whopping $28bn. The project could be shortened to seven years but at a higher cost of $36bn if nuclear and other more expensive technologies are used in the construction.

The Kra Canal project will be carried out by the China-Thailand Kra Infrastructure Investment and Development Company.

Thailand’s benefits from the Kra Canal would include toll collection, port fees, foreign investment stimulus, as well as a range of infrastructure developments surrounding the canal.

For China, the project falls as part of its national 21st Century Maritime Silk Road Economic Belt, as Beijing believes that the Kra Canal would help to reduce its cost of importing oil from Africa and the Middle East. It would also provide greater energy and trade security for China with the Middle East and Europe.

Additionally, the project would boost activities at China’s key ports in Shanghai, Hong Kong and Shenzhen, as maritime traffic can skip the port of Singapore, located at the southernmost tip of the Malay Peninsula.

Singapore port, strategically, located along the Malacca Strait, has been benefiting from the busy shipping traffic passing between the Andaman Sea and the South China Sea. The Malacca Strait is one of the world’s busiest international shipping lanes with up to 40% of the world’s trade passing through it.

Posted 19 May 2015

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Lee Hong Liang

Asia Correspondent

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