What is Malaysia's intention to extend the East Coast Rail Link project to the Thai border?

Author: Lu Yan

According to the media, recently, Malaysian Minister of Transport Loke Siew Hock proposed to extend the Malaysian East Coast Rail Project (hereinafter referred to as the "Malaysia East Railway" project), which is currently under construction, to the southern border of Malaysia and Thailand.

According to Loke, the aim is to connect the "East Malaysia Railway" with Thailand's existing or planned railways to promote economic ties between the two countries and maximize Malaysia's benefits. Currently, the railway is scheduled to terminate in Kota Bharu, the capital of the Malaysian state of Kelantan, about 40 kilometers from Thailand's southern border.

The "Malaysia East Railway" is a key cooperation project under the "Belt and Road" initiative jointly participated by China and Malaysia, and it is also the largest single transportation infrastructure project undertaken by a Chinese enterprise overseas. The project is undertaken by China Communications Construction Co., Ltd. Malaysia Branch, with a total length of about 665 kilometers and a total investment of about 10 billion US dollars.

The railway will connect the east and west coasts of Malaysia and will be the main transportation artery between the two sides of the strait when completed. As of March 2024, the project is 60% complete and is expected to be completed by the end of 2026, with operations scheduled to begin in 2027.

What is the purpose?

1. Malaysia intends to offset the pressure caused by Thailand's southern land bridge project through the "Malaysia East Railway" extension plan.

Malaysian transport experts believe that extending the "Malaysia East Railway" to the Thai border can strengthen the connectivity between Malaysia and Thailand, open up new routes for bilateral logistics, and reduce the cost and time of cargo transportation. Diversify transport options through the complementarity of rail and sea transport. This will balance the impact of Thailand's planned southern land bridge on Malaysia, offset the competitive pressure on Malaysia brought by the southern land bridge, and bring more economic development in the case of transportation connectivity.

Earlier, Thailand announced plans to implement a major land bridge project in its south, with the intention of creating a new trade route bypassing the Strait of Malacca by building a new port on each coast of Thailand. The plan has raised concerns about "regional competition" in Malaysia. In this regard, Malaysian Transport Minister Loke Siew Hock said that Thailand's planned large-scale land bridge project is expected to affect the northernmost port of Penang in Malaysia, while Malaysia's two largest ports, Johor Port and Port Klang, will not be affected.

Loke also believes that it could take at least 15 years for Thailand to start the land bridge project. At the same time, however, there is no positive correlation between the South Thailand Land Bridge project and the Malaysia East Rail Extension, which is aimed at the transportation of goods from eastern and western countries, and even if it is to compete with the South Thailand Land Bridge, the ASEAN Express train across Malaysia, Thailand and Laos is more suitable to connect to Port Klang.

2. Malaysia intends to promote its tourism and export benefits through the "Malaysia East Railway" extension plan.

Malaysian experts believe that if the "Malaysia East Railway" is extended to the Malaysia-Thailand border, it will have substantial market and economic benefits in terms of increasing the number of tourists and promoting export trade. According to Malaysia's international tourist data 2023, Thailand is Malaysia's third largest source country, with more than 2 million visitors throughout the year. The "Malaysia East Railway" connects the border between Malaysia and Thailand, providing greater convenience for visitors to southern Thailand, especially for Kuala Lumpur, which is expected to increase the willingness of southern Thai people to visit Malaysia, and then drive the growth of Malaysian tourists.

At the same time, if the "East Malaysia Railway" is extended to the Thai border, it will help Malaysia's exports in terms of freight transport, especially on the east coast, including more effective access to the Muslim market, which makes up a certain proportion of the population in southern Thailand. Malaysian Ministry of Transport officials believe that the unit cost of rail transport is lower than that of road transport, and for some commodities, even lower than sea freight. As a result, the extension of the Malaysian Rail Link to Thailand's border could increase the value of Malaysia-Thailand trade to about US$27.5 billion or more per year.

For example, the average cost of a 20ft container (ocean freight) from Bangkok to Kota Bharu (the northern starting point of the "Malaysia Railway") is about US$2,000, while the same container can be transported by rail at almost half the cost.

3. For China, the extension of the "Ma Dong Railway" is of no strategic significance and has certain debt risks.

Some analysts believe that in China's "One Belt, One Road" initiative, Southeast Asia is the "21st Century Maritime Silk Road", but when thinking about Southeast Asia, we cannot only think about "sea" and ignore the significance of the Pan-Asian Railway on land. Under the framework of the Trans-Asian Railway (Southeast Asia Section), from China's point of view, the "Malaysia East Railway" project lacks strategic significance, long-term planning, and no economic benefits. From the perspective of Asian strategy, the Trans-Asian Railway (Southeast Asia Section) has more far-reaching significance for China and the region. If the Trans-Asian Railway (Southeast Asia section) takes shape, the South China Sea may be less strategically important and can ease regional tensions.

In addition, the "Ma Dong Railway" is a financing project, and 85% of the construction funds come from loans from the Export-Import Bank of China. Malaysia believes that the "East Malaysia" extension will allow the country to maintain its dominant position as a key transport and trade hub, but this involves huge investment and risks cost overruns. If not carefully managed, additional construction and increased traffic activities may have an impact on the environment or the local economy. Under such circumstances, if the "East Malaysia Railway" extension plan is implemented, China, as the main lender, will face greater debt risk.

How should the mainland respond?

1. Conduct a scientific and reasonable assessment to confirm the feasibility of extending the "Ma Dong Railway".

Kota Bharu, the terminus of the Malaysian Railway, in Kelantan, Malaysia, is more than 10 kilometers from the Thai border, and the southern part of Thailand lacks infrastructure and currently has no railway lines, so if you want to connect the two places, you need to build a railway in Thailand.

This is not only a matter of funding, technology and security, but also requires political determination on the part of Thailand. This has invisibly increased the difficulty and uncertainty of the project. Therefore, it is recommended to jointly carry out a scientific assessment on the basis of full communication with Malaysia, Thailand and other countries to confirm the feasibility of extending the "Malaysia East Railway".

2. Expand the main body of investment and financing, and seek diversification of financing channels.

Strengthen the economic feasibility study of the project in Malaysia and Thailand and the assessment of the local debt burden and project solvency, and take the debt sustainability of the host country and the economic return of the project as the critical point to ensure the controllable debt and the safety of project funds. At the same time, with the help of international syndicated financing as much as possible and actively attract policy funds and direct investment from enterprises in the host country, the financing risk is diversified and reduced as much as possible.

3. Let the Malaysian side take the lead in the planning and engagement of the "East Malaysia Railway" extension plan.

The extension plan will inevitably encounter various challenges and risks, such as geopolitical risks, political changes in the host country, institutional and policy adjustments, media public opinion, public sentiment, natural disasters, etc. Therefore, it is suggested that the Malaysian side should put forward and formulate relevant plans, and be responsible for liaising with the Thai side, and the Chinese side will only be responsible for the construction and operation, so as to avoid the project being interfered with by political factors on the Malaysian or Thai side or from the civil resistance.