The "Dawei Port" and its impact on Thailand

        Soon after Thai private companies were stripped of their concessions for the Dawei Deep Sea Port Project, the Myanmar military seized power over their civilian government, resulting in changes in the political landscape in Myanmar and creating a new business contender. What will be the impact to Thailand when China also announces its intention to invest in this project in addition to Thailand and Japan, both of whom have wanted to invest in this project from the beginning?

        The Dawei Deep Sea Port Project is a major regional project of great interest to Thailand, because it will change the direction of regional logistics and is expected to unleash Thailand's true potential as a trading hub for ASEAN. The global trade route has now shifted from trans-Atlantic freight to trans-Pacific freight, since the United States and China have become the world's first and second largest economic powers. Over the next 30 years, the world's economic superpowers are expected to shift once again to be China and India, which will drive freight between the Indian Ocean and South China by leaps and bounds. When the trade routes shift again, the Indochina Peninsula will become a strategic economic area, and the Dawei Deep Sea Port will open up the Indian Ocean for Thai exports. Coupled with Thailand's infrastructure advantage compared to its neighboring countries, the flow of goods throughout the Indochina Peninsula, starting from the southwestern China region, will be more convenient and faster to transport through Thailand. Therefore, the Dawei Project will benefit Thailand doubly, as Thailand will be the center of a land bridge linking the Indian Ocean to the South China Sea.

        Concessionaires of the Dawei Deep Sea Port will also be granted a concession for development of the Dawei Special Economic Zone. This zone, if developed in accordance with the manufacturing and supply chain structure of the Thai economy, could strengthen Thailand's potential to become a manufacturing and supply chain hub in the region. KResearch believes that the Dawei Special Economic Zone will enable Thailand to drive regional supply chain integration by connecting to the supply chain of industrial estates throughout Thailand, especially those in the EEC, which are on the important Dawei-Bangkok-the EEC-Phnom Penh-Ho Chi Minh City logistics route in the region. In the future, Thailand’s industrial sector needs to be upgraded to high value-added manufacturing with an emphasis on exporting intermediate technology products, as well as assembling or producing finished products in countries with lower labor wages for export to ASEAN and other regions. Therefore, the Dawei Special Economic Zone will respond perfectly to the expansion and integration of Thailand's industrial sector.
 
        In addition, the Dawei Special Economic Zone is a potential location for investment in heavy industries that utilize natural resources to support market expansion in ASEAN and South Asia, such as the petrochemical industry, etc. At present, Thailand imports more than USD10 billion of crude oil from the Middle East and Africa every year to produce refined oil, plastic pellets and chemical products, mostly for domestic sale and exporting to ASEAN and South Asia. If Thai petrochemical operators invest in the Dawei Special Economic Zone, they will be able to significantly reduce the cost of transporting crude oil. At present, Thailand must transport crude oil indirectly through the Strait of Malacca, which adds about 2,000 kilometers to the transportation distance and takes about 3-5 days. Importantly, the transportation of refined oil, plastic pellets and chemical products from the Dawei Special Economic Zone to South Asia and the ASEAN region can be done quickly and easily. It can be said that the Dawei Special Economic Zone is a strategic area for Thailand's petrochemical industry.

        Thailand has already seen the huge benefits in the Dawei Project, so it is not surprising that Japan and China recognize such benefits as well. Japan has seen the benefits of building a new supply chain in Myanmar, such as the steel industry for construction or automotive manufacturing in Myanmar, for which the demand in ASEAN and South Asia continues to grow as the level of economic development increases. In addition, the automotive assembly industry is another industry with investment potential in Dawei, because Japan already has a supply chain in the automotive industry in Thailand; by adding a new lower-cost production base, Japan's integrated supply chain management in ASEAN will be more efficient. If Japan obtains concession for this project, Thailand may benefit from exporting auto parts to Myanmar to link the supply chain. However, Japan's investment in the Dawei Project may stall due to the seizure of power by the Myanmar military.

        On the other hand, takeover of power by the military may provide China with more investment opportunities in the Dawei Deep Sea Port Project, as China was the largest foreign investor in Myanmar under the previous military government which ended in 2011, and remains the main source of funds for the Myanmar government to date. Therefore, the military's takeover of power has not negatively impacted the prospects for Chinese investment in Myanmar, and the Chinese government is interested in investing in the Dawei Project as long as it is economically and geopolitically worthwhile. In the trade war and the battle for the title of world superpower with the U.S.A., investing in a port to avoid the Straits of Malacca through which more than 80% of China's imported oil must pass would be a good idea. As US military bases are located nearby, transporting oil through other routes such as Dawei Port and KyaukPhyu Port should all be good choices. Moreover, Dawei Port is an important trade route linking Bangkok, Phnom Penh and Ho Chi Minh City, and also connecting Guangdong Province, a greatly economically developed province in South China. This brings the port more trade advantages than KyaukPhyu Port, which connects Yunnan Province without passing through any important cities other than Mandalay City in Myanmar. Therefore, if China starts to build a supply chain in ASEAN to cater to the Chinese, Indian and ASEAN markets, the Dawei Deep Sea Port and Dawei Special Economic Zone shall be well positioned to meet the needs of Chinese businesspeople. However, if Chinese investors obtain concessions for the Dawei Project, Thailand will have to face Myanmar products produced locally by Chinese operators, which will enter the Thai, Cambodian, and Vietnamese markets and take market share away from Thai operators. It can be said that Thailand’s interest in the Dawei Project is not only in logistics and infrastructure, but also in industrial investment which shall affect Thailand's long-term competitiveness.

        At present, Thai private companies' seven concession agreements under the Dawei Project have been cancelled. The Thai companies can apply for investment protection under the ASEAN Agreement for the Promotion and Protection of Investments; however, the cancellation of concessions for the Dawei Project is related to Thailand’s important strategy to develop future industrial, trade and investment potential. Therefore, the Thai government delegation headed by the Minister of Finance has negotiated with the Myanmar government to find a way for Thai private companies to reobtain concessions for this project. As for other countries that may participate in the investment in this project in the future, Thailand should also open up to partner countries to utilize their industrial expertise and potential to reap the benefits of the Dawei Project.