China-backed SEZ set to transform transport and manufacturing ties between China, Laos, Thailand and Myanmar.

Bridge-building: BRI backing is boosting interconnectedness across Southeast Asia.

Late last month, the Thai government announced plans to develop a cross-border Special Economic Zone (SEZ) in the Chiang Khong district of Chiang Rai, the country's northern-most province. Once established, it is believed that the new SEZ will act as a nexus for a number of Belt and Road Initiative (BRI) related projects under way in the country, as well as in neighbouring Laos and Myanmar.

More specifically, the SEZ will connect with the existing Mohan-Boten Economic Cooperation Zone (MBECZ), which straddles the Laos-China border. Ultimately, it is anticipated that the zone will act as a hub for the growing economic interconnectedness between Thailand, Myanmar, Laos and China.

Laos' own economic zone development programme has met with considerable success to date and the MBECZ is proving to be no exception. A recent update from the Ministry of Planning and Investment showed that the country's 12 SEZs were already home to 350 Lao and overseas companies, representing total registered capital of US$8 billion, with $1.6 billion of that having already been actively invested.

At present, the SEZ programme has created 14,699 jobs, with 7,564 of these going to local workers. That number is expected to rise imminently following the announcement that a further 40 companies are to set-up within the Boten Specific Economic Zone, which forms part of the MBECZ's core offering.

The Mohan-Boten project, a joint venture between China and Laos, was established in September 2015 at a cost of about $500 million with a remit to focus on agriculture, biotechnology, logistics and cultural tourism. The site was originally developed by the Yunnan Haicheng Group and the Hong Kong Fuxing Tourism and Entertainment Group.

In addition to Mohan-Boten, there are a further two large-scale China-backed clusters in Laos – the Vientiane Saysettha Development Zone and the Vientiane Thatluang Lake Specific Economic Project. The MBECZ, though, has a unique significance in that it interconnects with the border crossing point of the China-Laos Railway, a major BRI project that will ultimately provide the backbone for high-speed train connectivity throughout much of Southeast Asia.

As a consequence, the MBECZ's international trade and finance areas have already attracted investment from many of the companies that are engaged in infrastructure construction activities throughout the country, as well as those actively working on the development of the country's hydropower facilities. It is, however, those businesses that are directly involved with the roll-out of the China-Laos rail link that are most widely represented.

Given the size and prominence of these businesses, it is perhaps reassuring that work on the rail link seems to be proceeding with few notable hindrances. As of March this year, the project was said to be already more than 25% complete and well on course for its officially scheduled 2021 completion date.

Since then, a number of other major project landmarks have been passed, including the completion of the construction work on a 1 km tunnel – the line's longest subterranean stretch – at the end of October. On top of that, the primary construction work on the 7.5 km Nam Khone Bridge – the widest-spanning structure along the course of the route – has also been completed.

In a sign of further progress, October saw China begin to export petroleum products to Laos via the Mohan-Boten border crossing for the first time. Amid much official fanfare, PetroChina delivered 64 tons of diesel to the local importer – the Nationwide Trading Petroleum Public Company – at the China-Laos border. Prior to this first batch arriving, all oil and petroleum shipments to landlocked-Laos had been routed via Vietnam or Thailand.

The opening of this new conduit was given added significance by its clear importance to the future of the recently sanctioned, BRI-backed Laos-China Economic Corridor. Given the numerous construction projects this will entail, demand for fuel across Laos is only set to soar over the coming years.

Geoff de Freitas, Special Correspondent, Vientiane

US$10 billion tourism-focused Khonphapheng Special Economic Zone project becomes latest China-Laos joint venture.

SEZ's: Set to boost employment prospects across Laos, while remedying infrastructure shortfall.

Laos' Belt and Road Initiative (BRI) backed infrastructure upgrades have enjoyed a busy few months of late. Not only has it been announced that work on the China-funded US$6 billion Laos-China Railway project had passed the 20% completion mark, but it has also transpired that the Lao government and the Guangdong Yellow River Industrial Group (GYRIG) have come to an agreement on the proposed development of a Special Economic Zone (SEZ) in the country's Champassak province.

The formal announcement follows the August 2017 signing of a memorandum of understanding between the two parties, which saw the GYRIG agree to review the overall viability of the project and to work on initial design concepts. With that review now completed, apparently to the satisfaction of all the parties concerned, GYRIG has formally committed to covering at least part of the $10 billion cost.

With the project officially designated as the Khonphapheng Special Economic Zone, it will be sited in the far south of the country, near to the Cambodian border. Set close to Pakxe, the provincial capital of Champassak, it falls within the highly scenic Siphandone region. Ringed by a number of national parks and adjacent to the Khonephapheng Falls – the mightiest waterfall in Southeast Asia – it is a region that already attracts thousands of tourists a year. Handily, it is less than 400km by road from Siem Reap, Cambodia's prime tourist destination, and its nearby international airport.

According to the strategic agreement between the Laos authorities and the Chinese contractor, the SEZ will be built in two phases, with the first scheduled to be completed by 2025. This initial stage will focus on ensuring all the zone's required infrastructure is in place, including roads, utilities and drainage facilities.

The second phase will then involve the construction of the actual on-site commercial properties, including several restaurants, a shopping centre and range of other tourism-related businesses. Over the long-term, there are also plans in place to construct a dedicated air-transport facility. In total, the project is estimated to require about 9,000 hectares of land, of which 7,000 has already been allocated.

This will not be the country's only Special Economic Zone, with the first such site developed in 2002. Today, there are 12 Special Economic Zones in operation, which are in total home to 377 domestic and overseas companies extend across a combined area of 19,612 hectares, and represents total registered capital of $8 billion.

The Lao government is now committed to building 41 further special and specific economic zones, with a combined target of creating 50,000 new jobs. It is hoped that the programme will boost local yearly  per-capita income by as much as $2,400, almost double its current estimated level.

In line with this, in July this year the government introduced a wide-ranging new package of tax breaks, all of them related to Special Economic Zones. As part of this raft of incentives, any SEZ developer that pursues a programme of road construction or ensures the provision of electricity, water or draining services will be granted an exemption from all VAT charges, while other SEZ-related construction activities will only incur VAT at 50% of the statutory rate.

Furthermore, any SEZ developer investing in industrial production, tourism, the services sector, healthcare, education or real estate will be entitled to a 16-year corporate tax exemption in all Zone 1 locations and an eight-year exemption in all Zone 2 locations. Once these initial exemption periods expire, companies will then be taxed at the country's statutory corporate rate of 24%.

In terms of further incentives, any production facility with a 100% focus on the export sector will be entitled to pay VAT at a reduced rate. At the same time, any overseas investor that buys land or rents property in any of the designated zones will enjoy a number of visa privileges.

An overseas investor purchasing property in any such zone with a value of $100,000 or above, for instance, will be automatically granted multiple entry visas for themselves and their family. These visas will be valid for up to 10 years and may be extended at the government's discretion. In the case of any non-Laos resident renting an apartment within the perimeter of one of the designated zones, they will automatically be entitled to a three-month, multiple-entry visa.

Geoff de Freitas, Special Correspondent, Vientiane

Concerns over China's geopolitical intentions remain a challenge for Belt and Road projects in Southeast Asia.

High-speed rail: A test case for BRI readiness across Southeast Asia.

The Belt and Road Initiative (BRI) has not moved quite as quickly in Southeast Asia as it has in South or Central Asia. This is partly down to ongoing tensions in the South China Sea, which have raised concerns among some countries in the region as to China's geopolitical intentions.

At present, the 10-member Association of Southeast Asian Nations (ASEAN) is caught between these concerns and a desire to enhance its already strong trade relations with China. Overall, there is a recognition that the region would benefit from BRI-driven investment, with the Asian Development Bank maintaining US$1 trillion needs to be spent on infrastructure development by 2020 just to maintain current growth levels.

Xue Li is the Director of International Strategy at the Beijing-based Chinese Academy of Social Sciences' Institute of World Economics and Politics. Outlining the challenge facing the BRI, he said: "We haven't done enough to attract countries in Southeast Asia. On the contrary, their level of fear and worry toward China seems to be rising."

For Southeast Asia, the Singapore-Kumming Rail Link is something of a test case. This high-speed link will run through Laos, Thailand, and Malaysia, before terminating in Singapore, a total distance of more than 3,000km. To date, though, not everything is going the way China might have preferred.

In Laos, construction has been delayed. It is also likely that all of the work will have to be paid for by China, as Laos cannot afford the $7 billion required. In Thailand, meanwhile, negotiations have broken down. The Thais now want to build only part of the line – short of the border with Laos – and finance it themselves without Chinese involvement.

As to which company will build the Singapore-Malaysia stretch, that will be decided next year, with Chinese – as well as Japanese – firms emerging as the current frontrunners. Across the board, though, there is unhappiness at what is considered excessive demands and unfavorable financing conditions on the part of the Chinese. Back in 2014, Myanmar pulled out of the project, citing local concerns over the likely impact of the project.

A similar situation has now arisen in Indonesia. The $5.1 billion Jakarta-Bandung High-speed Railway Project, seen as an early success for the BRI, may now require significantly more funding. Indonesia is also unhappy at what it terms 'incursions' into its waters by Chinese fishing boats. It is, however, trying to downplay their significance as a 'maritime resource dispute' in a bid not to deter Chinese investment in the country. The Philippines is, by comparison, less conciliatory, largely because China is not one of its key trading partners. At present, the Philippines and Vietnam are the ASEAN nations most cynical with regards the ultimate intentions behind the BRI.

Singapore, a country with no direct stake in the South China Sea, remains strongly committed to the Initiative. In March this year, Chan Chun Sing, Minister in Prime Minister's Office, emphasised the importance of BRI as a means of improving links with China and its near neighbours.

He said: "The BRI represents a tremendous opportunity for businesses in Singapore – as well as in the wider Southeast Asian region – to work more closely with China. The more integrated China is with the region and the rest of the world, the greater the stake it will have in the success of the region. The more we are able to work together, the more it will bode well for the region and the global economy."

In line with this, this year has seen a number of Memorandums of Understanding (MOUs) signed between China and Singapore. Back in April, one such undertaking was signed between International Enterprise Singapore (IES) and the state-owned China Construction Bank. Under the terms of the memorandum, $30 billion is now available to companies from both countries involved with BRI projects. At present, the two organisations are in discussion with some 30 companies with regards to developments in the infrastructure and telecommunications sectors.

In June, an additional MOU was signed between IES and the Industrial and Commercial Bank of China. This has seen a further $90 billion earmarked to support Singapore companies engaged in BRI-related projects.

Ronald Hee, Special Correspondent, Singapore