Cause for celebration for Prayut’s government, but is it premature?

The signing of a US$5 billion rail deal with China is a landmark for Prayut’s government. But who does the deal really benefit?

By Oliver Ward

The Thai government is celebrating the signing of a US$5 billion high-speed rail agreement with China, but the celebrations may be premature. To clear legal hurdles and pen the deal promptly, Prayut had to use his special powers to bypass Thai law. Without the legal protections of Thai law, Prayut opens Thailand up to Chinese contractors.

In this photo taken July 10, 2014, a man, right, walks along the rail track past moving and parked trains in Bangkok, Thailand. Thailand’s military government approved a massive budget to upgrade the country’s railways including high-speed rail that would eventually link with China as part of an eight-year plan to improve infrastructure, officials said Wednesday. (AP Photo/Apichart Weerawong)

The investment will provide a much-needed economic boost

The deal itself is something to celebrate. Thailand’s rail infrastructure is in dire need of improvement. The introduction of the high-speed rail system could help drive foreign investment to Thailand as the improved infrastructure will offer more logistical alternatives.

The network will feature a 410-kilometre stretch of track through Laos. This will connect Laos to the Thai port of Laem Chabang and increase the export capacity of the region.

The deal is particularly useful to promote investment in the Eastern Economic Corridor (EEC). Prayut’s government wants to increase industry and tourism in the Eastern region of the country and improved infrastructure would be the best way to achieve that.

But the deal plays into Chinese hands

To rush the deal through, Prayut had to bypass Thai procurement laws. The special exemption allows Chinese companies to design the project and undertake construction consultation. This will be of significant benefit to Chinese companies who can be contracted to work on the project. This means Thailand’s government might need to pay more for the project as there will be no open bidding on the procurement to get the best value for money. The Chinese are conducting the feasibility study. So, they are likely to recommend Chinese technology. All this will come at a cost to Prayut.

The decision to bypass Thai laws will also mean swathes of Chinese engineers and architects who have not been approved to work in the country and are not held accountable to Thai safety and environmental laws. The deal undoubtedly represents a boost to Thailand, but that boost will come at a price.

Prayut is using the deal to inch towards China

Thailand under Prayut is moving further within China’s orbit. In 2012, China became Thailand’s biggest trade partner. The 8.9 million annual Chinese tourists for year of 2016 made up 25% of Thailand’s tourism industry. Real estate investment is rising too. Buyers from China now make up between 10 and 20% of all real estate sales in Chang Mai, Pattaya and Phuket and 5% of the sales in Bangkok.

The shift towards China is also occurring in the military. The Thai navy signed an agreement in May worth US$393 million for the sale of a submarine. This purchase was the first of three expected submarine deals. A deal has also been reached with Chinese arms producer,

The closer Prayut moves towards the China, the further he gets from the US

As well as positioning himself closer to China, Prayut has distanced himself from the US. US troop numbers participating in joint exercises are down and an invitation to the White House has been postponed indefinitely.

This will make business sense to Prayut. The US invests US$11 billion in Thailand each year, but Chinese investments make up a colossal

A better relationship with China will suit Prayut at the moment. He is looking for investment in the EEC and the role as a client to China will serve the junta’s business interests far more than the US can at this time. China represents the bulk of investment in the country and the rail deal will provide a much-needed boost to the infrastructure in the region.

But Prayut must be careful. Chinese renminbi comes at a price. Bypassing laws to please Chinese contractors is an expensive and potentially dangerous gamble. The celebrations may be premature, Prayut needs to get his prize of a hefty investment in the EEC before he pops open the champagne.