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    March 31, 2016

    Kedah in the Pan-Eurasian Great Game of the 21st Century - A Geopolitical Analysis

    March 31, 2016 -
    Wan Fayhsal, Katehon

    There’s something big going on in Kedah at present. International events have rekindled the prospect of Kedah – which sits at the tip of Malaysian Peninsular – to be one of the most important pivots for Pan-Eurasian integration.
    The removals of sanction on Iran by the United States of America (the US) and the potential naval escalations in South China Sea have ramped up Beijing’s geo-economic diplomacy across Africa and Asia.
    Beijing’s ultimate goals are: (1) to secure strategic access to natural resources and (2) to preserve its trade routes by way of diversifying its transportation channels in reducing potential risk such as unwanted blockades or unforeseen security threats that could falter its day-to-day trade.
    To surmount these challenges, the People’s Republic of China (PRC) has increased their presence in these strategic areas and channels by way of financing and constructing massive logistical projects that are beneficial to both China and the host countries – a win-win situation. Malaysia especially Kedah also falls within this strategic scheme.
    For China, Kedah as a state in the Federation of Malaysia is not that crucial. Rather it is Kedah as the gatekeeper of the northern route of the Strait of Malacca that matters the most to its geo-economic interest.
    The strait, which begins at the mouth of Andaman sea, is a narrow maritime chokepoint, sandwiched between Island of Sumatra and the contiguous Malaysian Peninsular. It the past, the Strait of Malacca has traditionally served both the Eastern and the Western nations in vibrant economic and cultural exchanges. But in this modern age and time, the strait is not only able to maintain its relevance but also becoming more indispensable as many East Asian countries are highly dependent on the Strait of Malacca to secure safe passages for their vessels to connect with the Western hemisphere. Such over-reliance has become a real geopolitical sore point especially to the fastest growing economy in the world – China.
    Former Chinese premiere Hu Jin Tao had even coined the term “Malacca Dilemma”to reflect not only the importance of the strait but also the potential security setback for China. It is evident as the strait is the most important economic artery for China and the East Asian countries in securing almost 75% of their energy needs sourced from the oil-rich Middle East and Africa.
    Malaysia due to its traditional custodian role for the Strait of Malacca has always been in the radar of China especially at this time and age when the Middle Kingdom is increasingly expanding their trade outreach to the whole world. Such endeavor presupposes seamless integration especially via the Sea Lines of Communication (SLOC) where the Strait of Malacca is one of the most important SLOC that straddles between the East-West divide.
    Among all littoral states in Malaysia that are adjacent to the Strait of Malacca, it is Kedah that draws the critical attention from the policymakers in Beijing. They see Kedah as another potential addition to their strategic pivot in the region.
    Why all of sudden Kedah is considered a potential pivot or more interestingly as a ‘zipper’ for China? Some of the answers could be glimpsed through Gwadar, Pakistan.
    The first Pan-Eurasian zipper
    Former President of Pakistan General Pervez Musharraf in his speech to inaugurate the groundbreaking ceremony of Gwadar Deep Sea Port in 2002 described the whole region of Pakistan as an economic funnel that opens up critical access to the land-locked Central Asia. He also described Pakistan as China’s nearest corridor to the West and the Middle East.
    Being at the southern most tip of the funnel, Gwadar is not only serving the interest of Pakistan but also the whole region of Central Asia and China for their access to land-based route via the Karakoram highway as well as sea-based route of the SLOC that opens the door to the Middle East and Africa. Gwadar as a logistic and transportation hub that connects the sea with the land, really plays an important role for Pakistan as a funnel or in a more nuance metaphor – a ‘zipper’ for Pan-Eurasian integration.
    The concept of zipper for Pan-Eurasian integration was first comprehensively analyzed by Andrew Korybko in his article ‘Pakistan is the Zipper of Pan-Eurasian Integration’, published by Russian Institute of Strategic Studies (RISS).
    Korybko sees Pakistan as a very important transit point for energy routes flowing from the Middle East that can be distributed to the land-locked Central Asian states as well as China. Geo-strategically, Pakistan is linked to four important economic blocs: the Russian-led Eurasian Economic Union, China, Iran, and South Asian Association for Regional Cooperation (SAARC – stretches from Pakistan to Bangladesh with India as its important economic anchor). This made Pakistan, in the words of Korybko:
    “Uniquely poised to zip together a variety of economic blocs, taking advantage of both its convenient geography and China’s grand investment vision to make it happen”
    China sees this potential hence they took President Musharaff’s vision further by augmenting Gwadar’s role via the proposed China Pakistan Economic Corridor (CPEC) – a trans-Pakistan economic corridor which begins at the mouth of Persian Gulf where Gwadar lies, crossing the Karakoram highway and ends up at Kashgar, China.
    Kedah might not have the same geographical connectivity of Gwadar-Karakoram-Kashgar but it sure does offer great potential – by linking southward to the Island nations of South East Asia and Oceania in helping them to be part of the larger contiguity of Pan-Eurasian integration.
    Kedah could be made as an economic hub that receives goods and services from the South to be distributed in multimodal land-based routes to the East, North and West Asia.
    Kedah’s potential is not only confined to the land-based route. In terms of SLOC, Kedah possessed two natural islands: the Langkawi Island – a world-renowned tourism destination and the Bunting Island that could be utilized not only as a mere economic purposes but also for defense intents. The two islands especially Langkawi, are fronting the mouth of Andaman Sea and naturally positioned as the gatekeeper to the Strait of Malacca – one of the busiest straits in the world.
    Since Bunting Island is already connected to the mainland via a land bridge, Kedah could also be a gateway to the Andaman Sea and beyond by carrying the economic goods that are transported through the land route along the West coast of Malaysian Peninsular either via the trunk road of North South Expressway or the electrified double-tracking rail network.
    As these infrastructures are already in place, Kedah is set to become an important logistical and transportation hub for the Malaysian Peninsular as well as for the island nations of Indonesia, Singapore, and Brunei in securing their access to the Eurasian super continent via the land route.
    Existence of an alternative route will not only help to decongest the Strait of Malacca but also offer the possibility for cheaper transport options and will reduce the environmental impact by the thousands of ships sailing through the strait.
    The zipper in ZIPY
    From geo-economics perspective, the largest mega project in Kedah, which is Yan Petroleum Industrial Zone or better known as ZIPY in its Malay acronym has the biggest potential to follow the developmental trajectory of China-Pakistan Economic Corridor (CPEC) albeit in smaller scale.
    It is no longer a speculation but a possible future.
    The signing of the partnership agreement between Merapoh Resources Sdn Bhd (Merapoh) and China Energy H City Reality Investment Co. Ltd (China Energy)  – a company owned by the PRC government marked a major milestone to revive the delayed ZIPY project. It also opens other economic vistas which will not only benefits China and Malaysia, but the whole region of South East Asia and Oceania.
    Since 2005, the government of Malaysia had already approved the plan for ZIPY in which Merapoh – a special-purpose vehicle (SPV), was given the sole exclusive right after obtaining the necessary licenses and work permits to develop the whole of ZIPY.
    The agreement will give China Energy 70% stake in Merapoh subsequently making them as its major shareholder while the rest of the shares are in the hands of local party. Merapoh estimated the total investment in ZIPY to be roughly at USD 140 Billion (RM 520 Billion) – a herculean figure which would dwarf other mega projects in the country presently.
    With ZIPY, Malaysia through Kedah will play a very significant role as the ‘zipper’ for the both landed and maritime Silk Road, “One Belt, One Road” in ASEAN region.
    Kedah in the China-driven Silk Road
    China is not only investing in the logistic and energy sector but also in the fisheries – as demonstrated in the recently signed Memorandum of Understanding between China-based Qingdao Lu Hai Feng Investment Co Ltd (Lu Hai Feng) and the Kedah State Development Corp (PKNK).
    They will jointly develop international fisheries centre especially for tuna in South East Asia through the establishment of the Kedah Integrated Fishery Terminal (KIFT).  The Kedah state government itself has recognized the project as part of Maritime Silk Road. By acknowledging Beijing’s strategic trade master plan, the state government hoped that it would spur further investment from the Middle Kingdom into Kedah.
    China-based Beijing Auto International Cooperation (BAIC) also has plans to make Malaysia a hub for its electric cars for the Southeast Asian market.
    But ZIPY remains the the crown jewel of China’s economic pivot to Kedah.
    According to Merapoh chairman Datuk Bistamam Ali, 8% of China's total need for refined oil – roughly equivalent to 350,000 barrels per day – and refined petroleum products will be supplied by ZIPY via its crude oil refinery and integrated petrochemical complexes.
    Both complexes will be fully designed and built by China Huanqiu Contracting & Engineering Corporation (Liaoning), a subsidiary of China National Petroleum Corporation (CNPC) and China State Construction Engineering Complex and Storage Corporation (CSCFC) respectively.
    China’s state-owned enterprises (SOEs) are not limited to the integrated complexes alone. Other key ZIPY infrastructure projects such as Multi-Purpose Marine Terminal, Floating Storage and Offloading Platforms, Crude Oil and Multi Products Interlinking Pipeline Systems as well as the Administrative and Staff Accommodation Complex will be built by the SOEs and financed by China state-owned banks such as The Import-Export Bank of China and Industrial and Commercial Bank of China (ICBC).
    In short, the involvements of China’s SOEs throughout the project value chain especially in its financing and engineering, procurement, construction and commissioning (EPCC) aspects of ZIPY do mirror the development model of China’s involvement in CPEC.
    The role of China National Petroleum Company (CNPC) is striking enough in CPEC. They not only secured the feedstock for their own-built refineries and petrochemical complexes from the Middle East, they would also be laying down network of pipelines that will connect these corridors and economic zones to China, Central Asia and potentially to Europe as well via the Russian existing infrastructures.
    CNPC too is going to build the same oil and petrochemical infrastructures for ZIPY. Although Merapoh corporate website described the intermodal transfer through high-speed electrified trains as the mean to connect ZIPY to the east-coast of Malaysian Peninsular, the original idea to build the Trans-Peninsular Pipeline and Bachok Offshore Oil Terminal in the state of Kelantan that fronts the South China Sea thus far is not being clearly spelled out.  Although some details are absence, the ZIPY impact is real and no longer mere speculation.
    Kedah and the String of Pearls
    By now it should be clear to us that ZIPY is indeed another addition to China’s string of massive logistic and energy projects as envisioned by the Central Committee in their Maritime Silk Road master plan. The commitment exemplified by Beijing on ZIPY is not far off from, if not similar to, its commitment in CPEC.
    The Chinese might have not acknowledged their possible long term plan to install their naval facilities at these sites but the prospect of ‘upgrading’ these special economic zones by co-opting them into their ‘String of Pearls’ – a network of military and commercial facilities along the SLOC of Indian and Pacific Ocean that connects China to resource-rich regions of Africa and Middle East – is not an impossibility.
    Continuous instabilities surrounding the gulf of Aden, piracy threat in the Persian Gulf, revelation of India’s Indian Ocean Strategy and maritime provocation in the name of Freedom of Navigation Operation (FONOP) by the United States of America (the US) in South China sea – all these events have spurred China to aggressively secure their strategic interest along these SLOCs through various ways and means – ingeniously fronted by using their economic and business vehicles especially their SOEs. On the first glance it is seen as harmless. Yet it lethal in nature as Beijing’s strategic ambiguity is usually designed to cater to their economic and security interest in a parallel manner.
    China’s strategic ambiguity in securing access to these SLOCs has not stopped them to build their first overseas military base in Djibouti – a clear signal of urgency to protect their assets and people at all cost. Such move was done in the middle of heightened tension in the recent war in Yemen that threatens the maritime chokepoint of Bab el-Mandeb – a gateway where nearly 13% of China’s oil imports pass through it.
    When things are spiraling out of control, China will not hesitate to flex their muscles anywhere in the world in the name of their national security that extends far and beyond their traditional border. Similar case can be seen in their strategy of anti-access and area denial (A2/AD) that is supported by their controversial Nine Dash Line interpretation of maritime border in the South China Sea.
    Such interpretation totally disregards the Euro-centric United Nations Convention on the Law of the Sea (UNCLOS) yet China still insisted to make use of the Nine Dash Line in the name of their sovereign rights at sea. It provides ‘legitimacy’ for China to continue with their land reclamations to build artificial islands around the Spratly Islands. All of these drastic moves are actually meant for China’s regional security and defense although never declared officially by Beijing.
    It’s not a surprise later if Kedah were to play the same role as these ‘pearls’. In case of Malaysia, Kedah is neither the first nor the last potential ‘pearl’. China is also building deep-sea ports for the state of Pahang (by upgrading the Kuantan Port) andthe state of Malacca. Both ports will be fronting the contentious SLOCs, where the former to the South China Sea and the latter to the Strait of Malacca. In the event of great emergency, both ports could be converted into the Chinese ‘pearls’.
    But among all of China’s logistical investments in Malaysia it is Kedah that holds the most crucial role to China’s geopolitical future. Being the northern most state of Malaysian Peninsular, Kedah is destined geographically to play an important role not only for Pan-Eurasian integration of South East Asian and Oceania region but also for China’s defense as demonstrated by the String of Pearls/Maritime Silk Road dual-strategy of economic and defensive postures.
    Strait of Malacca remains a critical pivot for China to control. It can be used by China as an insurance against the East Asian countries – the likes of Japan, South Korea or even the Philippines. These nations, being the strongest US allies in the region are traditionally viewed by Beijing as a collective threat to China’s national security. China is fully cognizant on how the US is leveraging unto these nations to further its containment strategy against China in South China Sea.
    In the worst-case scenario, Kedah as a China’s pivot could be turned into a deterrence option against the potential skirmishes and provocations in the South China Sea. The Chinese via Kedah as their ‘pearl’, which stands guard at the entrance of the Strait of Malacca could be used to ‘strangle’ the SLOC of East Asian nations especially the Island nations of Japan and Philippines. Their risk exposure is greater than China as they are relying heavily on the Strait of Malacca for their energy and economic route to the West.
    Such potential scenario will surely invite other global powers to counter check China in Kedah or in other parts of Malaysia especially the ever-vulnerable Borneo.
    As one of the five-veto nations in the United Nations Security Council, China is a global power that has all the latitude to secure their interests globally by any means necessary. With massive financial and technology capability at their disposal, not to forger their burgeoning manpower, China can easily realize their vision and missions just like how they have committed to Gwadar in Pakistan.
    Kedah is next in line for China. Through ZIPY, Malaysia will surely be inducted into this Great Game of 21st Century. It’s only a matter of time. Let’s pray our government is ready for this as at present we are nothing but a passenger or worse  – a spectator. 

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