MarketLine Blog

China’s OBOR project: Threatening the Singaporean transportation sector

Singapore’s location at the southern tip of the Strait of Malacca has allowed the country to position itself as one of the world’s major transportation hubs. Through this Strait travels practically all trade between the Indian and Pacific Oceans, and therefore trade going in and out of countries such as Japan and China will more likely than not pass through Singapore, especially if headed towards Europe, the Middle East and Africa. To emphasize its importance, almost half of all Chinese oil imports pass through Singapore, and the figure is even higher for Japanese oil imports.

However the regional dominance of Singapore as South East Asia’s prime transshipment hub is coming under pressure now, as China seeks to invest in a rival port of the same scale and stature as Singapore’s port, in neighboring Malaysia. The Melaka Gateway project will introduce competition in the Strait of Malacca, and encourage shipping companies to opt for the port offering the most competitive prices, reducing profits.

Further as part of its OBOR project, China is also seeking to diversify its trade routes and reduce its reliance on the Strait of Malacca. This has thus far resulted in the country investing billions of dollars in the infrastructure of neighboring countries such as Myanmar and Pakistan. China has already constructed an oil pipeline through Myanmar’s Kyaukphyu port, and is further looking to build pipelines through Pakistan as well, potentially even connecting the pipeline network to meet oil and gas rich Iran’s network,

Increased competition and movement away from Singapore of a significant degree of volume will have a strong impact on the Singaporean transportation sector, and the country’s ports will likely have to offer greater financial incentives in order to convince shipping companies to continue using their ports at the same levels as before.

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