Last Friday while much of the world was nursing the hangover of a decade of war and terrorism, economic turmoil and environmental degradation, China and its Southeast Asian neighbors took a big step toward regional integration with the launch of a new free trade area (FTA). The long term implications for Yunnan are massive.

China and the Association of Southeast Asian Nations (ASEAN) have now entered the first phase of an FTA, eliminating tariffs on around 7,000 items including fruits, vegetables, textiles and machinery. These goods represent roughly 90 percent of trade in the new economic bloc, which is the world's largest in terms of population and third-largest after the EU and NAFTA in terms of GDP.

The first phase includes China and the more developed ASEAN members: Brunei, Malaysia, Indonesia, the Philippines, Singapore and Thailand. On Friday these countries also launched the first phase of an FTA within ASEAN itself. The remaining members – Cambodia, Laos, Myanmar and Vietnam – will join the ASEAN China FTA in 2015.

Although it does not directly border any of the first phase countries, Yunnan has much to gain from the FTA's launch. It has water, air and highway connections to Thailand plus air links to Malaysia and Singapore, all of which are expected to become even busier trade routes. The launch of the FTA has long been viewed as a major milepost in the rise of Yunnan as China's gateway to Southeast Asia.

As some observers note, the FTA is more than just a step toward trade integration, it is also a major strategic achievement for China, whose political power in Southeast Asia already greatly surpasses that of regional rival India and is also seriously challenging American influence in the region.

China's soft power in Southeast Asia will undoubtedly grow in step with trade within the FTA, and much of this influence will be projected from Yunnan.

In the coming decade, China and Southeast Asia will become increasingly connected by a vast network of highways and rail which will provide cities in Yunnan with cheap overland access to markets in Myanmar, Laos, Vietnam, Cambodia, Thailand, Malaysia and Singapore. Seated at the northern end of this transport web, Yunnan is poised to become an increasingly important international trade hub.

The initiation of the ASEAN China FTA is a modern revival of the ancient tea and horse caravan routes from centuries ago known as the South Silk Road, which linked China with Southeast Asian markets as well as Tibet and India.

Total trade between China and Southeast Asia was US$100 billion in 2004 and US$231 billion in 2008, but this is just the beginning. Bilateral trade – much of which will be passing through Yunnan – is expected to double over the next decade.

Difficult as it may be to imagine, Yunnan's days as an economic and political backwater are officially over.

High-end hotel and spa developer Banyan Tree Holdings signed a cooperation agreement with Kunming Urban Construction Real Estate Development Co on Monday to build the luxury Angsana Hotel and Banyan Tree Villa in north Kunming's Platinum Avenue Business District, according to local media reports.

The double hotel development will make Kunming the third project location for Singapore-based Banyan Tree, which already has hotel and spa facilities in Lijiang and Ringha, near Shangri-la.

In addition to entering the Kunming market, Banyan Tree is also reportedly planning to build hotel and spa facilities in Dali, Chengjiang and Yuanyang, all of which will be built in conjunction with Kunming Urban Construction.

The Kunming Angsana Hotel and Banyan Tree Villa (see above image) will be 10 stories high and will feature eight restaurants and bars plus spa and meeting facilities. The Banyan Tree Villa will have 150 guest rooms and the Angsana Hotel will have 285 guest rooms.

Kunming Mayor Zhang Zulin, who spoke at Monday's signing ceremony, noted that the completion of the Angsana Hotel and Banyan Tree Villa will have a positive impact on Kunming's northern area, helping to solidify its position as a central business district and also raising property values in the area.

Image: shxb.net

Engineers from China and Australia are preparing to commence work on the last remaining stretch of track of the east trunk line of the Trans-Asian Railway, which will link Kunming and Singapore via Vietnam, Cambodia, Thailand and Malaysia, according to a Voice of America report.

The missing link in this rail line is Cambodia, which needs to upgrade hundreds of kilometers of colonial-era lines plus build a new east line to Vietnam in order to connect stations in China and Vietnam with Thailand, Malaysia and Singapore.

If Asian Development Bank (ADB) projections hold true, this section of the Trans-Asian Railway could be sending travelers and freight between Kunming and Singapore within two years, the report said.

The Cambodian government has split the job in two, with the contract for the west line - consisting of old lines originally built by the French - going to Australia's Toll Holdings. This line will connect Phnom Penh with Thailand and will also dip southward to the port city of Sihanoukville, one of the largest ports in the Gulf of Thailand.

China Railway Group holds the contract for carrying out a feasibility study to link Phnom Penh with Vietnam to the east through a 255-kilometer rail line passing through the Cambodian border town of Snoul, the report said. It was only last year that Cambodia and Vietnam signed an agreement that will allow their respective rail networks to connect.

Analysts believe that completion of the Cambodia section will provide a major boost to Cambodia's economy and its role within the region. In addition to multitudes of tourists, trains traveling the Trans-Asian Railway are expected to transport large amounts of bulk freight such as rice.

As with most large infrastructure projects in Asia, resettlement of people living along the proposed route is a variable that will determine when the project is completed. An ADB official said he expects the resettlement issue to be resolved without major difficulty, in which case travelers may be taking trains between Kunming and Singapore within two years.

Thailand topped the list of foreign travelers to Yunnan last year, with 185,390 Thais visiting the province in 2008, according to Kunming media reports citing Yunnan Tourism Bureau statistics.

Thai arrivals to Yunnan – which were up 94.6 percent on 2007 – are expected to continue to increase in 2009. Last year a 1,900 kilometer expressway linking Kunming and Bangkok through Laos opened, paving the way for buses and private cars from Thailand to drive into Yunnan.

Japan was the second-largest source of international visitors to Yunnan for the second consecutive year with 138,988 arrivals, down 5.7 percent from 2007. South Korea was the third-largest source of international travelers, followed by Malaysia, Singapore, the United States, France, Germany, The United Kingdom and Switzerland.

Travelers from the US totaled more than 100,000 for the first time, but perhaps the most notable statistic was the 659 percent increase in Indian arrivals to Yunnan, which totaled just over 25,000. Direct flights between Kunming and Kolkata in eastern India launched in late 2007.

Thai leisure and business travelers may be flocking to Yunnan, but Yunnan's presence in Thailand is also growing, with an estimated 100,000 Yunnanese living in Thailand.

The Thai-Yunnan Chamber of Commerce was recently established in Bangkok, highlighting the increased trade and business ties between Yunnan and Thailand, which are separated by less than 300 kilometers.

ADB, Singapore Cooperation Enterprise to focus on Kunming projects
The Asian Development Bank (ADB) and Singapore Cooperation Enterprise (SCE) signed a memorandum of understanding with the Kunming municipal government on Monday to cooperate on infrastructure improvements in Kunming, according to Singapore media reports.

Focusing on building 'commercially viable infrastructure projects', ADB and SCE will advise the Kunming government on how to attract investment in areas such as water supply, wastewater management and transport management. SCE's involvement suggests that more Singaporean firms are likely to take an interest in investment projects in Kunming.

Yunnan coffee to be sold at Starbucks outside of China
Starbucks announced that it will market coffee drinks made with beans grown in Yunnan in markets outside of China, the first time that Chinese-grown beans will get major exposure beyond the mainland.

"We are proud to offer our customers the opportunity to experience a truly world-class coffee from China," Starbucks Coffee International president Martin Coles, said in a statement on the company's website.

The while business in markets including the US is suffering, Starbucks is enjoying the beginning of what is expected to be a prolonged period of expansion in mainland China, where it currently operates 350 outlets.

The Yunnan blend – no international launch date has been given so far – will be marketed as 'South of the Clouds Blend', and will incorporate beans from Latin American and Asia Pacific farms. It will be available on a trial basis in Greater Chinese Starbucks locations from January 11 to February 19 of this year.

Despite enjoying a generally positive domestic reputation, Yunnan beans will face a major challenge in overcoming international concerns about the safety of food products sourced in China. Starbucks said it intends to work closely with farmers from Baoshan to meet company sourcing standards and eventually develop a 'superpremium' Yunnan blend.

Kunming government outlines 2009 goals
Kunming mayor Zhang Zulin (张祖林) announced the municipal government's short-term goals on Tuesday at the fifth session of the 12th Kunming People's Congress, according to local media reports.

According to government plans, economic development will be the primary goal, with emphasis on expanding demand via growth in investment and consumption. Improving the city's traffic infrastructure is near the top of the list, followed by several social programs including strengthening social security, improving the city's medical and education hardware and software and encouraging new hiring through preferential policies.

A feasibility study is underway for a new high-speed rail line between Shanghai and Kunming, construction of which is expected to begin in 2009, according to Kunming media reports.

The new rail line, which is scheduled to be completed in 2015 – around the same time that the rail network linking Kunming and Singapore is hoped to be completed – will shorten the travel time between Shanghai and Kunming from 37 hours to less than nine hours.

The Shanghai-Kunming passenger line (沪昆客运专线) will connect Shanghai and Kunming via the provinces of Zhejiang, Jiangxi, Hunan, Guizhou and Yunnan, passing through the major cities of Hangzhou, Nanchang and Changsha. Its target speed is reportedly 350 km/hr – compare to France's TGV and Japan's Shinkansen aka 'Bullet Train' which currently operate at 320 and 300 km/hr, respectively.

The cross-country line is part of a nationwide rail upgrade that has allocated 500 million yuan (US$73.2 million) in funds for Yunnan province alone.

According to China Rail Ministry plans, Yunnan will not only be on the receiving end of improved rail connectivity with central and eastern China over the next six to seven years, it will also improve its regional and internal rail network. Kunming Rail Ministry officials told local media that the following projects have also been approved:

• Lijiang to Shangri-la (Zhongdian): schedule yet to be made public

• Yunnan to Guilin – construction to start next year and finish in 2015

• A rail line around Dianchi Lake: scheduled for completion in 2010

• Guangtong to Dali: schedule yet to be made public

• Kunming to Yuxi: construction to start next year and finish in 2015

Cambodia and Vietnam signed an agreement on Saturday that will link the two countries' railways, an important step in the creation of a Southeast Asian rail network that will connect major cities and tourist destinations between Kunming and Singapore.

China will help Cambodia with completion of the rail link with Vietnam, according to an AFP report quoting Cambodian Foreign Minister Hor Namhong. The Cambodian segment of the 5,382 kilometer (3,344 mile) rail network is expected to cost more than US$500 million - Cambodia's domestic rail network is still in disrepair after a civil war that ended in the 1990s.

Improvement of Cambodia's rail connectivity with its Southeast Asian neighbors is expected to boost the country's small but fast-growing economy. Hor Namhong said that Cambodia-Vietnam cross-border trade in the first eight months of this year totaled US$1.7 billion.

The opening of rail traffic between Cambodia and Vietnam will add to existing Southeast Asian cross-border rail connections between Singapore and Malaysia and Malaysia and Thailand. Cambodia has a rail connection to its western neighbor Thailand – with which it has recently been engaged in a violent border dispute – but it has fallen into disuse.

Malaysia has called for a clear timetable for the completion of the rail network that will link Kunming with Singapore, a project that has been ongoing since 1994.

Yesterday Malaysian Transport Minister Ong Tee Keat told the rail network's 10th Special Working Group Meeting in Putrajaya, according to Malaysian media reports.

The 5,382 kilometer (3,344 mile) rail network will connect Singapore, Malaysia, Thailand, Myanmar, Laos, Cambodia and Vietnam with Kunming and other cities in Yunnan. The main obstacle to getting the network up and running is the existence of around 550 kilometers of gaps between rail lines around the region. According to Ong:


Ong said that despite concerns about rising costs of construction materials, Malaysia was not going to pressure poorer countries in the region – ie Cambodia, Laos and Myanmar – to meet the generally hoped-for completion target of 2015, although Malaysia's last gaps will be filled before then.


Once completed, the rail network is expected to greatly boost regional trade and tourism as well as contributing to poverty reduction in poorer areas throughout the region. It will also bolster Kunming's position as the primary Chinese logistics hub for trade with Southeast Asian countries.