China Is Selling Thailand a Submarine. Problem Is, No Engines.
The deal stipulates the use of German diesel engines that Germany won’t export to China
By
Niharika Mandhana
Mar. 14, 2022 5:30 am ET
SINGAPORE—The submarine that China is building for Thailand is missing something: engines.
The deal calls for China to equip the submarine with diesel engines made by Germany’s MTU Friedrichshafen GmbH, according to a Thai navy spokesman. But Germany is barring export of the engines to China, strictly applying a European Union arms embargo imposed in 1989, after Chinese authorities used deadly force against protesters in
Beijing’s Tiananmen Square.
That creates an embarrassing situation for China. The $410 million deal was one of two seen as milestones in China’s defense-export ambitions and became a symbol of closer ties between Beijing and Thailand, a U.S. ally. The other is the multibillion-dollar sale of eight submarines to Pakistan, which declined to say whether the deal calls for German engines. Germany didn’t respond to requests for comment on the matter.
On the Thai deal, however, Germany’s defense attaché in Thailand, Philipp Doert, said last month in the Bangkok Post that the export of diesel engines was refused because it was for a Chinese military or defense-industry item. China hadn’t consulted with Germany before signing the contract offering the MTU engines, he said.
China’s foreign ministry told The Wall Street Journal that the embargo “has long been inconsistent with the current international situation, the development of China-EU relations and the comprehensive strategic partnership between China and the EU.” It expressed hope that the EU would “make a correct decision as soon as possible.”
Some European governments pushed to scrap the China arms embargo in 2005, drawing objections from the U.S., which argued that such a move would hurt the balance of relations between China and Taiwan. But the embargo has never operated as an all-out ban. EU nations’ differing interpretations have made room for certain exports to continue. Items that have both civilian and military uses, for example, are sometimes allowed.
The original plan to buy three submarines was cut back after a public outcry over the cost that included this Bangkok protest in September of 2020.PHOTO: ANDRE MALERBA/ZUMA PRESS
For a time, German-made diesel engines fell into that category, said Siemon Wezeman, a senior researcher with the arms-transfer program of the Stockholm International Peace Research Institute. The institute estimates that 56 MTU diesel engines have been transferred to China since 1989 for Song-class attack submarines. The database also shows that at least 26 MTU engines were used in Chinese destroyers.
But the submarine needle has moved. MTU said last year, responding to a report by German television broadcaster ARD and newspaper Welt am Sonntag, that in the past it had delivered engines for Song-class submarines—sales it said were approved by German authorities. But since then there had been a change in the regulations, the company said in the statement it shared with the Journal.
“We have finally discontinued the supply of engines for Chinese submarines,” it said.
MTU didn’t respond to a request for comment on when the regulatory shift occurred, and declined to comment on the Thai case. Germany’s foreign ministry didn’t respond to a request for comment on the shift.
The submarine for Thailand, called S26T, is an export variant of the Chinese navy’s Yuan-class submarine, a successor to the Song-class subs. As of December 2020, China hadn’t supplied Yuan-class submarines to any country, according to the U.S. Department of Defense’s 2021 report on military developments involving China.
Since China can’t comply with Thailand’s engine requirement, the terms of the deal need to be amended in a way that doesn’t disadvantage the Thai navy, said naval spokesman Vice Admiral Pokkrong Monthatphalin. The two sides are in talks and China has offered other engines, but no agreement has been reached, he said, adding that the submarine’s delivery could be delayed as a result.
Negotiations over defense contracts rarely play out publicly, but the problem with the engines emerged after the Bangkok Post published a story last month saying Germany’s objection was that China would use them in a submarine to be sold to a third country, in this case Thailand. The German defense attaché, Mr. Doert, responded the next day that the problem wasn’t the engines’ ultimate destination, but that they were first going to China’s defense industry.
The deal was already the center of a national controversy in Thailand. Authorities had originally planned to buy three submarines for nearly $1.1 billion, but delayed the purchase of two after a public outcry over the cost as the
pandemic ravaged the economy.
Experts say countries shopping for sophisticated arms may think twice about buying from China if their orders involve EU components, given the possibility of delays and cost overruns.
“Future clients may have to consider those risks when they evaluate Chinese bids,” said Collin Koh, a research fellow at Singapore’s S. Rajaratnam School of International Studies. “Given the prevailing strategic environment where China is facing a growing Western clampdown on tech, Beijing may possibly lose potential arms sales and even the prospect of expanding its market outreach to clients that fall outside its traditional sphere of customers.”
Wilawan Watcharasakwet in Bangkok contributed to this article.
Write to Niharika Mandhana at
niharika.mandhana@wsj.com
When Thailand ordered a submarine from China, the deal specified a particular diesel engine from Germany. But the German government said no.
www.wsj.com
Thailand’s Chinese submarine order hits snag after Germany’s export embargo on MTU engines
- The first Yuan Class S26T worth US$408 million is being assembled without German engines as promised, said a Thai opposition lawmaker
- German military attaché says German engines cannot be used in Chinese military and defence items
Thailand’s purchase of a Chinese-made Yuan Class S26T submarine worth 13.5 billion baht (US$408 million) has stalled over the manufacturer’s failure to obtain German-made diesel engines as stipulated in the contract.
State-owned conglomerate China Shipbuilding & Offshore International signed an agreement with Thailand’s Navy in 2017 for the submarine. The Thai navy said the deal was a government-to-government type, however, it bypassed any approval from the military-backed appointed parliament or the office of the auditor general.
The first vessel is expected to arrive in 2024, but a Thai opposition lawmaker – who was on the parliamentary subcommittee scrutinising the navy’s budget for the 2021-22 financial year – revealed last month that the submarine was being assembled without the engines.
Thailand’s purchase of a Chinese-made Yuan Class S26T submarine worth 13.5 billion baht (US$408 million) has stalled over the manufacturer’s failure to obtain German-made diesel engines as stipulated in the contract.State-owned conglomerate China Shipbuilding & Offshore International signed an agreement with Thailand’s Navy in 2017 for the submarine. The Thai navy said the deal was a government-to-government type, however, it bypassed any approval from the military-backed appointed parliament or the office of the auditor general.
The first vessel is expected to arrive in 2024, but a Thai opposition lawmaker – who was on the parliamentary subcommittee scrutinising the navy’s budget for the 2021-22 financial year – revealed last month that the submarine was being assembled without the engines.
Yutthapong Charasathien of Pheu Thai, the party linked to exiled premier Thaksin Shinawatra, told a press conference on February 27 that China was currently facing a problem in obtaining engines made by German manufacturer MTU.
“Why didn’t Thailand deal with countries that can produce their own submarine’s engines? Why would the Thai navy continue with the plans to buy the second and the third when the first one did not get an engine yet? I still insist the purchase is not transparent,” he said.Yutthapong and other opposition lawmakers were part of a minority group that opposed the vote to approve the navy’s procurement of another two submarines in 2020. The navy recently delayed the budget proposal of the two vessels worth 22.5 billion baht citing the state of the Thai economy due to Covid-19.
It followed a backlash from the Thai public who slammed the deal as being extremely inappropriate given the economic situation, saying the country should use its funds to obtain vaccines for the population.
Thailand, despite being one of the United States’ two security treaty allies in Southeast Asia, has grown closer to China and relied on Beijing as its arms supplier since former general Prayuth Chan-ocha first took control of the country in a 2014 coup.
The submarines would have been Thailand’s first such vessels – its neighbours Malaysia, Vietnam, Singapore and Indonesia already operate submarines. The Thai navy said the submarines would help prevent intrusions into the Gulf of Thailand and would also strengthen maritime security, in light of a growing US-China rivalry and the heightened risk of incidents in the South China Sea.
Yutthapong said that there was a possibility that the submarine contract between Thailand and China had to be revised to accommodate the installation of Chinese, instead of German, engines.
Philipp Doert, Germany’s Federal Military Attaché to Thailand, in a letter published by the Bangkok Post last month, clarified the country’s position on the matter. He said Germany did not refuse to export the engine for the submarine because it was being used in a third country, Thailand.
“The export was refused because of its use for a Chinese Military/Defence industry item. China did not ask/coordinate with Germany before signing the Thai-China contract, offering German MTU engines as part of their product,” he said.
The navy has faced questions from the public about whether it had prior knowledge of German policy. A day after Yutthapong’s press conference, the Thai navy spokesperson said Germany’s embargo policy was “the problem that China needed to sort out”.
He added that the Thai navy had agreed to the S26T submarine to be installed with three German-made MTU396 engines and that the agreement should be followed through.
“The Thai navy is now working with [the Chinese shipbuilder] to try to find a solution together,” said the spokesperson.
Termsak Chalermpalanupap, a Thailand specialist who is a visiting fellow at Singapore’s Iseas-Yusof Ishak Institute, said the navy had clarified that it learned of the German restriction only after placing its order for the first S26T submarine.
But during this period, it had continued to tell “the Thai public that the China-built submarine will be equipped with the Germany-made modern diesel engine with the AIP (air-independent propulsion) system for silent operations under the water,” he said.
As China and Thailand had good relations, he believed both sides would find a solution. If not, the Thai navy would have to negotiate with the Chinese state-owned shipbuilder.
“I suspect the latter might not have disclosed the German restrictions when it dealt with the [navy] If this was the case, then the [navy] will have a good reason to cancel the contract and get a refund,” he said.
The Chinese embassy in Thailand did not reply to an email requesting comment.
Still, Thai media reports say China is currently proposing to transfer two Song-class decommissioned submarines to Thailand. It transferred a Ming-class UMS Minye Kyaw Htin to the Myanmar navy in December, a year after Myanmar received a Kilo-class submarine from India in 2020. The Thai navy has not commented on this.
Yutthapong, who in 2020 was threatened with a defamation lawsuit by the Thai navy, also questioned why China Shipbuilding & Offshore International won the bid to build berthing facilities for submarines in Thailand’s eastern Sattahip naval base. He added that construction has not progressed as planned.
In response, the Thai navy said construction of the 857 million baht berthing facilities, which began in April 2021 and is set to be completed in 2023, was according to normal bidding procedure. It added that the CSOC was also fully authorised by China’s State Administration of Science, Technology and Industry for National Defence to proceed with the submarine contract with Thailand.
Thailand-based security analyst Paul Chambers said China would need to “convince Germany that it is in Berlin’s national interests to allow an exception to the embargo [on the engine].”
“The submarine deal is one of the most expensive single weapons purchases the Thai navy has ever made. One question exists too – to what extent [the Chinese shipbuilder] … is unofficially required to follow the mandates of Beijing.”
Chambers added that China’s offer of the decommissioned submarines showed it had a military surplus and wanted to maintain close military relations and military diplomacy with Thailand.
“Most likely, the two countries potentially have too many joint interests to let a submarine mishap divide them. But I am sure that if Thailand does not receive from China what she paid for, she will demand some form of compensation,” he said.
Chinese shipbuilder’s Yuan Class S26T has three diesel engines by manufacturer MTU. But the German military attaché to Thailand says German engines cannot be used in Chinese military and defence items.
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There was a Janes report a few months back claiming the PN is interested in 2 Type 214s via Turkey (i.e Reiss-class, which Turkey and Germany were jointly marketing). No other details.
Since you raised this point. I guess Pakistan is onto something. Main Gripe of Germany is they won't sell engines to China because subs being made in China. Just read the above 2 articles I posted.
But what if sub manufacturing transfer to Pakistan and Pakistan uses Turkey to purchase those german engines., claiming they are for Type 214.
Germany refused AIP modules for chinese subs for the same reason they are refusing engines. It is a chinese product. Interesting times ahead, lets see if Pakistan is able to circumvent the Ban of engines by indigenizing the product