04.10.2018

Myanmar faces hard choices over the true cost of participation in China’s Belt and Road Initiative

Initially embracing the opportunity to participate in China’s BRI, Myanmar is now sounding a note of caution about its exposure to Beijing’s projects and financing.

China’s Belt and Road Initiative (BRI) has raised a number of questions regarding security, development and governance, not just among Western countries but also in those along the routes of the massive Chinese investments. Myanmar is one apparent beneficiary that is starting to question its exposure to Beijing’s projects and financing.

Chinese investments have been vital to Myanmar as it seeks to catch up with the modernized world, notably in upgrading its infrastructure. The government of Aung San Suu Kyi’s National League for Democracy (NLD) initially embraced the opportunity to participate in China’s Belt and Road Initiative (BRI). This promised rich dividends from harnessing the country’s geographical location, connecting the Chinese manufacturing hub of Yunnan province to the Indian Ocean and its global maritime links.

But recently, Myanmar authorities have sounded a note of caution about over-exposing the country to Chinese money, operations, and good will. Officials have taken note of the fate of Sri Lanka’s BRI-funded project to develop the port in Hambantota, with Colombo failing to repay Chinese debts and having to hand over the facility’s operational and property rights for 99 years.

The Kyaukpyu development has been at the heart of the China-Myanmar Economic Corridor (CMEC), an operational memorandum of understanding was proposed by Beijing in November 2017 and signed by Naypyitaw just recently, on 9 September 2018.

“Lessons that we learned from our neighbouring countries show that over-investment is not good sometimes,” Myanmar’s Planning and Finance Minister Soe Win said in July 2018, in an apparent reference to the Hambantota development. In the same comments, widely reported by Myanmar media, he announced that Myanmar would be renegotiating the scale of its own BRI-supported deep-sea port development in the special economic zone of Kyaukpyu, on the coast of Myanmar’s western state of Rakhine. At a later instance he publicly expressed concerns of repeating the Sri Lanka experience and ending up in an ever bigger dependency on China as already is the case

  • Photo: Hambantota port docks two ships by Deneth17 (CC BY-SA 3.0)

The Kyaukpyu development has been at the heart of the China-Myanmar Economic Corridor (CMEC), an operational memorandum of understanding was proposed by Beijing in November 2017 and signed by Naypyitaw on 9 September 2018. The CMEC would see a network of connections including highways from Yunnan through Mandalay, the economic heart of Upper Myanmar, and then forking out to Yangon in the south and on to Kyaukpyu, but the exact details of the mega deal remain unknown to the public 

The development of the deep-sea port alone was initially slated at 7.5 billion US dollars. The project has now been dramatically scaled down, to 1.3 billion dollars, according to advisors of Aung San Suu Kyi, quoted in several news reports in late August. The Chinese state-owned Citic Group, the contractor responsible for construction, has not confirmed the change.

With half of Myanmar’s external debt, or 9.6 billion US dollars, already owed to China, the concerns of dependency and vulnerability are understandable.

Kyaukpyu was already of strategic importance to Myanmar-China relations, as the starting point of an oil-and-gas pipeline to Yunnan that bypasses the bottleneck of maritime freight through the Straits of Malacca. The CMEC would build on this and bring much-needed development potential to Myanmar’s western state of Rakhine, one of the least developed parts of a country itself a member of the group of Least Developed Countries (LDC).

Even before Myanmar embarked on democratization in 2011, some Chinese projects including the Myitsone hydropower dam and the Letpedaung copper mine were abandoned or discontinued. 

China’s eagerness to fund and implement infrastructural development is particularly attractive to the Naypyitaw administration as alternative options for massive foreign investment are becoming scarce given the recent estrangement with the West over the Rakhine crisis.

Megaprojects often miss more basic development goals of countries like Myanmar, for example job creation and industrial upgrading. 

In recent years, Aung San Suu Kyi and the civilian-led government have realigned their relationship with Beijing through intensive shuttle diplomacy, appreciative of the Chinese role in the Myanmar peace process and the history of close strategic relations during the time of military governments. In May 2017, Suu Kyi signed a memorandum of understanding with Beijing to join the Bangladesh-China-India-Myanmar Economic Corridor (BCIM-EC) and the more prominent China-Indochina-Peninsula Economic Corridor (CIPEC). 

But concerns over the potential long-term price of the BRI for country’s sovereignty have resulted in a dramatic scaling-back of other projects besides the Kyaukpyu port. Even before Myanmar embarked on democratization in 2011, some Chinese projects including the Myitsone hydropower dam and the Letpedaung copper mine were abandoned or discontinued due to popular resistance, grievances of local population and concerns about fair gain distribution between China and Myanmar. 

Prioritizing gigantic projects disregards problems, often cited by foreign companies, for example in the food-processing and electronics sectors, as reasons for withholding investments: stable electricity supply, logistical accessibility and improved regulations for business.

The willingness to moderate its ambitions is a good sign for Myanmar. Its infrastructural needs are dire, but foreign-funded mega projects, although appealing to the rulers, might not be the best way to make the country attractive for investment and competitive with its neighbours. Massive investments by regional competitors are often instruments of regional power games, be they the Chinese vision of the Belt and Road, or counterbalance attempts by India or Japan. Furthermore, megaprojects often miss more basic development goals of countries like Myanmar, for example job creation and industrial upgrading. Spreading the positive effects of major infrastructural investments is also a problem, with Chinese companies using their own machinery and personnel for construction purposes and thus retaining a major part of the money.

Prioritizing gigantic projects disregards problems, often cited by foreign companies, for example in the food-processing and electronics sectors, as reasons for withholding investments: stable electricity supply, logistical accessibility and improved regulations for business.

The outcome of the Kyaukpyu negotiations will set the tone for future BRI projects, but also—if handled successfully—show a higher grade of ownership of the NLD government over its economic development strategies. The trade-off between improving the economic situation and maintaining room for geopolitical manoeuvrability has a lot of pitfalls and keeps the government of Myanmar evaluating its options.

“There is no alternative” is never a good last argument.

### 

Alexey Yusupov is Director at FES Myanmar Office based in Yangon. For more information on the work by FES in Myanmar contact the team and follow the facebook fan page for daily updates. 

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