Chinese Lessons for Myanmar’s Gold Rush

Chinese Lessons for Myanmar’s Gold Rush

China’s long-standing relationship with Myanmar offers lessons for newer investors seeking to capitalize on the country’s nascent opening.

The United States has shifted its policy toward Myanmar over the past two years, taking a number of steps to ease existing sanctions in an effort to promote democracy and economic reform. These reforms, including a new foreign investment law and an easing of rules for incorporating foreign companies, have drawn increased interest in Myanmar as an investment opportunity from the United States and other countries. China’s role in the changing Myanmar policy has not gone unnoticed, with Xi Liping of the Chinese Academy of Social Sciences stating, “There is no doubt that many inside the Chinese establishment interpret (the change in U.S.-Myanmar policy) as part of a larger U.S. strategy on China.” However, while China’s strategic role in the U.S.-Myanmar relationship has received much attention, there has been limited analysis of the impact of China on Myanmar’s growing economic importance.

China has enjoyed a dominant economic partnership with Myanmar since 1989, with the oft-used Burmese term paukphaw—sibling—conveying its deep nature. China’s government has granted Myanmar low-interest loans and technical advisors to help build new airports, roads, and a deep-sea port at Mergui. For its part, Myanmar’s government has provided China with resources, energy and access to the Indian Ocean. Since 2000, Myanmar has approved increasingly ambitious Chinese projects including the massive Myitsone Dam project, a major copper mine near Monywa and twin gas and oil pipelines from Myanmar’s coast to Yunnan’s fast-growing capital, Kunming, projects of major strategic importance for China. In May 2011, China and Myanmar signed a Comprehensive Strategic Cooperative Partnership, bringing the neighbors even closer. As Myanmar’s largest foreign investors and trading partners, China has channeled between US$14 billion and $20 billion into the country since 1988, counting for nearly half of Myanmar’s investment and more than a quarter of its trade.

In spite of the history of friendship and mutual economic importance, a growing number of challenges to Chinese influence have emerged in the past couple of years. Many of these challenges have been associated with Myanmar’s opening and have threatened China’s key interests. Billion-dollar infrastructure projects backed by Beijing, like the Myitsone dam and the Letpadaung copper mine, have been suspended amidst rising anti-Chinese sentiment among opposition parties and the public at large. This has spooked some firms and has resulted in Chinese foreign direct investment in Myanmar plummeting by nearly 90% last year. Stronger U.S.-Myanmar ties, as evidenced by the gradual lifting of sanctions and Naypyidaw’s participation in the Cobra Gold military exercises this year, have reinforced Chinese fears about Washington’s desire to contain it and provoked concern about Myanmar’s ability to mitigate Chinese insecurity in the surrounding waters. The Kachin conflict flaring in northern Myanmar has been a growing border concern for Beijing.

Much of the emerging limits to Chinese influences appear to be derived from festering resentment. Under the reign of junta chief Than Shwe, Myanmar’s generals and their business cronies grew rich from these Chinese contracts, even as one-third of Myanmar’s people lived under the poverty line. Myanmar’s people worry that Chinese investments and aid programs are like a Trojan horse. In the words of Hla Maung Shwe, vice-president of the Myanmar Chamber of Commerce, “The Myanmar people’s mindset is that Than Shwe was selling Myanmar to China. The Chinese come here, even their cooks, their drivers, they are all Chinese. This is not the right way. Resentment against China is growing in Myanmar.” Ko Ko Hlaing, Chief Political Advisor to Thein Sein, has been quoted as saying that Myanmar is returning to the policy of neutrality that it maintained during the Cold War.

In spite of this public outcry and impact, Myanmar’s reformist leadership has taken pains not to alienate China. Before Thein Sein visited the U.S. in September 2012 for the opening of the U.N. General Assembly, he made sure to visit China for a trade fair. “Myanmar is at present in a transitional phase, but it pays great attention to developing relations with China,” In contrast to Ko Ko Hlaing’s statement, Thein Sein has been quoted as saying. “[Myanmar’s] policy of seeing China as a true friend has not changed.” Ultimately then, it remains unclear whether China will be able to continue to utilize Myanmar as its strategic corridor into the Indian Ocean, or as a loyal supporter at the Association of Southeast Asian Nations.

Lessons from the China-Myanmar Relationship

From this historical understanding and current analysis of China’s influence in Myanmar, one can draw three principal recommendations of import to Myanmar’s new investors. These recommendations have the potential to strengthen the position of new investors and their respective states amidst Myanmar’s opening and China’s continue involvement.

1. Develop a Strengthened, Yet More Equal Business Relationship with Myanmar:

China has received a strong backlash from Myanmar’s public due to the perception that it has taken advantage of Myanmar through its extractive economic pursuits. With the next period in Myanmar’s history looking to be one of more active involvement with the global economy, China must increasingly compete with other countries eager to capitalize on an emerging investment destination. This provides an excellent opportunity for investors new to Myanmar, but one that must also be tempered with caution. New investors and their respective states should be wary of replicating China’s investment pattern both in terms of aggression and inequality. The risk of overly aggressive investment is that it has the potential to lead to a bidding war that China is not prepared to lose, inflating costs and provoking China and its state-owned enterprises. By pursuing a more equal method of investment, the new investors may develop a sustainable relationship with Myanmar buoyed by favorable comparison with China.

2. Support Myanmar’s Policy of Neutrality:

In spite of what China as well as the United States and partners may want, it seems unlikely that Myanmar will end up on one side or the other of the strategic competition any time soon. Although Myanmar is increasingly frustrated with China, it continues to make diplomatic attempts to not close off its relationship with China. Both Burmese and external sources have supported this understanding. Preeminent Myanmar expert David Steinberg asserts that while U.S.-Myanmar relations are the best they’ve been since 1948, Myanmar will follow a path that favors neither Washington nor Beijing. “They don’t want to be a client state of the U.S. any more than they want to be a client state of China,” Steinberg said. A former diplomat for Myanmar’s government agreed, suggesting that although a major falling out between Myanmar and China is unlikely, a return to the old days of paukphaw was even more improbable. This arrangement of neutrality, then, allows investment by all parties while limiting Chinese insecurity.

3. Assist in the Resolution of Myanmar’s Conflict with Minorities:

Few issues have the potential to cut directly to the interests of Myanmar, China, and new investors like Myanmar’s security and stability. The immediate impact of Myanmar’s conflict with its minorities on investment has already been made clear. The booming tourism industry faces the most vulnerability, with the negative impact quickly spreading to the retail and infrastructure sectors. Religious and ethnic violence could cause problems for supporting logistical work such as transport, and further widespread could create hazards to personnel operating in the vicinity that would be an additional disincentive for commercial development. These challenges to investors are multiplied by China’s involvement. There is a growing risk of a Chinese military response, with PLA units undergoing intense training on the China-Myanmar border. A military response by an insecure China could be devastating to foreign investment. While newly invested states cannot go so far as to commit troops or weaponry, they and their investors are capable of providing strategic advisement, diplomatic facilitation, and leverage to promote productive behavior on the part of the government.

While the recent shift in U.S. and partner policy from a hard-line position focused on ideals to a position of principled pragmatism has opened up great opportunity to investors, much remains to be decided. It will take a pragmatic analysis of not only Myanmar but of all major interacting factors—most importantly China—to avoid the still present traps of political risk. In looking at China’s history of engagement with Myanmar, one can see both profitable support as well as credibility-defeating manipulation. Myanmar’s new investors would be wise to learn from China’s successes and failures, being aware of strategic competition while not turning Myanmar’s gold rush into a zero-sum game.

Categories: Asia Pacific, Economics

About Author

Taylor Wettach

Taylor is a participant in the Government of Japan-administered Japan Exchange and Teaching (JET) Program. Previously, Taylor worked for the Office of the Senior Vice President for Asia and Japan Chair at the Center for Strategic and International Studies (CSIS). He graduated magna cum laude graduate of Georgetown University’s Edmund A. Walsh School of Foreign Service.