Chinese Methods Facing Pressure

By William Boot 1 January 2013

They are Myanmar’s biggest investors, but wherever their money goes, controversy and protests follow. Now the Chinese are facing growing competition for big contracts from the Japanese and South Koreans and, perhaps, soon the United States as well.

Chinese state or state-linked firms have focused on tapping into Myanmar’s natural resources—gas, hydro-energy, copper and timber—and hauling it off to China. But none of it has happened without allegations of land theft, displacement or environmental damage.

Observers say that China’s growing commercial influence in Myanmar was one of the factors which pushed the former junta generals to finally reform and open the country up to other investors. It is certainly true that one of the first major acts of the Thein Sein presidency was to stop Chinese construction of the controversial hydroelectric dam at Myitsone on the Ayeyarwady River.

Not only would most of the electricity generated by the project be pumped to China’s neighboring Yunnan Province, there would be massive relocation of communities and damage to fisheries and the downstream environment, numerous NGOs have said.

“Over the past two decades Burma’s leaders have become increasingly uncomfortable with their dependence on China for trade, aid and arms transfers,” said Ian Storey, a senior fellow at the Institute of Southeast Asian Studies.

“While their desire to reduce that dependence may not be one of the central drivers of the current reform process, it’s clear that their move to broaden the country’s foreign relations will ultimately erode China’s political influence and economic interests,” said Mr Storey in a commentary for the Singapore-based think-tank.

Myanmar anger at the cavalier attitude of many Chinese firms operating inside the country has even led to criticism from within China regarding their business practices.

“The reason why Chinese enterprises often become a target of criticism in [Myanmar] is that they lack a clear understanding of the national situation, especially the complicated interest pattern in the country,” commented Bi Shihong, a professor of the Institute of International Studies at Yunnan University.

“Chinese enterprises haven’t given enough attention to other interest groups besides the [Myanmar] government and its local partners. And they haven’t communicated well with the local NGOs and communities. [They] should pay more attention to these challenges when investing in Myanmar.

“They should take into consideration the interests of the central [Myanmar] government, local governments and local communities, so as to benefit all sides,” said Prof Bi in the Beijing Global Times, which is owned by the official Chinese news agency Xinhua.

This is a severe scolding for Chinese firms in Myanmar, but it may be too late for Beijing to redeem itself. Japanese and South Korean investment is pouring into Myanmar for vital projects to improve infrastructure—something China has never shown any interest in.

A consortium of major Japanese industrial conglomerates, led by Mitsubishi Corporation, is spending billions of dollars to develop Myanmar’s first special economic zone (SEZ) at Thilawa, adjoining the port just south of Yangon. And Korean companies are to build Myanmar’s first major new electricity generating station of which none of the power will be exported.

“It is interesting that Chinese business has shown no interest in investing in a [SEZ] at Dawei. I think that is a reflection of the fact that they see no benefit to China from it,” regional energy infrastructure analyst Vincent Lomax told The Irrawaddy from Hong Kong. “China has built its exclusive port on the central coast at Ramree Island to serve its purpose of transshipping crude oil through Burma.”

Dawei is a stalled project proposed by Thailand for an oil transshipment port with a refinery and petrochemicals plants.

“The Burmese are probably right to question China’s motives in their country because everything they have invested in concerns extraction of raw materials or the use of Burma as a conduit. They do this wherever they go in the world,” added Mr Lomax.

The contest for Myanmar’s resources has yet to begin in earnest, however.

“Small Chinese companies as well as big state enterprises are casting their eyes on neighboring [Myanmar] as it opens its economy to foreign investment,” said an assessment by the Financial Times.

One in particular, China Polymetallic Mining, is keen on exploiting Myanmar’s lead, zinc, silver and copper resources.

China Polymetallic is privately owned and listed on the Hong Kong stock exchange but it is being backed by the Yunnan provincial government to venture across the border, said the London-based newspaper.

“Yunnan is close to [Myanmar] which has similar mining formations to Yunnan. Also our employees share their culture and living style with people in [Myanmar] so we think it’s relatively easy for us to take our operational model [there],” the firm’s chief financial officer Li Tao was quoted by the Financial Times as saying.

Myanmar workers and farmers have so far had little but a grim experience of Chinese mining business practices at a copper mine near Monywa, in northwest Myanmar’s Sagaing Division. The mine operator, state-owned Wan Bao Company, is accused of complicity in the theft of thousands of hectares of land to promote its commercial interests as well as devastating environmental pollution.

Wan Bao is partnered by the Union of Myanmar Economic Holding Limited, which is owned by the Myanmar military.

“It’s time for Chinese enterprises to alter their old habit of only catering to the government in [Myanmar]. Instead, they should pay more attention to the demands of local communities and their cultures and customs,” said Prof Bi in the Global Times.

Myanmar, however, will have to accept that their country’s geographical location will increasingly make it attractive as a conduit for business—China seeking a route to the sea, India seeking markets in Southeast Asia and Myanmar’s fellow members in the Association of Southeast Asian Nations pushing for land links to South Asia and the Bay of Bengal.

The challenge for Myanmar, say economists, will be to manage its new place in the 21st century regional economy without being exploited. 

This story first appeared in the December 2012 print issue of The Irrawaddy magazine.