The Irrawaddy Business Roundup (May 14, 2016)

By Simon Lewis 14 May 2016

China Begins ‘Silk Road’ Push at Burma Border Town

The Chinese government has begun offering tax breaks to companies that set up in an “experimental” trade zone on its side of the Sino-Burmese border as its flagship regional economic policy begins to play out.

The move, details of which are set out in newly published research by the Hong Kong Trade Development Council (HKTDC), is said to be part of Chinese President Xi Jinping’s flagship regional economic policy known as the “Belt and Road Initiative.”

Beijing wants to establish a “maritime silk road” and a “new silk road economic belt” connecting it to Central Asia and the Middle East, including by connecting southwestern China’s Yunnan province with the Bay of Bengal via a proposed transport corridor cutting through Burmese territory.

An article credited to HKTDC principle economist Billy Wong for the council’s research arm analyzed some of China’s efforts so far to connect Yunnan’s economy with Burma’s. While for now relatively modest, these efforts have already attracted large companies, making cars and motorcycles, to the two set up operations on the countries’ shared border.

The main development centers on the town of Ruili, known in Burmese as Shweli and connected by bridge to the northern Shan State town of Muse. A similar trade zone is also being set up on the less-developed Burmese side of the border, but as with all Chinese central government initiatives, new measures on the Chinese side have the potential to rapidly impact the facts on the ground.

China has already established a “Key Development and Opening-up Experimental Zone” in Ruili. The report said the role of this zone is to promote increased trade over the border, including by “strengthening and enhancing deep-processing industries involving such resources as jewelry and jade, quality timber, and natural rubber.”

Jade from Kachin State and timber, mostly from Kachin or neighboring Sagaing Division, are often exported to China under arrangements of murky legality that often involve the Burmese military or non-state ethnic armed groups.

The Chinese policy is also about “placing an increased emphasis on developing export processing industries reaching out to the South Asia and Southeast Asia markets,” the article said.

Chinese companies operating in the area have the benefit of a Burmese migrant workforce of between 60,000 and 70,000, who are each paid about US$150 per month—a low price for labor in China but a relatively high salary for Burma.

As long as their activities are not prohibited by the Chinese government, the report said, companies setting up in the zone have access to a “number of preferential tax policies.” They will be exempted from the local portion of income tax payments on their business there for five years, with an additional 50 percent tax break for the following five years, it says.

Among the companies to take advantage of these breaks already are Chongqing Yinxiang Motorcycle Group and the Beijing Automotive Industry Corporation (BAIC), the latter being a massive state-run manufacturer of cars and trucks.

“According to a representative of BAIC’s Ruili plant, negotiations on the project were successful thanks to the Belt and Road strategy, which allows the plant to target the Southeast Asia market,” the HKTDC report said.

BAIC expects to make 50,000 vehicles a year by the end of this year in the zone, and 150,000 by 2018, targeting buyers in Burma.

“BAIC plans to produce such auto models as pickup trucks designed specifically to cater to the Myanmar market,” the report said. “BAIC has now started to set up sales networks in Myanmar and, through the networks of its joint-venture partner in Yunnan, plans to open shops in Myanmar to sell vehicles and provide a maintenance service.”

World Bank Finds Low Productivity, Low Profits on Burmese Farms

Burmese farmers are getting less from their labor and their land thanks to poor knowledge and a lack of support, a new donor-funded report has found.

The multi-donor Livelihoods and Food Security Trust Fund commissioned the report entitled Myanmar: Analysis of Farm Production Economics, which was conducted by experts at the World Bank.

Lead author Sergiy Zorya, a senior agricultural economist at the World Bank, wrote a blog post this week explaining the findings.

The country’s farming system is well diversified, he wrote, but agricultural productivity, and resulting farm profits, are both among the lowest in Asia.

“In 2013/14, the net profit from producing monsoon paddy averaged USD 114/ha,” he wrote. “This is ten times smaller than those in China for example.”

By way of explaining these findings, Zorya wrote, “Farmers in Myanmar are less educated and less knowledgeable than their regional peers; they also access fewer public services than farmers in neighboring countries.”

He pointed specifically to poor knowledge about the quality of seeds, the use of fertilizer and poor access to irrigation, proposing some actions policy makers could take to address these issues.

“The public seed production system, which is currently biased towards hybrid rice varieties, needs to broaden its scope to a diverse range of paddy and other crops,” he wrote.

“Agricultural extension services are to be scaled up and strengthened to reach out to more farmers and cover more crops to accelerate adoption of productivity-increasing farm technologies.

“Irrigation systems can be made more flexible and provide on-demand irrigation services to enable farmers do produce different crops in different areas, and respond effectively to market opportunities.”

Company Claims a ‘Very Small Minority’ of Residents Oppose Chinese-Backed Mine

With protests once again kicking off at the site of the Letpadaung copper mine in Sagaing Division, the mine’s operator is complaining that a minority of residents have refused to engage with its outreach efforts.

The mine has for years drawn vociferous opposition from local residents, and activists from elsewhere in the country, with complaints including insufficient compensation for land, damage to the surrounding environment and the brutal suppression of previous protests by security forces.

Wanbao Mining, a subsidiary of the Chinese state-run weapons manufacturer Norinco, operates the mine alongside a Burmese military-owned company. The Burmese government also owns a stake, which was increased on the recommendation of a commission led by then opposition leader Aung San Suu Kyi.

With mining starting once more after a hiatus, about 300 local people held protests at the mine site beginning last week, according to locals.

The joint venture company Myanmar Wanbao hit back this week, however, insisting in a statement Tuesday that the protesting villagers represented “only a small minority [who are] still opposing this project, despite attempts at numerous rounds of engagement with them which they have rejected.”

With the Chinese government saying it wants its companies to respect the law of the land in Burma, the company has repeatedly made public relations efforts to defend the highly controversial project, and touts the achievement of convincing many villagers to accept compensation.

Estimating that only 60 protesters came to the mine site, Myanmar Wanbao insisted that 71 percent of villagers who lost land to the project have now accepted a new compensation deal, and that 83 percent accepted the company’s plan to contribute to the local community.

But residents told The Irrawaddy they did not believe enough had been done to address concerns over compensation and environmental safeguards.

“We encourage all parties to act responsibly and exercise restraint,” Wanbao Myanmar’s statement said, calling for “peaceful dialogue” with the protesting locals. “This mine is one major Myanmar national project and all of us together are its custodians to help build Myanmar to achieve its full potential.”

Campaign Group Calls for Full Freeze on Land Investments

UK-based group Global Witness has called for a freeze on new investments on land in Burma until environmental and social safeguards are put in place to deal with the legacy of years of land grabbing under previous governments.

The group issued a statement Wednesday praising the new National League for Democracy-led government for forming a committee to investigate land conflicts. But it said a proposal by the new administration to freeze land sales by ministries, state-run companies and private firms should also specifically extend to the Burmese military—the source of many of the country’s land disputes.

The group estimates that 5.3 million acres of land had been leased out for large-scale agriculture by 2013, much of it to companies with links to the military or officials in the previous government.

“For more than five decades Myanmar’s military junta has seized land and sold it to investors at a huge personal profit, leaving rural communities landless and often destitute,” Ali Hines, land campaigner for Global Witness, said in the statement.

“This is not simply a legacy issue—the military still wields considerable power on the ground and continues to grab yet more land from ethnic minority communities.

“The new government has set the right tone by encouraging a freeze on further land investments, but must ban all further land acquisitions—including by the military—if it is serious about preventing further conflict.”

Malaysian Firm to Operate ‘Press and Convenience’ Stores

A Malaysian convenience store operator plans to set up two shops selling newspapers, magazines and other conveniences in Burma in a tie up with a Singapore-listed firm, according to Malaysian state media.

Newswire Bernama said that Bison Stores, a subsidiary of Bison Consolidated Bhd., had entered into a five-year management agreement with SMI Retail, part of Singapore Myanmar Investco.

“This exciting collaboration kicks start our first business venture outside of Malaysia,” group managing director Dang Tai Luk was quoted saying.

Bison operates “press and convenience” outlets under the brand in Malaysia, and will use the same branding in Burma, the story said.

SMI is a rebranded version of Singapore Windsor Holdings, an investment and management company that is developing interests in Burma in sectors including retail, automobiles, construction and mobile phone towers.

It signed a long-term agreement in December to operate a large chunk of retail space at the new Yangon International Airport, which is operated under a government concession by local conglomerate Asia World.