Asian Giants Revise Myanmar Policy

By Simon Roughneen 1 January 2013

As reforms are slowly worked through Myanmar’s Parliament, a shift is taking place in the country’s foreign relations. Better dealings with the West aside, the long-time military-ruled nation’s international rebirth has prompted other palpable changes.

Under the former junta, trade sanctions left businesses from China, India, South Korea and Southeast Asia with an open goal in Myanmar—a land rich in natural resources coveted by Asia’s bustling economies.

During the sanctions era, China and Thailand have been arguably the two most prominent investor-nations, with China first among equals given its additional role as Myanmar’s minder on the United Nations Security Council—deflecting criticism and blocking damning resolutions in the wake of the former junta’s heinous human rights abuses.

But a year ago, China was handed a surprising snub by the nominally civilian Myanmar government. In one of the first signals that Naypyitaw was about to undertake a series of reforms, President U Thein Sein suspended the controversial Myitsone Dam in Kachin State.

The project was set to flood an area the size of Singapore yet have 90 percent of power generated exported to China, despite only a quarter of the domestic population having access to electricity, according to the Asian Development Bank.

With Western investors likely to stream in soon, and with Japan offering the Myanmar government a helping hand with debt relief and major investment pledges in much-needed infrastructure, does this mean Beijing has suddenly been pushed onto the back foot?

“Yes and no,” say those keeping an eye on regional affairs. Jan Zalewski, an analyst covering Myanmar for the IHS Global Insight research firm, told The Irrawaddy that “Myanmar’s re-balancing of foreign relations means that China will increasingly have to compete with other foreign players when dealing with the country.”

As challenges arise, there are signs that China is recalibrating its approach to Myanmar. A recent editorial in the Global Times warned Chinese businesses to take local sensitivities into account when doing business in Myanmar.

The article cited the Myitsone debacle and recent mass protests against a copper mining project in the Letpadaung Mountains of Sagaing Region—the latter jointly owned by the military-controlled Union of Myanmar Economic Holdings Ltd and Wan Bao Company, a subsidiary of state-owned Chinese arms manufacturer North China Industries Corp.

“Myanmar’s increasing gearing-up to attract Western investments not least means that the modus operandi of doing business with Myanmar is changing, which will alter the position of many Chinese businesses that hitherto had to rely on only a handful of key contacts within the previous military regime for entering the country,” said Mr Zalewski.

This does not mean, however, that China has completely lost out in Myanmar. In 2011, bilateral trade between the two countries came to US $6.5 billion, up 46 percent year-on-year, according to Beijing, while China’s investment in Myanmar hit a total of $20.26 billion by the end of last year, going by Naypyitaw figures.

According to Chinese reports of Wu Bangguo’s visit to Myanmar ahead of the Chinese Communist Party leadership changes in November, U Thein Sein said Myanmar welcomes Chinese investment, especially in labor-intensive industries.

“Myanmar knows that it won’t be beneficial for it to completely sideline its powerful northern neighbor, so China’s role in the country will still remain dominant,” added Mr Zalewski.

That should hold even if Myanmar’s opposition wins the 2015 general election, as democracy icon and former political prisoner Daw Aung San Suu Kyi has welcomed continued good relations with Beijing, telling Chinese state-run  Xinhua News Agency in June that, “We are very good friends with China. I really don’t see why we cannot continue to be good friends.”

Indeed, with Western economies struggling with debt and stagnation, even a China that is now running into slowdown seems set to be the single biggest investor in Myanmar for the foreseeable future.

But as China’s prominence recedes in relative terms, Japan is moving fast to bolster commercial ties after generally going along with Western sanctions in recent years. Now, however, Japan is stealing a march on potential competitors by plowing money into Myanmar as Westerners cautiously await new laws, such as the long-overdue Foreign Direct Investment law passed in early November.

According to Toshihiro Kudo, a Japan External Trade Organization researcher speaking in Bangkok, Japanese interest in Myanmar is “feverish,” with up to 200 businesspeople a month passing through its Yangon office compared with perhaps only 200 per year in the past.

Recent estimates indicate that Japan has or will put at least $18 billion into Myanmar, based on a round-up of loan write-offs, public and private investment pledges and bilateral aid promises. Myanmar wants Japan to develop the Thilawa Port, a half-hour drive from downtown Yangon, and possibly inject much needed cash into the stillborn multibillion dollar port planned for Dawei in the southwestern Tanintharyi Region.

Japan’s NTT—one of the world’s apex telecommunications infrastructure providers—has established an office in Yangon in advance of a planned liberalization of Myanmar’s minuscule telecoms sector, which will likely allow foreign companies to operate as network providers. The Myanmar office came on the back of U Thein Sein meeting company executives of NTT in Japan in April—one of several investment-related trips in Asia that the pacemaker-wearing president has made in recent months.

Japanese foundations have promised money for Myanmar’s impoverished ethnic borderlands—lending the country’s interests a selfless air. However, Yuki Akimoto, a director of BurmaInfo Japan who researches and documents human rights and environmental issues in Myanmar, says Japan’s interest is much more business-driven than altruistic.

With tensions between Tokyo and Beijing increasing over disputed islands and long-simmering nationalistic mutual hostility, Japanese business sees an opportunity to cut-and-run with a cheaper labor market now on the scene in Myanmar. “Japanese manufacturers already had been looking for alternative production bases because producing in China was getting too expensive,” Ms Akimoto told The Irrawaddy.

But what of Asia’s third biggest economy, India, which shares a 1,463km border with Myanmar as well as a history of British colonial rule?

India has typically been seen as floundering somewhat in its Myanmar policy, the oft-touted “world’s largest democracy” reversing support for Myanmar’s democratically-elected winners of the 1990 election in favor of “pragmatic engagement” with the coup-installed former military dictatorship—the rationale being that India would otherwise lose economic and strategic ground in Myanmar to an ascendant China.

That happened anyway, and although bilateral trade between India and Myanmar is expected to more than double by 2015, according to a speech given in Kolkata by the Myanmar consul general there, the projected leap from $1.28 billion in 2010-11 to $3 billion 2014-15 would still amount to less than half of Myanmar-China trade today.

In November, opposition leader Daw Aung San Suu Kyi visited India—the country where she lived as a young woman while her mother was Myanmar ambassador there during the 1960s. Her trip came on the heels of yet another international suitor arriving in Myanmar earlier this year, when Prime Minister Manmohan Singh—himself under fire at home for dithering over India’s now-backfiring economy—paid a visit.

But after a decade-and-a-half of playing catch-up with China, will increased investment and engagement from Japan and the West crowd out New Delhi once more? Again, it is a “yes and no” answer, according to some who keep tabs on India’s regional policies.

Dr K Yhome, a Myanmar researcher at the Observer Research Foundation, an Indian think-tank, believes that increasing Western engagement means that the window of opportunity for New Delhi will narrow.

It might not be a complete loss for India in Myanmar, however, he says, telling The Irrawaddy that “New Delhi also would see the West’s engagement as adding to its efforts to counterbalance China in Myanmar,” and in turn, facilitate India deploying geographical and cultural advantages in its eastern neighbor.

“Despite the West’s presence in Myanmar, New Delhi has the advantage of proximity, both land and maritime, to Myanmar and also cultural linkages,” said Dr K Yhome. “The question is how effectively India will leverage these strengths in Myanmar.”

Last year, in what was one of the first tangible international rewards for what were then just promises of reform, Myanmar’s nearest neighbors in the Association of Southeast Asian Nations (Asean) agreed to let Myanmar lead the group in 2014—eight years after it was stopped from chairing Asean as Western countries objected on human rights grounds.

For the most part, though, Asean’s “non-interference” mantra put the bloc at odds with the West over Myanmar, leaving both sides now claiming credit for pushing the country toward reforms. Asean is often considered the sole source of regional political pressure on Naypyitaw—urging the former junta to hold free and fair elections and attempting to codify human rights—compared to China and India, which both happily look the other way on humanitarian issues as long as investments pay off.

And while the West says sanctions backed the junta into a corner—an assertion backed up by some leaked diplomatic cables from the US Embassy in Yangon—Asean claims the opposite: that sanctions did not work and that years of “engagement” nudged the generals into seeing the folly of military rule.

Asean countries such as Thailand and Malaysia benefited, like China, from Western sanctions on Myanmar, capitalizing on absent business competitors to milk Myanmar’s natural resources. Myanmar’s economic stagnation and civil wars meant that both countries were favored destinations for migrant workers—something that could change in future if Myanmar’s political glasnost is followed by an Asian Tiger take-off.

A big if, perhaps, but a revived Myanmar economy could drive a “reverse brain drain” back to the former pariah nation and cause problems for those neighboring economies dependent on cheap, and sadly often-abused, migrant labor.

There is change in other ways too—with Asean countries such as Indonesia and Malaysia touting a blunter line on anti-Muslim, anti-Rohingya sentiment in Myanmar than Westerners giddy at the thought of making quick money in what is deemed world’s biggest remaining “virgin market.” Non-interference comes full circle, it seems.

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