Mongla Official Denies Chinese Firm Permitted to Set Up Autonomous Digital Economic Zone

By Nan Lwin 20 February 2019

YANGON—The general secretary of the rebel-controlled Mongla Special Administrative Region on the Chinese border has denied any knowledge of a Chinese company’s plan to establish an independent political entity within its borders based on an “e-citizenship” system open to all with a digital economy supported by a cryptocurrency.

In a program titled “Inside the Crypto Kingdom”Channel News Asia reported last week that Chinese company Shanghai Shellpay Internet Technology plans to construct the Yongbang Blockchain Special Economic Zone (SEZ) in Shan State’s Mongla Special Administrative Region 4. In the video, Shanghai Shellpay Internet Technology CEO Zhang Hong said the SEZ will be an experimental digital economy exercising a high degree of autonomy, and vested with independent executive, legislative and judicial power. The zone would use an “e-citizen” system and a cryptocurrency, the Yongbang coin, Zhang said.

But U Kyi Myint, the general secretary of Mongla Special Administrative Region 4, told The Irrawaddy, “It’s impossible. We don’t know what they’re talking about.”

He added, “According to the video, it would be such a huge project. If they launched such a project, we would definitely know. We don’t know anything about it. It doesn’t make sense.”

Mongla is run by the former rebel army known as the National Democratic Alliance Army-Eastern Shan State (NDAA). The group was formed in 1989 after separating from the former Communist Party of Burma (CPB). The NDAA signed a ceasefire agreement in 1989, and eventually signed a Union-level ceasefire agreement with then-President Thein Sein’s administration in December 2011.

New hotels and office blocks under construction in Mongla, eastern Shan State, near the Chinese border in 2014 / The Irrawaddy

According to the CNA video, Zhang is also the director of the SEZ’s Digital Economy Bureau. She is seen telling an audience at a conference in Shanghai that, “Today, Yongbang State is going to announce [its launch]. They are going to start a jurisdiction for a digital economy.”

She said the SEZ would cover 220 square kilometers. The first step would be to launch the e-citizen program, which she said would be open to citizens of any country.

“What we are trying to create is a government in Yongbang, a government without civil servants,” she told the audience.

“They [residents of the project area] are so poor because the [Myanmar] government did not give them ID cards. They are landlocked; they can’t go anywhere because they don’t have passports. We can issue everybody a digital ID,” she said.

The Myanmar and Chinese governments have agreed to implement the China-Myanmar Economic Corridor (CMEC) as part of China’s ambitious Belt and Road Initiative (BRI). According to Shellpay Internet Technology’s website, the Shan State government has agreed to get involved with the SEZ as part of the BRI. It claims the SEZ would be established on the basis of “constant strengthening of political mutual trust and bilateral relations between China and Myanmar and the continued advancement of the BRI.”

Shan State Minister for Planning and Economy U Soe Nyunt Lwin told The Irrawaddy, “The Shan State government has no knowledge of this project. We, the state government, did not make any agreement with them.”

The Minister pointed out that Mongla is a Special Administrative Region of Shan State. All BRI projects, however, must be proposed at the Union level, pending scrutiny by the BRI Steering Committee, which will make the final decision on whether the project is suitable and will benefit the public.

Zhang Hong, CEO of Shanghai Shellpay Internet Technology, explains the Yongbang Blockchain Special Economic Zone project at a conference in Shanghai. / CNA video screenshot

“Under the CMEC agreement, we have only agreed to construct border economic cooperation zones in Shan and Kachin. We have never heard of Yongbang SEZ,” he said.

According to the company’s website, Yongbang “citizens” will have the right to do business by issuing their own tokens using decentralized ledger technology. Citizens will be able to use one Yongbang coin to issue 100,000 of their own coins. Citizens can receive Yongbang coins through Apple’s AirDrop, or buy them from an exchange. The Yongbang authority will never charge tax, and business registration is replaced by tokenization of the Yongbang economy, according to the site, which adds that participation in the economy will be open to anyone in the world.

In the video, Zhang tells the audience, “We’ll issue a currency called the Yongbang coin. This is a social experiment. In Yongbang, we will build a government for a digital economy. If you live in a society where all the laws, procedures and structures are already in place, it’s difficult for you to change the world.”

According to the website, Shellpay previously helped Dubai’s General Directorate of Residency and Foreigners Affairs (DNRD) to create a blockchain-based, non-passport control system in 2017.

On Facebook, the CNA video has gone viral among Myanmar people. It has drawn a largely negative response as a violation of Myanmar’s sovereignty. Many people have pointed out the risks that would arise from allowing the use of cryptocurrencies to form a “digital government” in that area.

Cryptocurrencies are virtual currencies that do not exist in a physical form. They are not backed or regulated by any central bank. The decentralized control of each cryptocurrency relies on distributed ledger technology, typically a blockchain, that serves as a public financial transaction database.

Cryptocurrencies came to popular attention with the inception of Bitcoin in 2009. Cryptocurrency networks’ lack of regulation has been criticized as enabling criminals who seek to evade taxes and launder money. Transactions involving such cryptocurrencies are independent from formal banking systems, making tax evasion simpler.

Liu Zhanbin, secretary of the Yongbang SEZ Committee, attends a conference in Shanghai. / CNA video screenshot

Bitcoin itself is often targeted by cyber hackings and thefts, which cost billions of dollars a year. In 2014, the world’s then-largest Bitcoin exchange, Mt. Gox, declared bankruptcy after losing US$473 million (about 720 billion kyats) of customers’ bitcoins to cyber theft. In January and June 2018, Tokyo-based Coincheck and the Korean exchange Coinrail were hacked and lost $400 million and $37 million worth of cryptocurrency respectively. The thefts triggered falls in the values of all major cryptocurrencies.

Myanmar has no specific mechanism or legal framework to regulate cryptocurrencies. However, the coins’ promoters have introduced various ways to invest in them. Last year, the Ministry of Home Affairs warned against trading in cryptocurrencies including Bitcoin, after a wave of scams. The ministry warned that the coin promoters targeted people in rural areas who were uninformed about the market. It said cryptocurrencies are “unstable” and required careful study. It advised against investing in such currencies.

Shanghai Shellpay Internet Technology’s website claims the Yongbang project also served as an experiment in minimizing the role of government as much as possible. Any infrastructure or public projects initiated would be open to public participation through the issuance of tokens, it says. For example, if citizens want a road to be built, a road chain will be established in which all citizen will be able to participate by buying coins. The road would be built with the proceeds from token sales. The road would be equipped with sensors so that every car using it is charged automatically, according to how far it travels. Coins would then be sent automatically to investors in the road. All of these transactions would be implemented and recorded on a fully transparent blockchain ledger. In other words, according to the site, “citizens” would use blockchain technology to manage themselves.

In the video, Liu Zhanbin, the Yongbang SEZ Committee’s secretary, said the company is also planning to launch such an SEZ in Kachin State. Liu mentions that Kachin produces the world’s highest quality jade.

According to the website, the Yongbang project will be located in Shan State’s Mongyawng, adjacent to China’s Yunnan Province. Zhang told CNA, “I don’t think the Burmese government is aware that Shan State have given [us] a small [area in which to operate] the digital economy.”

However, General Secretary U Kyi Myint said, “That place is totally under our control. How could it be possible? Mongla’s leaders don’t even know about it. They might be scammers.”