Myanmar to Consider Low-Interest Loans from China for Economic Corridor

By Nan Lwin 4 December 2018

YANGON—Amid concerns that the multi-billion-dollar economic corridor agreement will leave Myanmar in a debt trap, a senior government official has offered reassurances that the government will seek the lowest interest rates possible on loans from China for projects along the corridor, which is part of Beijing’s international infrastructure project, the Belt and Road Initiative.

A senior government official from the Ministry of Planning and Finance told The Irrawaddy on Tuesday that the China-Myanmar Economic Corridor (CMEC) projects, which include major infrastructure projects, border economic zones and city expansion projects, will be implemented under both public-private partnership (PPP) systems and loans. However, the official said, as a way to minimize the debt burden, the government intends to choose only loans with the lowest interest rates.

According to recent parliament records, Myanmar owes more than $10.2 billion in foreign debt, 40 percent of which is owed to China. The overall cost of the project is still unknown, while according to the CMEC proposal, cost estimations for the initial stages of the project are $2 billion.

“The details of implementation projects are still on the table,” the senior official said.

The senior official, who requested anonymity, held a meeting on Monday with Chen Hao, secretary of the Yunnan Provincial Party Committee, during his trip which aimed to push trade, investment and cooperation in the border areas. Yunnan is the principle province connecting Myanmar and China through the CMEC.

During his visit, Chen Hao also held a meeting with the State Counselor in Naypyitaw on Monday. Union Minister for the Office of the State Counselor U Kyaw Tint Swe, Commerce Minister U Than Myint, Planning and Finance Minister U Soe Win and Union Minister for International Cooperation U Kyaw Tint as well as Deputy Minister of Planning and Finance U Set Aung and other officials attended a dinner held for Chen Hao at the Chinese Embassy in Naypyitaw on Monday evening.

The chosen projects must align with national priorities as outlined in the Myanmar Sustainable Development Plan (MSDP), a superior plan with a vision of sustainability and balanced development arrangements, he added.

According to the CMEC proposal, $2 billion will be spent in the initial stages of the project, which involve an estimated 24 projects, not including a series of other major infrastructure projects which will begin at a later stage. Myanmar’s Ministry of Agriculture, Livestock, and Irrigation will receive $400 million from the initial budget to develop the irrigation system along the corridor route in Myanmar.

The New Yangon City project, estimated to cost $1.5 billion, is a component of the CMEC project for which a framework agreement has been signed between the New Yangon Development Company (NYDC) and the Hong Kong-listed China Communications Construction Company (CCCC). According to the NYDC, the project details—including technical specification, a financial proposal and business model—will be announced soon.

The 1,700-kilometer-long CMEC will start in China’s Yunnan Province and go through Myanmar’s major economic cities—Mandalay in central Myanmar, the commercial capital of Yangon and reach the coast at Kyaukphyu Special Economic Zone (SEZ) in Rakhine State. The proposal includes upgrades to three major roads through Mandalay, Muse on the Myanmar side of the border with China, and some other roads in Shan State.

The proposal claims that the CMEC would allow a direct flow of Chinese goods into the southern and western regions of Myanmar and that Chinese industries could transfer here in order to abate the rising labor costs and overcapacity of China’s industries. It said Myanmar would become a major trade hub between China, Southeast Asia and South Asia.

Recently, China was granted permission to conduct a feasibility study for a Muse-Mandalay high-speed railway that is expected to link the two economic centers in Myanmar.

A memorandum of understanding for the CMEC project was signed in September by Naypyitaw and Beijing and included details on the implementation of the Myanmar-China border economic cooperation zones in Kachin and Shan states. In Muse, work has already started on the economic cooperation zone, but key questions remain over ownership, operations, project terms and financing, and whether Myanmar can afford the infrastructure projects.

“The biggest risks of the Chinese project in Myanmar are taking on an unsustainable amount of debt and that Beijing expects a degree of political influence in exchange for these large investments,” Gregory Poling, director of Asia Maritime Transparency Initiative and fellow of the Southeast Asia Program at the Center for Strategic and International Studies, told The Irrawaddy

He said, “We have seen both problems crop up in places like Sri Lanka, Pakistan, and Malaysia. There are obvious benefits for Myanmar in projects like Kyaukphyu and the CMEC, given the country’s infrastructure investment needs, but such projects should be negotiated and implemented in a manner that is fair, transparent, and to the benefit of the host country, not just the investor.”

Last week, Ning Jizhe, deputy head of China’s National Development and Reform Commission (NDRC) visited Myanmar in a bid to promote the implementation of the CMEC. During his visit, he met State Counselor Daw Aung San Suu Kyi, Minister of Planning and Finance U Soe Win and 11 other officials from different ministries and departments.

Leaders from both sides expressed views on the economic development plans and construction of the CMEC, according to the press statement.

Ning Jizhe promised Daw Aung San Suu Kyi that the CMEC will be a crucial part of the Myanmar Sustainable Development Plan which will benefit the people of both countries.

However, the State Counselor said CMEC projects should support the long-term interests of both peoples. She stressed that China needed to negotiate the projects systematically and in accordance with domestic rules and regulations.