Analysis

Wariness Over BRI as State Counselor Prepares for Beijing Forum

By Nan Lwin 3 April 2019

YANGON—Nearly three dozen national leaders will land in Beijing late this month to attend the 2nd Belt and Road Forum. Among them will be Myanmar State Counselor Daw Aung San Suu Kyi, who is expected to negotiate agreements on at least six projects as part of the China-Myanmar Economic Corridor.

Upon signing the Memorandum of Understanding (MoU) for the China-Myanmar Economic Corridor (CMEC) in September last year, the Myanmar government officially became a partner in China’s ambitious Belt and Road Initiative (BRI). China has proposed 30 projects as part of the BRI.

Chinese President Xi Jinping’s signature foreign policy, the BRI is a grand vision to revive the historic Silk Road trade route and create a “21st-Century Maritime Silk Road”. These would create a network of trade routes from China to Europe passing through Central Asia, the Middle East and Russia. Unveiled in 2013, the BRI will ultimately encompass nearly 70 countries and two-thirds of the world’s population.

However, for the past two years the BRI has faced resistance from a number of countries. Some have decided that while participation could help their development, they want to seek a renegotiation of the terms.

Some key countries lying on Beijing’s signature routes, whose involvement is needed to build highly ambitious infrastructure projects, have declared they will reconsider all the agreements to ensure there is no risk of a “debt trap” and that all terms and conditions are fair.

Concerns in SE Asia

Last year was a rocky one for the BRI after Malaysia elected a new government led by Prime Minister Mahathir Mohamad, who canceled US$18 billion (more than 27 trillion kyats) worth of BRI projects comprising a rail link and two gas pipelines being constructed by a Chinese company, a move he said was necessary in order to avoid a huge debt trap. He also called for the renegotiation or cancellation of “unfair” deals with Beijing authorized by his predecessor, Najib Razak, who now faces prosecution involving a massive financial scandal.

Pakistan’s government led by Prime Minister Imran Khan decided to review and revise all the China Pakistan Economic Corridor (CPEC) projects due to their perceived unfairness to Pakistani companies. In the Maldives, President Ibrahim Mohamed Solih, who beat a pro-China president in the country’s recent election, is renegotiating BRI project-related debt. And the West African country of Sierra Leone recently canceled a $400-million, Chinese-funded project to build a new airport outside the capital Freetown to avoid a heavy debt burden.

As a precautionary measure before joining the forum, the leaders of Indonesia and Malaysia recently publicized the terms and conditions for Chinese investors aiming to secure BRI agreements. Indonesia has announced that Chinese investors must abide by the four conditions: to use only environmentally friendly technologies; to maximize the use of local labor; to transfer technical knowledge to local partners through training programs; and to ensure that the projects create added value for Indonesian industries to reduce the country’s dependence on extractive industries such as mining and to benefit the country’s economy in the long term.

Last month, when asked by the South China Morning Post for his views on the BRI before joining the forum, the Malaysian prime minister warned other countries to make sure that the money flowing into their country is not borrowed from China. He emphasized that countries that do become mired in “debt traps” must accept some responsibility for their predicament. He explained this was why Malaysia preferred direct investment over projects funded by Chinese loans. He said he welcomed Chinese investment and economic resources, but was not receptive to its control or influence.

Chinese President Xi Jinping speaks during a briefing on the final day of the Belt and Road Forum  at the Yanqi Lake International Conference Center north of Beijing on May 15, 2017. / REUTERS

Myanmar—Easy Prey?

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

Mandalay Region Finance and Planning Minister U Myat Thu, a member of a joint committee on the BRI, told The Irrawaddy that Myanmar has agreed to speed up the progress of nine major projects among the 30 proposed by China. However, the minister didn’t identify the nine projects.

The government hasn’t officially announced the list of CMEC projects yet except for construction plans for three economic cooperation zones along the Myanmar-China border in Shan and Kachin states.

However, under the CMEC, Myanmar has also signed an MoU for the Kyaukphyu deep-sea port, a potential hub for China that would give it direct access to the Indian Ocean and allow its oil imports to bypass the Strait of Malacca. It also serves Beijing’s goal of developing China’s landlocked Yunnan province.

In Yangon, the multi-billion-dollar New Yangon City project is a part of the CMEC plan. A framework agreement was recently signed for the project, which is envisioned as a complex of new towns, industrial parks and urban development projects.

Despite warnings from critics that the project could burden Myanmar with unsustainable debt and provoke more armed conflict in the project areas, in October two state-owned companies—China Railway Eryuan Engineering Group (China Railway Group Ltd) (CREEG) and Myanmar Railways—signed an MoU to conduct a feasibility study on the Muse-Mandalay high-speed railway.

A project that will link two economic centers in Myanmar with Kunming, the capital of Yunnan province in southwestern China, the project is part of Beijing’s grand infrastructure plan for the region. The Muse-Mandalay railway is also the initial stage in a strategic railway link that Beijing plans to build, with a parallel expressway, from Ruili in Yunnan province to Kyaukphyu in Rakhine, along with a separate road running through northern Myanmar, India’s northeastern states, and Bangladesh.

However, Myanmar’s leaders have been silent on their plans and policies for BRI projects amid rising resentment toward China due to its efforts to revive the controversial Myitsone Dam on the country’s lifeline river, the Irrawaddy. On the other hand, experts, including from the World Bank, have pointed out that Myanmar’s growth will largely depend on major BRI infrastructure projects that get underway this year.

The Irrawaddy has learned that the Myanmar government is drafting a master plan relating to the CMEC. This includes some significant conditions, including that identified projects are to be selected through a public tender process, and that Myanmar should be allowed to borrow from multiple sources if debt financing is required. However, the content of the master plan is very broad in terms of debt policy, the public tender process and labor rights. Experts have pointed out that it is difficult to obtain loans from other countries for China-related projects. In terms of the open tender process, critics say that even if there are a few competitors, it is highly unlikely that a non-Chinese company would win a BRI project.

Deputy Planning and Finance Minister U Set Aung said the projects under the CEMC must be in line with the Myanmar Sustainable Development Plan (MSDP) drawn up by the current government to achieve “genuine, inclusive and transformational” economic growth.

The head of the China desk at the Institute of Strategy and Policy (ISP)-Myanmar, Daw Khin Khin Kyaw Kyee, told The Irrawaddy that while there is nothing wrong with the strategies outlined in the MSDP, the government has still not disclosed how it plans to implement them on the ground.

“The government doesn’t have the necessary mechanisms to implement the MSDP with regard to the CMEC,” Daw Khin Khin Kyaw Kyee said.

The MSDP obliges the government to listen to the public’s voices and wishes when it comes to implementing or making decisions related to the projects. She pointed out that the public has received little information about the CMEC projects since the government signed the agreement.

“When the public is not given general information about the agreement, how can we say there is transparency?” she asked of the government’s lack of effort to publicize information on the projects.

Experts have suggested that as a developing country, half of whose existing foreign debt is held by China, Myanmar should implement individual rules and regulations relating to BRI projects, such as requiring counter-project proposals; inviting experts to review mega-projects; and adopting international standards for environmental issues and debt policies.

In March 2018, a report by the Washington-based Center for Global Development said China was putting many countries under the BRI at financial risk through a series of aid activities and huge amounts of lending.

“Myanmar can learn from other countries that became highly indebted from BRI projects,” Thitinan Pongsudhirak, an associate professor at the Institute of Security and International Studies in the Faculty of Political Science at Bangkok’s Chulalongkorn University, told The Irrawaddy.

“Myanmar can set up a debt law, which puts a ceiling on how much [in] foreign loans the country can take out and be sustainable based on macroeconomic conditions, such as international reserves, export growth, and GDP expansion,” he said.

China and Myanmar sign an MOU to jointly build the China-Myanmar Economic Corridor on Sept. 9, 2018. / Photo provided by NDRC

Cooperation, Not Confrontation 

Led by State Counselor Daw Aung San Suu Kyi, Myanmar’s BRI steering committee comprises 25 members including 18 Union ministers (from ministries ranging from Home Affairs to Hotels and Tourism); five chief ministers (from Kachin, Mandalay, Rakhine, Yangon and Shan); the foreign affairs permanent secretary; and the chairman of the Naypyitaw Council.

According to U Aung Naing Oo, the director general of the Directorate of Investment and Company Administration, projects under the BRI must be reviewed by the BRI steering committee and cleared by the Myanmar Investment Commission.

Daw Khin Khin Kyaw Kyee said, “They should invite experts who can negotiate at the table with China’s representatives.”

The government only considers CMEC projects based on China’s proposals, when in fact it should propose counter projects based on what will benefit the country and meet the people’s needs, she said. For example, while China has proposed BRI projects, the Indonesian government has proposed nearly 30 projects worth US$91.1 billion based on the country’s own strategic plans.

“Whenever we discuss China’s irresponsible manner of investment practices, they tell me that we follow the Myanmar government’s rule and regulations. That shows we don’t have enough rules and regulations in line with international standards,” she said.

She pointed out that the updated version of Myanmar’s investment law fails to expressly require maximum use of local workers in foreign investment projects.

Despite public wariness surrounding Chinese investment in the country, the humanitarian crisis in Rakhine has pushed Myanmar back into the hands of the Chinese.

At the country’s first investment forum in late January, while talking about infrastructure challenges, U Thaung Tun said he wants to take advantage of Myanmar’s strategic location at the intersection of two of the world’s most important emerging markets, China and India.

He emphasized that Myanmar is central to the BRI, saying that “If you look at the BRI you will find that Myanmar is in the middle of all of it. Because the Maritime Silk Road must pass through Myanmar.”

The minister stressed to the audience that the rise of China should not be seen as an obstacle, as he believes all countries can benefit from BRI projects.

“We can do cooperation rather than confrontation. It will help development not just in the region but also the world,” he said, adding that Myanmar could be a transport hub for Asia under the BRI.

As China continues its global infrastructure financing push across the developing world, allegations of debt diplomacy keep arising. According to media reports, when the BRI was first announced, China’s foreign currency reserves stood at around US$4 trillion. During the past five years, the reserves have fallen to US$3 trillion as Beijing seeks to offload pressure on the yuan and provide contracts for Chinese companies that take an interest in spending some of those reserves overseas.

According to the American Chamber of Commerce, Chinese companies are under pressure from U.S. tariffs, and factory activity in China has been steadily contracting, with export orders falling at rates not seen since the financial crisis a decade ago. As a result, experts speculate that Chinese companies will be saddled with debt and find it difficult to run foreign projects like those under the BRI in the near future.

According to the media reports, more than 270 out of 1,814 BRI projects undertaken since 2013 in the Indo-Pacific region have been halted due to concerns over practicality or financial viability.

Daw Khin Khin Kyaw Kyee said, “Both sides should negotiate and implement [projects] in a manner that is fair, transparent, and to the benefit of the host country, not just the investor.”

“Before we make further agreements with China, we should have a certain master plan or rules and regulations that can assure benefits for the people of Myanmar,” she said.

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