Guest Column

Beijing Looks to Get Economic Projects Up and Running in Myanmar

By Lin Htet Myat 16 March 2023

The general consensus on the status of the China-Myanmar Economic Corridor (CMEC) in Myanmar two years after the military coup is that the projects are resuming—albeit at various paces—especially after the junta’s then foreign minister, Wunna Maung Lwin, was invited to China in April 2022. During his trip, China reaffirmed its commitment to help safeguard Myanmar’s sovereignty, independence and territorial integrity “no matter how the situation changes”.

Amidst rising tension and geopolitical rivalry between the US and China in the Indo-Pacific region, China’s decision to engage fully with the regime—if not recognize it completely—seems to be driven by its strategic considerations and economic interests despite calls for non-recognition and non-engagement by anti-junta resistance forces as the CMEC and other regional initiatives such as Lancang-Mekong Cooperation (LMC) involving Myanmar will address China’s Malacca dilemma and give China access to the Indian Ocean, Southeast Asia and South Asia.

To hedge against the rising anti-Chinese sentiments among the people of Myanmar due to its backing of the junta, known as the State Administration Council (SAC), the emerging pattern of CMEC projects in Myanmar, according to analysts, is that most of them will be implemented in periphery areas controlled by ethnic armed organizations (EROs), which are under Beijing’s sphere of influence and calmer than other areas, although Beijing is not likely to pour billions of dollars into these projects.

According to The Irrawaddy, there are three major Chinese infrastructure initiatives, although they are not limited to infrastructure alone, in Myanmar, which are LMC, CMEC & CMEC plus, and the New International Land Sea Trade Corridors. Projects planned and implemented under these three initiatives can be classified into three groups. The first one, LMC, consists mainly of small technical cooperation projects in sectors such as agriculture, culture, digital economy, science, education and public health, as proposed by China in six cooperation programs during the LMC meeting in July 2022, which was attended by Chinese Foreign Minister Wang Yi, although the LMC’s main agenda is to build transport infrastructure and cross-border economic cooperation among LMC countries (China, Myanmar, Laos, Cambodia, Thailand and Vietnam).

However, China is also supporting, under this LMC cooperation program, the upgrading of the strategically important Wan Pong Port in eastern Shan State’s Tachileik district and hydropower projects on the Salween River including the 7,000 megawatt Tasang Dam, which is in the planning stage as a joint venture between Chinese and Thai companies despite local protests against implementation. A feasibility study was conducted for upgrading the Wan Pong Port with the support of the LMC fund, according to the Chinese embassy.

Transportation and power sector projects dominate the second initiative, CMEC & CMEC plus. The Kyaukphyu SEZ, border trade zones, hydro, solar and gas-fired power projects and cross-border interconnection projects fall into this category. CMEC plus means inviting other LMC countries to cooperate in implementation of the CMEC. Chinese state-owned company CITIC had called tenders for legal services and hired Myanmar Survey Research (MSR) to conduct EIA/SIA in 2022. MSR has done local consultations in Kyaukphyu and some CSO activists launched protests, according to local sources.

At the opening ceremony of the 135-megawatt gas-fired power project in Kyaukphyu in October 2022, Chinese Ambassador Chen Hai said Chinese companies are implementing hydropower projects in Ye Ywa in Mandalay, Paung Laung in Naypyitaw and Tha Htay in Rakhine; natural gas-fired plants in Tha Hton in Mon State and Thaketa in Yangon; and a solar plant in Minbu in Magwe Region. The above-mentioned $180-million project was jointly developed by state-owned Power China Resources and local Supreme Group and Power China implemented solar projects (30-megawatt) in Magwe and Mandalay regions after the coup. Agreements on most of these projects and cross-border interconnections were signed under the since-ousted NLD government.

The third category of New International Land-Sea Trade Corridors will pass through Myanmar connecting with Southeast Asian countries and give China access to the Indian Ocean. However, successful implementation of this corridor depends a lot on the planned Muse-Mandalay railway project. The pre-feasibility phase has been completed for this project, which is a vital part of the China-Myanmar rail route connecting Yunnan province with Myanmar. According to the planned Y-shaped railway routes, the Muse-Mandalay railway will go south to Yangon and west to Kyaukphyu by the Mandalay-Kyaukphyu railway line. Construction of the Mandalay-Kyaukphyu Road and upgrading of the Mandalay-Muse Road are also under way on the Myanmar side. However, the investment amount for the Muse-Mandalay railway is estimated to be $9 billion; whether it is financially feasible or not is the big question given the current situation of civil war.

Among projects in these three groups, the most likely ones to get to the implementation phase are  technical cooperation projects under the LMC. Over $27 million was disbursed for the 92 Mekong Lancang Cooperation (MLC in Myanmar) Special Fund projects in Myanmar according to a presentation by the deputy foreign minister of Myanmar to diplomats of LMC countries during their study visit on Feb. 16, 2023. These 92 projects are being implemented by the ministries of Home Affairs; Culture and Religious Affairs; Agriculture; Rural Development and Cooperatives; Environmental Conservation; and Science and Technology.

These technical cooperation projects are in line with the Chinese government’s new “Small is Beautiful” approach to the BRI. China’s development financing particularly for mega infrastructure projects has been declining significantly (and turned negative in 2019 and 2020) and more than 60 percent of the loans are in debt distress after Russia invaded Ukraine in February 2022. Instead of financing multi-billion dollar large infrastructure projects, Chinese state-owned companies and state institutions are now cooperating in security, surveillance and governance training in countries like Tanzania, Myanmar  and the Solomon Islands. This change in BRI strategy is more cost-efficient for China and more effective.

The second-most-likely-to-be-implemented projects are in the power sector, although mega-dams such as Tasang and projects like the Mee Ling Gyaing LNG terminal are not likely to reach the implementation stage under current circumstances. The majority of these power projects started before the coup. The SAC revoked solar power bids which were called in 2020 by invoking force majeure and invited a new round of solar tenders in May 2021. The financial viability of these power projects and the SAC’s commitment to power purchase agreements are quite doubtful. A few weeks ago, investments by Chinese companies in wind power projects in Rakhine State was announced in state-owned media.

With respect to the third category, border trade zones at the China-Myanmar border can be implemented as bilateral trade has been increasing since the opening of the Chinese border and most of these are in areas controlled by EAOs which have close relations with China. However, it is unlikely we will see implementation of the Muse-Mandalay railway, which is vital for connecting with railroads in Yunnan province, given that China’s overseas lending is encountering debt distress in many debtor countries, and the domestic economic situation.

Given all this evidence, it is certain that China is diversifying risks by putting its investments into different baskets (SAC’s ministries, EAO-controlled and cross-border projects). And it seems to be cautious of financial risks and is likely to focus more on technical cooperation and small (20-40 megawatt solar) and  medium-sized (over 100-200 megawatt hydro and gas-fired) power projects. China has a major economic and geostrategic interest in resuming the CMEC and other regional cooperation projects.

However, whatever the reasons for the resumption of investments while the SAC is waging war against its own people, the public perception of Chinese investments would be more negative than before. Nearly half of Myanmar’s external debt is owed to China, including a $1.4-billion loan for the Myingyan steel mill extended to a military-owned company and later transferred to the Ministry of Industry, which was closed down by the NLD government due to losses. Due to governance gaps identified in the country’s case-studies of regional initiative BRI Monitor, the Myanmar public considers China’s loans and investments not beneficial to the public, and as only enriching the military elites. In these case studies, common findings are lack of transparency and limited consultation with local communities, collusion with authorities in land confiscation, and corruption. Chinese state-owned companies formed partnerships with domestic state-owned companies and powerful elite-owned companies to implement large infrastructure projects without paying regard to the risks involved in them. According to Brad Parks of AIDDATA, two main features loom large in Chinese BRI projects all over the world, although not all are beneficial to the local communities. They are political capture and corruption. In Myanmar, these two features were prominent under the previous military junta, the SPDC. Lee Jones and Yizheng Zou wrote a case study of China Power International (CPI)’s Myitsone Dam in their paper “Rethinking the State Role of State-Owned Enterprises in China’s Rise”, saying that CPI had ignored the Chinese government’s regulations to gain profit and signed a framework agreement on the Irrawaddy Hydro Power Project which planned to build seven dams including Myitsone at an estimated cost of $20 billion (one third of Myanmar’s then GDP). These two features will become much more pronounced under junta rule. Therefore, the Chinese side needs to address governance gaps in their investment projects. Compounding this is the deteriorating rule of law and conflict situation in Myanmar. Junta leader Min Aung Hlaing himself admitted that only 50 percent of the territory is under the regime’s control.

The Chinese government, although it has decided to resume its CMEC and other projects in Myanmar, should give attention to proper risk assessments of mega infrastructure investments. It is not realistic to compartmentalize the country into different segments as mentioned above to diversify risks and assume that implementing CMEC and other Chinese investments in these areas such as Rakhine State will serve China’s strategic and economic interests, and they are risk free. There are a lot of risks associated with these projects, from financial, currency and political to force majeure. The spillovers from conflicts in other parts of the country, particularly mainland Burman areas, will definitely affect these projects. In addition, SAC’s mafia-style governance to maintain its hold on power at whatever costs to the country—by using drug-producing militias, thugs and gangsters—will have a huge impact on China and regional stability.

Hopefully the Chinese government can find an enlightened self-interest that takes into consideration decades of self-interest but centuries, in which a prosperous, stable and peaceful China and Myanmar can do business for the wellbeing of their peoples.

Lin Htet Myat analyzes public policy with a focus on economic governance and Public-Private Partnership Projects in Myanmar.