Is Kyaukphyu in Danger of Slipping Out of Our Hands?

By The Irrawaddy 8 June 2018

Myanmar State Counselor Daw Aung San Suu Kyi has stated that she wants to reform the country’s education sector. If that is her intention, we must make a serious effort to educate the younger generation about history and geography so that they develop a fuller understanding of Myanmar’s neighboring countries.

In particular, a country we should be making a serious effort to study is China.

Myanmar still doesn’t have a think tank dedicated to studying China, its intentions, its geopolitical interest in the region or its hugely ambitious regional development strategy, the Belt and Road Initiative, and its implications.

Myanmar’s border with China is more than 2,000 km long, but few Myanmar citizens have much idea about China’s rising political and economic power, beyond vague feelings of fear and resentment. Nor does the Myanmar public have access to the information and data needed to fully understand China’s declared mega-projects in Myanmar, let alone Beijing’s shadowy influence over several powerful ethnic insurgent groups in northern Myanmar.

China’s leaders have promised to assist the “peace process.” But what is the cost of this assistance to Myanmar?

Given China’s past assistance to repressive regimes and exploitation of Myanmar’s natural resources, many in this country are worried about China’s plans, and this has the potential to fuel anti-China sentiment.

In 2011, when then-president Thein Sein ordered the suspension of the Myitsone Dam, a controversial hydroelectric project financed by a state-owned Chinese company, many applauded the move. The decision angered China but it was popular with the Myanmar public.

China has approached Daw Aung San Suu Kyi’s government about reviving the dam project but nothing appears to have come of that. Greenlighting a restart for the project would be political suicide.

At any rate, Beijing has switched its attention to another area in Myanmar in which it has a strong economic and strategic interest.

Since last year China has signaled that its attention is now focused on building a deep-sea port in Kyaukphyu, in western Rakhine State.

The port will give China access to the Indian Ocean via Myanmar in one of the Belt and Road Initiative’s many planned trading corridors.

As The Irrawaddy has repeatedly emphasized, Kyaukphyu is important to China when it comes to long-term strategic influence, both commercial and military, because Beijing needs to secure oil imports from the Middle East and trade routes to and from Africa and Europe.

China has already built oil and gas pipelines in Kyaukphyu and proposed a railway link, though that project is currently suspended.

In any case the Kyaukphyu project is one of the biggest infrastructure projects in Myanmar. The most important question is: Who will own the project in the future? Under the current terms, China holds 70 per cent and Myanmar’s government and local companies hold 30 per cent.

Concerns have been raised that the US$9 billion price tag for the port development is artificially high and that the port will fall under China’s exclusive control if Myanmar were to default on its debt. The good news for now is that the project is under review.

One doesn’t have to look too far for a precedent; Asia analysts point to Sri Lanka’s Hambantota port. Colombo was unable to service its China-held debts relating to the project and Beijing now exercises de facto sovereign control over the strategic facility.

Critics of the project see Kyaukphyu as part of a disturbing pattern — already visible from the Horn of Africa to South Asia to our own region — in which Chinese investment is linked to exorbitantly high-interest loan agreements. When a host country falls behind in its payments, a deal is struck whereby Beijing assumes greater control of the strategically important project.

Some analysts would go further and say the projects that China is taking on around the world are rigged decisively in their favor in a concerted policy of “debt diplomacy.”

Many here at home fear the Kyaukphyu project is in danger of leading Myanmar into a similar “debt trap.”

Looking at this and other examples around the region, Myanmar’s leaders must think twice before agreeing to China’s plans. Such critical decisions require both vision and imagination.

Realistically, the Kyaukphyu project cannot be canceled, but Naypyitaw will have to think carefully about how the port is managed, its long-term development plans for the region, and the flow of trade. Who will benefit from the project?

To begin with, we must take a close look at the financing. What are the interest rates and terms of repayment to China? What will be the consequences if Myanmar can’t pay back the loans? Rakhine is one of the poorest and least developed states of Myanmar. The real benefits of developing a port there must accrue to the Rakhine population and the country, not just to investors.

So, what to do with the Kyaukphyu project from here?

The simplest answer — if we don’t want to fall victim to China’s debt diplomacy — would be to halt the project once and for all. A second option, perhaps, might be for Myanmar to put the project under the control of a publicly listed state enterprise — or set one up for this purpose — which would be bound by stock exchange rules and subject to greater transparency, and then invite more investors to participate.