Rescuing Myanmar From the Chinese Debt Trap
By Yan Naing 21 August 2020
It is always interesting to watch the existing relationship between China and Myanmar. There are two schools of thought.
One believes Myanmar is still in the pocket of China. The other believes Myanmar is now struggling to come out of China’s orbit.
Undeniably, there are many different layers in this debate.
But careful observation of the current administration’s approach to China, including the position of the military, leads to the conclusion that caution is guiding Myanmar’s relationship with its giant neighbor.
In recent months, we have seen Myanmar demonstrating its resistance to China, which is trying to deepen its influence on Naypyitaw through the China Myanmar Economic Corridor (CMEC).
The reasons why Myanmar has begun to red flag Chinese investments, especially in infrastructure, under the CMEC are not hard to gauge. It is obvious that Myanmar’s leadership would have kept a sharp eye on Pakistan, a fellow South Asian country, which had earlier joined the China Pakistan Economic Corridor (CPEC).
Chinese President Xi Jinping had hailed CPEC as the flagship project of his Belt and Road Initiative—a mega connectivity initiative in Eurasia, meant to anchor China’s rise.
Nevertheless, the situation on the ground was hardly rosy.
Lessons from neighbors
In an investigative report published in 2017, the Pakistani daily Dawn unveiled that China was forging a new structural relationship with Pakistan, which would enable Beijing to exercise overwhelming influence on Islamabad. “The [CPEC] plan envisages a deep and broad-based penetration of most sectors of Pakistan’s economy as well as its society by Chinese enterprises and culture,” the daily reported in its detailed investigation.
Likewise, Myanmar also draws a lesson from Sri Lanka and Maldives, where China has made efforts to push big infrastructure projects that are deemed to be debt traps.
The Chinese invested billions of dollars at high interest rates, and leveraged them to acquire strategic assets, such as the Hambantota port in Sri Lanka on a 99-year lease.
The CPEC model, which has led to Pakistan’s structural subordination to China, is now rumbling in CMEC.
In terms of geography, the Chinese have proposed that the CMEC would take the shape of an “inverted Y”. It would start from China’s pivotal Yunnan province, which shares borders with Myanmar, Laos and Vietnam. From Ruili city on the China-Myanmar border, the corridor would head towards Mandalay, Myanmar’s former royal capital on the banks of the Irrawaddy River in the northern part of the country. From there, it could extend towards the east and west to Yangon New City and the Kyaukphyu Special Economic Zone, in the western Rakhine province.
Push for SEZ delayed
During Xi’s state visit to Myanmar in January, two agreements of deep strategic significance were signed. One was on establishing the Kyaukphyu Deep Sea Port (KDSP) and setting up the Special Economic Zone (SEZ).
By setting up the KDSP, the Chinese are hoping to lower their dependence on the Straits of Malacca, which is China’s main trade artery, linking the Indian and the Pacific oceans. With a new cold war with the United States on the horizon, the Chinese are desperate to reduce their over-reliance on the straits, which are militarily dominated by the US.
The Kyaukphyu Deep Sea Port is also critical for China’s energy security. The port is home to an oil and gas pipeline, ferrying energy to Yunnan—China’s strategic gateway to the Association of Southeast Asian Nations.
In order to nail down an unequal relationship, 33 Memorandums of Understanding (MoUs) were signed during Xi’s visit to Myanmar.
It is estimated that under an elaborate plan, China is targeting a massive investment of around US$100 billion (135.7 trillion kyats) in Myanmar’s economy—a figure that exceeds the hefty $62 billion funding for CPEC.
China has proposed 38 projects under CMEC and Myanmar so far has approved
only nine. Since last year senior Myanmar officials said that Myanmar will only implement the projects that can guarantee mutual benefits for both sides.
Reading the tea leaves, the Myanmar government led by de facto leader Aung San Suu Kyi is showing signs of standing up to China.
Still, Myanmar continues to suspend the construction of Myitsone Dam. The proposed $3.6-billion dam is one of seven hydropower projects planned for the upper reaches of the Irrawaddy River as well as the Mali and N’Mai rivers, at whose confluence the Irrawaddy begins. Work on the project started in 2009, but then-President U Thein Sein suspended it in 2011 amid widespread public concern over the dam’s social and environmental impacts.
The Chinese were humiliated to learn the news of the suspension.
The current government set up a 20-member commission including the chief minister of Kachin State to review the project, including its environmental and social impacts. The commission has produced two reports to date, but the government has yet to release either.
As of today, the project remains in limbo.
Similarly, there has been no forward movement, so far, on the ambitious China-backed rail project to link Shan State’s Muse, on the border with China, with Mandalay. This $9 billion project involves constructing 431 kilometers of new track, which will link up with China’s high-speed network in Yunnan.
Myanmar’s civilian ministers have expressed reservations, if not hostility, towards China. There is a strong undercurrent of resistance towards Beijing.
U Set Aung, the deputy minister of planning and finance, who is also chairman of the Kyaukphyu SEZ Management Committee, has openly warned against falling into the Chinese “debt trap”. He has stressed that Chinese projects must have commercial viability and benefit Myanmar. The minister has successfully negotiated a reduction in the size and cost of the Kyaukphyu project in Rakhine.
The Chinese-funded port project in the western state of Rakhine reduced the initial price tag to $1.3 billion from $7.2 billion over concerns about excessive debt.
U Bo Bo Nge, the Central Bank deputy governor, who managed to remove objectionable terms in the MoU on CMEC, also nailed the strains in the Beijing- Naypyitaw relationship when he pointed out that Myanmar had to “go along with China to some extent”, but, in the end, this was a “hated marriage”.
Chinese arms in insurgents’ arsenal
Myanmar’s armed forces still purchase arms and hardware from China, but the military has also diversified its sources. Today, Myanmar buys arms and ammunition from Russia, India, Israel, Ukraine and several other countries in Central Asia and Europe.
Recently, senior commanders of the Myanmar army expressed displeasure with China because several ethnic groups in the northern frontier have received weapons and ammunition from China. These include the United Wa State Army (UWSA), Kachin Independence Army (KIA), Ta’ang National Liberation Army (TNLA), Myanmar National Democratic Alliance Army (MNDAA) and the Arakan Army (AA).
In August last year, during a meeting with Sun Guoxiang, Chinese special envoy on Asian Affairs, Senior General Min Aung Hlaing confronted Beijing officials with photographs of Chinese-made weapons, which had been seized during clashes with the Northern Alliance, a four-member coalition, which includes the Arakan Army and Ta’ang National Liberation Army.
Keeping China at arm’s length, the senior general has apparently declined a Chinese request to conduct joint naval exercises and an offer of a submarine from China.
During his visit to Russia in June, he noted that that defense cooperation between Moscow and Naypyitaw had acquired momentum. During his visit to India, he finalized the deal for the acquisition of the first ever submarine for the Myanmar Navy. The submarine is now in Myanmar and crews are undergoing training.
Indeed, the growing mistrust of Beijing opens the door for Myanmar’s deeper engagement with the rival Indo-Pacific quartet of democracies, comprising India, Japan, Australia and the United States.
Myanmar’s half-pivot away from China aligns well with a marked change in the geopolitical landscape. A new cold war seems to have broken out between the United States and China in the backdrop of the COVID-19 outbreak.
The situation is also ripe for India to step up ties with Naypyitaw, to counter China, following a trust-breaking military standoff between New Delhi and Beijing in Ladakh. There has been no let up in Japanese investments in Myanmar, but ties between the two countries could acquire a sharper security dimension as political friction between Tokyo and Beijing is flaring once again over their disputed East China sea islands.
Myanmar’s location along commercial shipping routes, which are crucial for China, demand that the Indo-Pacific democracies pay close attention to Myanmar’s pivotal role as a partner in monitoring and controlling the sea lanes heading towards the Malacca Straits, China’s soft underbelly.
Yan Naing is the pseudonym of a regular observer on Myanmar affairs.
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