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BACKGROUNDER

Myanmar in China’s Push into the Indian Ocean

March 14, 2016

China, of late, has been pitching to increase its influence in the Indian Ocean through Myanmar by building a deep-water port, which includes a special economic zone (SEZ) at the cost of US$280 million. The project is coming up at Kyaukphyu in the troubled southwestern Rakhine Province of Myanmar. The Kyaukphyu SEZ project was awarded to a six-member international consortium headed by one of China’s biggest conglomerates, Citic Group, through a “fair and open bid” in December 2015.1 Four other Chinese industrial and investment groups and one of Thailand’s biggest conglomerates, Charoen Phokphand, are the other members of the consortium. The project is expected to contribute about $10 billion to Myanmar’s annual GDP by 2025, while 90 per cent of the project managers would be Myanmar citizens. The Kyaukphyu project would provide China an effective connectivity with the Indian Ocean than any of the so called “string of pearls”, including the Gwadar port in Pakistan.

The current military government of Myanmar has set aside 1708 hectares (4289.32 acres) for the Kyaukphyu SEZ, which would comprise two deep-sea ports of 148 hectares and 95 hectares, a 978-hectare industrial zone, and a high-end housing project covering 494 hectares. The project is adjacent to the landing point of the dual pipeline that transports gas and crude oil to China. During President Thein Sein’s visit to Beijing in May 2011, a memorandum of understanding (MoU) was signed between Myanmar’s rail transport ministry and China’s state-owned Railway Engineering Corporation to build a rail line linking Kyaukphyu with Kunming, capital of the Yunnan Province of China. Later, in July 2014, the construction ministry of Myanmar announced that the No. 2 Union Highway and the Kyaukphyu-Magway route will be upgraded for better connectivity with the SEZ.

Since Kyaukphyu SEZ is an economic-cum-strategic asset for China, it seeks to avoid provoking local resistance similar to the ones it experienced in Sri Lanka and Africa and even in Myanmar earlier. Efforts have been made to ensure that the Chinese-led consortium collaborates with the Myanmar Government and accommodates the interests of the local community. According to U Myint Thein, Deputy Rail Transportation Minister of Myanmar, who also chairs the Kyaukphyu SEZ management committee, local residents have been invited to join a monitoring group that will watch out for any potential social, economic or environmental damage. He added that the SEZ was a long-term development project that enjoyed public support and would provide local job opportunities.2

Source: Shibani Mahtani, “China Moves to Revive its Sway in Myanmar”, The Wall Street Journal, February 28, 2016.

Courting National League for Democracy

It is noteworthy that after the reformist government of President Thein Sein re­placed the military junta in 2011, Chinese investment in the na­tion had plummeted – from approximately $12 billion between 2008 and 2011 to just $407 million in 2012-13 due to the suspension of $3.6 billion Myitsone Dam project by the Myanmar Government in view of strong domestic opposition. The then Myanmar Government instead encouraged Western investment to modernise the nation. Until 2012, Chinese state-owned companies had dominated Myanmar's oil and gas sector. However, of the total 36 oil and gas blocks Myanmar awarded to 47 companies in 2013-14, none were given to any Chinese firm. During this period, Thai, Singaporean and Hong Kong companies were among the top three direct investors in Myanmar.

China is careful of the regime change in Myanmar. Generally Beijing works well with dictators and gets concession for trade and investment. However, the latest episode in Sri Lanka, where it lost strategic ground to India after the new president Maithripala Sirisena renegotiated the $1.4 billion Colombo port city project after a nine-month suspension of the project. China had earlier faced trouble in Myanmar itself in the form of local protests against the Letpadaung copper mine project in the northwest of the country. Before, in 2010, Myanmar Government had to suspend a $3.6 billion Chinese-led Myitsone Dam project because of the local opposition, as almost 90 per cent of the power was expected to have gone to China. Beijing now wants to avoid similar situation in the case of Kyaukphyu project given its huge strategic value.

With the new democratic government coming to power,3 China wants to regain the position it once enjoyed under the military government in Myanmar by expanding investments in growth-oriented sectors like infrastructure particularly construction of railways, roads and ports. Despite setbacks in the past years, China has been making concerted efforts to again enhance its engagement with Myanmar. Beijing had invited Suu Kyi to China in June 2015 where she met President Xi Jinping, an unusual event as opposition leaders wouldn’t get to meet the president. According to Xinhua, which provided few details of the meeting, China looks at its relationship with Myanmar “from a strategic and long-term perspective.”4 The five-day visit was at the invitation of the Chinese Communist Party and the purpose was to engage Suu Kyi and her party National League for Democracy (NLD). The Chinese Government has also hosted politicians from the troubled Rakhine Province, where the Kyaukphyu SEZ project is located.

In fact, China had started building ties with NLD from 2011 onward and three successive Chinese ambassadors (Li Junhua, Yang Houlan and Hong Liang) are known to have since held meetings with Suu Kyi. Chinese officials, scholars, journalists and businessmen too have been frequenting the NLD headquarters in Yangon.

For Suu Kyi, Chinese investment cannot be ignored. She wants to convert Myanmar into a major economy in Southeast Asia and balance both the West and China in terms of economic assistance. According to Myanmar’s Directorate of Investment and Company Administration, China is the largest investor in Myanmar with $15.41 billion in cumulative investment by the end of 2015. Chinese investment accounted for 26.06 per cent of the total investment of $59.15 billion.5 Again, according to the Myanmar Investment Commission (MIC), the foreign direct investment (FDI) is expected to reach $5 billion by end of the fiscal year in March 2016. The FDI is also expected to show 14 per cent annualised growth from now until 2030, pushing the aggregate amount to $100 billion in the next 15 years.

Cumulative Chinese investment in Myanmar (US$ in Million)
As on 31 December 2015

Source: Directorate of Investment and Company Administration, Ministry of National Planning and Economic Development, Government of Myanmar

In an interview to the Xinhua News Agency after winning the elections, Suu Kyi while welcoming investments from all countries including China emphasised the need for foreign investors to gain the trust and confidence of the people of Myanmar. She also reportedly praised China’s OBOR initiative, expressing hope that it would benefit all sides.6 Interestingly, Suu Kyi has already indicated that the new government will review previously awarded projects, including the Kyaukphyu project.7

The Indian Ocean still remains somewhat of an enigma to China. Its efforts at securing a direct access to it are unlikely to see an early fruition.

Joshy M. Paul is Assistant Professor, Department of International Studies and History, School of Law, Christ University, Bangalore.