China's uphill battle to invest in Myanmar

PUBLISHED : Monday, 03 January, 2011, 12:00am
UPDATED : Monday, 03 January, 2011, 12:00am

China is pouring investment dollars into Myanmar in a bid to build bridges with its neighbour, but faces an uphill battle to overcome a deep sense of distrust among the hardline military leadership in the country, analysts say.

In the most recent developments, China Communications Construction (CCC) and dam-builder Sinohydro announced major infrastructure investments in Myanmar involving the construction of an airport at the new capital of Naypyidaw at a projected cost of US$100 million, and a hydropower project to be completed by the end of 2012.

The cross-border investments are being undertaken with the encouragement and assistance of the Asian Development Bank (ADB), and are part of a wider initiative that includes investments in Laos.

But despite the heavy investment and generous financing by Chinese lenders, suspicions and mistrust remain. 'Even though the Myanmar government welcomes big investments from China, these investments are sometimes perceived with suspicion,' said Pavin Chachavalpongpun, a researcher at the Institute of Southeast Asian Studies in Singapore.

'It has taken Than Shwe [the Myanmese leader], to pull Myanmar out of socialism and inject a sense of capitalism - only to see the country's economy going into the hands of the Chinese,' said Chachavalpongpun.

'China controls big businesses in Myanmar, especially in the northern states. Than Shwe is keen to lessen the Chinese influence by inviting new players like India and European countries to invest [there],' he said.

Myanmar's military junta mostly welcomes Chinese investment, said Sean Turnell, an associate professor of economics at Sydney's Macquarie University. 'But they do have mixed feelings. They need the money, but are very sensitive to China's dominance of Myanmar's economy.'

Many of Myanmar's current military leaders fought against the communist party in the country - seen as a proxy for their counterparts in China - in past decades, Turnell said.

'There are ancient fears within Burmese society that China will overwhelm them. The one claim to legitimacy that Myanmar's generals have is the protection of national sovereignty. This claim will be in doubt if people fear the country is being sold out to China.'

Exacerbating the sense of mistrust is that many ordinary Burmese people are angry that land, forests, gas and gems are being sold at knock-down prices to China, Turnell said.

In November last year, just days after the Myanmar military leaders released Nobel peace laureate Aung San Suu Kyi, Myanmar Prime Minister Thein Sein was in the Cambodian capital of Phnom Penh courting private investment from Vietnam, Cambodia, Thailand and Laos, Reuters reported. On December 15, according to a statement on its website, China Communications Construction and Myanmar's Department of Civil Aviation signed a contract to build an airport in Naypyidaw.

CCC, which is listed in Hong Kong and plans to list in Shanghai, said the contract was worth over US$100 million and will be financed by a loan advanced on generous terms by the state-owned China Exim Bank.

'This project will significantly increase the internationalisation of the Myanmar capital of Naypyidaw and increase CCC's influence in Myanmar,' the company said.

Also in December, Sinohydro, China's largest dam builder which plans to list in Shanghai, won a 90.8 million yuan (HK$107.04 million) contract to build a hydropower station in Myanmar to be completed by the end of 2012. It will have an installed capacity of 120,000 kilowatts, according to the firm's website.

The Yeywa hydropower station in Myanmar, also built by Sinohydro, went into operation in October. Its installed capacity is 790,000 kilowatts and it can generate 3.55 billion kilowatt-hours of electricity, which will raise Myanmar's total installed electric capacity by 50 per cent.

From January to May 2010, Chinese investment in Myanmar totalled US$8.2 billion, including US$5 billion in hydropower, according to official Chinese data.

Laos is also looking to China for investment as the landlocked nation has been isolated for so long that most of its people live below the poverty line, Chachavalpongpun said.

Until now, Laos has been perceived as a client state of China, Chachavalpongpun said. 'But Laos is no longer passive. It has played power politics, using one power against the other to maintain some autonomy. Now there is great competition among neighbouring rivals and Vietnam would not be pleased to see Laos become more inclined towards the Chinese leadership.'

In December, the Lao National Assembly approved a high-speed railway between Kunming in Yunnan province and the Laotian capital of Vientiane, the Lao News Agency reported. The railway will be completed in 2015 and is part of a planned high-speed railway linking China with Bangkok in Thailand.

In July 2010, the Laotian Ministry of Public Works and Transport announced China would finance 70 per cent of the Laotian high-speed railway with a loan on generous terms. The railway's construction cost is estimated at US$4 billion.

Similarly, China is providing financing for its infrastructure projects in Myanmar. In November, Myanmar signed an agreement to obtain a US$2.4 billion loan from the China Development Bank, according to media reports.

The loan will be used mainly to finance a natural gas pipeline from Myanmar to Yunnan province, which is currently being built by China National Petroleum Corp, the largest Chinese state-owned energy conglomerate.

But the impact of China's huge investments in Myanmar will be limited, Turnell said.

'Many of the infrastructure investments are made to facilitate Chinese energy projects. As such, the beneficiaries will be Chinese energy firms as well as Myanmar's regime, from whom there is very little trickle-down in positive benefits to the population.'

Also, China uses mostly its own workers for projects in Myanmar, so there will be few jobs created, he said.

Nonetheless, ADB believes China is a positive force for Asia's infrastructure development. In November, at a China-ADB workshop in Beijing, ADB vice-president Bindu Lohani called on China to play a bigger role in bringing transport systems to Asia, according to media reports.

ADB will provide a grant to help connect countries by rail in the Greater Mekong Subregion (GMS), ADB said. The GMS comprises Cambodia, China, Laos, Myanmar, Thailand and Vietnam. With the exception of a link between China and Vietnam, the GMS countries' railways are not interconnected.

'The initiative reflects the growing realisation by GMS countries of the need for an interconnected and integrated railway network in the region,' said James Lynch, Southeast Asia director for transport and urban development with the ADB.

Improved rail links between China and Southeast Asia will bring mixed blessings, said Chachavalpongpun.

The negative effects include illegal immigrants, trafficking in drugs, people and arms, and security challenges, he said.

In August last year, GMS governments endorsed a railway strategic framework at a conference in Hanoi.

It focuses on integrating national railway systems - including cross-border regulations and technical issues such as rail gauge differences - to ensure trains can run across the countries' networks, ADB senior media officer Ramoncito dela Cruz said.

'The investments required are huge and will have to be implemented over many years, and only few of the possible interconnections have been studied in detail at this time,' dela Cruz said.

As such, the framework does not prescribe a fixed plan but proposes four alternative rail routes linking China, Vietnam, Cambodia and Laos, including that of the planned high-speed railway from Kunming in Yunnan province through Vientiane, Laos to Bangkok.

Thailand is seeking China's co-operation to build high-speed rail links from Bangkok to Chiang Mai, Bangkok to Rayong and Bangkok to Ubon Ratchathani, Thai Transport Ministry inspector Chula Sukmanop said in December.

During a visit to China by Myanmar's top leader Than Shwe in September, he and Chinese President Hu Jintao pledged to increase economic ties between the two countries.