Myanmar's changing ties with China

How negotiations gave Myanmar and China both a better deal in joint port project

Andre Wheeler says that concerns over Myanmar falling into a Chinese ‘debt trap’ through the belt and road development plan can be assuaged by a committed effort by both parties to reach a mutually beneficial agreement, even if that includes some hard bargaining

PUBLISHED : Thursday, 02 August, 2018, 3:03pm
UPDATED : Thursday, 02 August, 2018, 8:47pm

Discussion on the China-Myanmar relationship has focused on the risks rather than the opportunities that the Belt and Road Initiative, of which the China-Myanmar economic corridor is one part, offers. In an earlier piece, I argued that, depending on the economic development model adopted, the belt and road plan could help the country leapfrog development and lift its citizens out of poverty.

These claims had an important caveat attached, arguing that all participants in the belt and road scheme must ensure that the agreements signed should protect a country’s sovereignty, so as not to become a victim of the alleged pseudo-colonisation by China. This approach would also demonstrate China’s transparency in dealing with belt and road participants and affirm the position that the belt and road plan is for the benefit of all and not designed to create a New World hegemon.

Myanmar’s Kyauk Phyu development in the Rakhine state is an important indicator of how these issues can be addressed. The corridor has evolved as a response to India’s limited participation in the earlier proposed economic corridor linking Bangladesh, China, India and Myanmar.

As a reminder, China, as part of its belt and road programme, wants a West Coast seaport that will ease energy security concerns by allowing a bypassing of the Strait of Malacca. It was to this end that Kyauk Phyu was identified as an important port and economic zone.

China’s Myanmar policy: whatever’s good for business

In the early phases of the discussion, China was said to have sought an 85 per cent stake in Kyauk Phyu’s development. This was always an unlikely outcome, mainly due to geopolitical considerations. China has considerable economic muscle, particularly with the stalling of the Myitsone Dam project that has left Myanmar exposed to significant debt. In the initial stages of discussion, this debt was a leverage point to secure rights and access to Kyauk Phyu, in exchange for debt concessions associated with Myitsone dam.

However, these agreements have met further hurdles due to cultural and community concerns. After 50 years of isolation, the community wants not only consultation on the project but also to look for meaningful economic participation as well. There is also the reality that Rakhine is an ethnic minority state that has significant civil unrest. This sets the scene for a lack of trust between the local community and governments.

China being granted 85 per cent ownership in the development would not sit well with the community. Latent distrust of China’s intentions was based on their experience during the construction of the oil and gas pipeline facilities. It is pubic knowledge that the local community was not engaged or given meaningful participation in the project outcome.

Lack of participation developed into a fear that there would be a lack of access to facilities, in turn harming opportunities for participation in the offshore development of oil and gas. It was feared that only Chinese firms would have access to Kyauk Phyu, thereby stopping employment and economic engagement opportunities.

How a Sri Lankan port is sparking Chinese takeover fears in Pakistan

Detractors of the belt and road scheme have played to this narrative by claiming that the “debt trap” associated with projects would do more harm than good. Examples used are Hambantota and Gwadar ports.

The differing values associated with the development have fuelled the debate – much of it driven by the conflating of the port with the special economic zone construction. When talking to those active in the discussions in 2016, it was clear that the port itself would cost around US$1.5 billion, with the adjoining special economic zone infrastructure costing another US$4 billion (for power plants, roads, warehouses, etc).

Sean Turnell, the special economic adviser to the Myanmar government, while agreeing that the port will be a valuable addition to key infrastructure, argues that the project is too large and needs to be scaled back.

However, infrastructure debt is often regarded as good debt, as it seen as establishing the basis for sustainable economic growth. There is an abundance of evidence that shows average growth rates are higher (for developed and emerging economies) at levels of debt between 60 and 90 per cent of gross domestic product than when levels of debt are 30-60 per cent of GDP.

Despite all this background noise, there has been progress that bodes well for the inter-governmental meeting between Myanmar and China later this year. Through negotiations, the scale of the project has been brought back to around the US$3.5 billion level (for the port and economic zone). It also appears that ownership will be based on a 70-30 split, with Myanmar not having to provide sovereign backing for the fund.

Future developments will only take place when the appropriate scale in economic activity has been reached and operating costs are covered. At this stage, Myanmar would be expected to fund development that reflects their 30 per cent share ownership.

Why China is becoming a friendlier neighbour in Asia

This reinforces the notion that the belt and road can be seen as a win-win. Furthermore, it could be argued that the Kyauk Phyu negotiations shows China’s contention that the belt and road plan is not to impose a New World hegemon but is driven by a vision that benefits all nations through trade and commerce.

What it takes is for the recipient country to be clear on what it needs and to protect these in their agreements, as has been shown by the Myanmar government.

Andre Wheeler is CEO of Asia-Pacific Connex, with more than 25 years’ experience in international business. He is working towards his doctorate on the impact of China’s Belt and Road Initiative on infrastructure and logistics in the Asean region