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
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.
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.
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.
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