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Aung San Suu Kyi and Xi Jinping in Naypyitawm, Myanmar, on 18 Jan 2020

Myanmar – back on track with BRI?

By Antti Tulonen

11 February 2020

At the second Belt and Road forum in April last year, Xi Jinping stated that the infrastructure projects under the Belt and Road Initiative (BRI) would be financially and environmentally sustainable and deliver high quality infrastructure. The re-calibration of the initiative sought to dam the surge of criticism that had been miring the Chinese flagship foreign policy initiative the past two years. Myanmar was among the countries that had become wary over the infamous debt trap narrative, unflattering reports of poor standards in infrastructure and opaque and wasteful procurement practices disproportionately favoring Chinese companies.

Back on track?

Nonetheless, on 18 January 2020, BRI projects in Myanmar appeared to be back on track as Xi Jinping, on his first visit to Myanmar, and Aung San Suu Kyi announced their countries renewed commitment to cooperate. Myanmar’s eagerness for re-engagement with China, however, is driven largely by its international isolation due to the reported atrocities against Rohingyas. But has China also heeded to the criticism about BRI? It would appear that China’s new tune on BRI is not only a response to criticism but also about increased competition to its connectivity project.

Competition

Japan remains the largest infrastructure developer in Asia and in September 2019 announced a partnership to develop connectivity in Asia with the European Union (EU). This committed the partners to pursuing projects in a transparent and sustainable manner – a clear contrast to the BRI. Likewise, the EU’s connectivity strategy for Asia from September 2018 and it’s follow up a year later placed full emphasis on sustainability, good governance and transparency. The United States, South Korea, and a number of other OECD countries have also started infrastructure initiatives that seek similarly to differentiate from the BRI.

China’s leverage

In Myanmar, however, competition was only one factor. China continues to hold considerable leverage over the poor SE Asian country. The 18 January meeting between Xi Jinping and Aung San Suu Kyi resulted in 33 agreements, memorandum of understanding (MoU), protocols, and exchanges of letters on infrastructure development, industrial projects, trade and investment. Among the most important was a deal covering the Kyaukpyu Special Economic Zone (SEZ) - a 1,000-hectare industrial park and deep seaport project. The deep sea port development has been in Chinese sights over a decade. Re-branded as BRI project, it will be the end point of the China-Myanmar-Economic Corridor (CMEC), which will connect southwestern China to the Indian Ocean. With gas and oil pipelines running from the port to the Chinese border it could alleviate China’s reliance on the vulnerable Straits of Malacca through which 77% of its energy imports and 26% of its goods export are transported. As such, the completion of the project is of considerable strategic interest to China.

The Kyaukpyu SEZ project stalled in 2018 when the Myanmar’s National League for Democracy (NLD) government sought to re-negotiate its price tag over fears of a debt trap. To the disappointment of the Chinese, the size of the port project was greatly reduced: instead of ten berths at the depth of 25m for large ships (including oil tankers) there will only be two and the number of terminals was reduced from two to one. Under the new terms, the cost of 7.8 billion US dollars was reduced to 1.3 billion US dollars, of which China’s CITIC Group, which had won the bid for the development in 2015, will bear 70% in accordance with its stake in the port and the Myanmar government the rest. The CITIC hope that this will only be the first phase of the development.

Sustainability concerns

Government reluctance over the financial burden is not the only resistance Kyaukpyu SEZ has attracted. Activists and experts have expressed concern over the lack of proper environmental and societal impacts of assessment for the project. The study commissioned by CITIC from a Canadian company HATCH in 2019 was criticized for only assessing the port project while excluding other parts of the Kyaukpyu SEZ project. Meanwhile, a report by International Commission of Jurist found that possibly 20,000 locals would have to be re-settled and their livelihoods negatively affected by the project. Civil society concerns are not without weight in Myanmar: the long mooted Myitsone Dam project that would have exported 90% of its electricity to China has been halted since 2011 and Chinese attempt to re-start it has faced a strong backlash.

Conclusion

Today China has regained its leading position as a provider of FDI, largely due to Myanmar’s isolation by Western partners. The January agreement was timed to show Chinese support for Myanmar only a week before negative international court rulings about Myanmar’s treatment of the Rohinga. It remains to be seen whether China will continue to leverage Myanmar’s isolation and NLDs domestic need for support to override financial and local impact concerns to push for a larger Kyaukpyu (SEZ), or even restart the unpopular Myitsone Dam development. On the other hand, China could stay close to its announced re-calibration of the BRI and show that its conduct matches its new narrative. We will see.