[Analytics] China, Myanmar tighten their Belt and Road ties

China and Myanmar agreed to accelerate several joint infrastructure deals and projects during President Xi Jinping’s historic visit to the country, giving new impetus to commercial relations that have revived under Myanmar leader Aung San Suu Kyi. Thompson Chau specially for the Asia Times.

Xi visited Myanmar on January 17 and 18, marking the first time a Chinese leader traveled to the Southeast Asian country in nearly two decades and coinciding with the 70th anniversary of the two sides establishing formal diplomatic relations.

The two governments inked 33 agreements involving key infrastructure projects while agreeing to accelerate the implementation of the China-Myanmar Economic Corridor scheme, part of Beijing’s Belt and Road Initiative (BRI).

Most significantly, the two sides agreed to concession and shareholder agreements for the China-backed port project at Kyaukphyu in central Rakhine state. There are five agreements still to be signed on the project, according to Myanmar Deputy Commerce Minister Aung Htoo.

The deals are controversial, however, and could expose China to future political risks. Tun Kyi, coordinator of the community group Kyaukphyu Rural Development Association, said local villagers were not consulted during the negotiations of the two new agreements.

“Right now the majority of the people in the project area do not support the project. The company side did not disclose or consult the project details to the public,” he told Asia Times.

Local communities are worried about the risks of losing their livelihoods without being provided alternative jobs, especially because most residents are involved in fisheries, as well as sand and gravel mining, he added.

A consortium led by state firm CITIC, comprised of four other Chinese firms and Thailand’s Charoen Pokphand Group, plans to develop the deep-sea port as part of a special economic zone in the restive state of Rakhine.

In late 2019, CITIC hired Canadian firm Hatch as project manager to supervise and recruit consultants for a legally required environmental and social impact assessment.

Kyaukphyu is the site of twin pipelines through which oil produced in Myanmar is delivered and exported to China.

The port is just one of the dozens of deals signed during Xi’s two-day visit, although no major new projects were announced. At the same time, few concrete contracts were signed.

Newly inked agreements aimed to hasten negotiations on the proposed Ruli-Muse Cross Border Economic Cooperation Zone and a 1,390 megawatt, US$2.6 billion liquified natural gas (LNG) power plant project in Ayeyarwaddy’s Mee Laung Gyaing.

China’s ambitious railway scheme to link southwestern China to the Indian Ocean moved ahead with a formally submitted Muse-Mandalay Railway Feasibility Study Report. A letter of intent was also signed for the Yangon “New City” project, led by Yangon Chief Minister Phyo Min Thein and Myanmar tycoon Serge Pun.

Whether all the projects will proceed smoothly is questionable, analysts say. Hunter Marston, a doctoral candidate at the Australian National University, highlighted that many of the projects are enormously complex in detail, financing and development timelines.

“Even this weekend’s meeting didn’t iron out all of the details [for Kyaukphyu port], reportedly avoiding specific agreements related to financing and bidding which will come later,” he said.

The omission of any mention of the Myitsone dam, a $3.6 billion China-funded mega-dam project suspended by Myanmar in 2011, was noteworthy.

The dam remains highly controversial in Myanmar, in part because 90% of the generated power would be exported across the border to China.

On the day of Xi’s arrival in Myanmar, a group of more than 30 local civil society organizations, mostly based in Kachin state, released a public letter urging the Chinese leader to terminate the scheme.

“It now seems clear that Xi Jinping, while personally invested in the project, understands Aung San Suu Kyi’s constraints in an election year and appears content to wait until after November elections before pressuring her government to resume the project,” Marston commented.

When meeting the Chinese leader, Suu Kyi praised her neighbor’s role in the world but urged for economic projects that avoid environmental degradation and bring benefits to local communities.

“The Chinese do not have a reputation for responsible investments. Rather, they are a reliable source of massive economic investment: quick, direct, and with few conditions attached,” Marston noted.

Bilateral relations have nonetheless warmed significantly since then-president Thein Sein halted Myitsone on environmental concerns.

Despite Myanmar’s opening up since decades of reclusive military rule, China remains by far the biggest source of foreign direct investment (FDI) in the country.

Beijing is also a key stakeholder in Myanmar’s fractured peace process and its staunch supporter in the UN, where Myanmar has come under fire for its treatment of minority Rohingya Muslims in Rakhine state.

But as China pours billions of dollars of new investment into its smaller, less-developed neighbor, it will find that the country’s laws, scrutiny and public expectations of investors have all drastically changed since 2011.

For example, the landmark Investment Law enacted under Suu Kyi’s government explicitly requires responsible investment and a greater level of disclosure.

The 2012 Environmental Conservation Law, meanwhile, creates legal liability for all investors to provide compensation for any negative impacts caused by their projects.

The 2015 Environmental Impact Assessment Procedure also puts in place a mechanism to regulate negative impacts of business investment.

–FILE–Workers weld a pipeline at a construction site of the Myanmar-China natural gas pipeline in Laibin city, south Chinas Guangxi Zhuang Autonomous Region, 25 January 2013. The Myanmar-China natural gas pipeline was completed on Oct 20 2013, further diversifying Chinas sources of fuel from abroad and ensuring its energy security. The 2,520-kilometer pipeline starts at Kyaukpyu on Myanmars western coast, enters China at Ruili in Yunnan province and ends at Guigang in the Guangxi Zhuang autonomous region. It will provide natural gas to the southwestern provinces of Guangxi, Yunnan and Guizhou. The pipeline, on which construction began in June 2010, has an annual delivery capacity of 12 billion cubic meters, and will deliver 10 billion cu m a year. For the three Chinese provinces receiving the natural gas, the benefits will include cheaper domestic prices and greater energy supplies to the fuel industry.

The Investment law also stipulates that for “investment businesses which may have a significant impact on security, economic condition, the environment, and national interest”, the government should seek approval of the Pyidaungsu Hluttaw, the national legislature, before signing the deal.

This should cover Kyaukphyu, Myitsone and other mega-projects, but to date the Suu Kyi administration has not implemented the checking and balancing clause in the law.

“One of the most important tasks for the Chinese investors is to consider the environmental, social and governance risks of projects at the early, concept, stage, and take steps to reduce negative impacts,” said Vicky Bowman of the Yangon-based Myanmar Centre for Responsible Business.

“Does designing a new city to withstand only a 90 centimeters sea level rise make economic sense for Myanmar or the investors at a time when many coastal cities in Asia are moving in land or investing heavily in flood defences?” she said, referring to the Yangon “New City” project.

She emphasized the need for an honest assessment of whether the project makes sense in a climate changed affected world where sea level rise projections range from 68-200 centimeters by 2100.

“Central to all of these good practices is transparency, not just with project-affected people, but the wider Myanmar public so that stakeholders understand and can influence the investments to make them more successful,” Bowman told Asia Times.