Sunday, January 24, 2016

China and Myanmar’s SEZs: strategic partnership or can of worms?

China’s push to re-engage with its southern neighbour may have unexpected costs

S ince coming to power in 2011, Myanmar’s President Thein Sein has distanced the country from its previously tight-knit relationship with China in favour of rapprochement with the west and Japan.

Yet the past few months have seen a determined push by Beijing to re-engage Myanmar economically and politically, reminding Naypyidaw that it sees the country as a key strategic neighbour, particularly in the wake of recent general elections.

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So Chinese officials will have looked on approvingly on December 30 when Myanmar’s parliament gave the go-ahead to the first phase of the Kyaukpyu special economic zone, awarded to a consortium of mostly Chinese companies led by Citic Group.

It is hoped that the $10bn-plus SEZ on Myanmar’s remote south-west coast will complement an existing oil pipeline linking Myanmar and China, in operation since 2013, and serve as a regional hub for logistics and mineral processing.

Citic began feasibility studies for the SEZ as far back as 2007. Yet the Myanmar government failed to award the project several times, partly due to a perceived lack of commercial viability and also because of a cooling in diplomatic relations.

China’s resurgent interest has been driven by growing competition with Japan for strategic influence in Myanmar and by Beijing’s desire to show concrete progress in its “One Belt, One Road” initiative.

Japanese investments are planned across a range of infrastructure sectors in Myanmar. Japan has successfully launched the $2bn Thilawa SEZ, a manufacturing hub near Yangon scheduled for completion by the middle of this year, and has shown interest in investing in the Dawei SEZ, a Thailand-backed industrial and logistics zone near the Thai border.
This has spurred a more aggressive response from China, including its first attempt to bankroll large-scale projects in Myanmar since the suspension of the $3.5bn Myitsone hydropower dam project under Thein Sein.

Yet while Kyaukpyu is now backed by China’s political and financial muscle, questions over its commercial and social viability remain unanswered.

Unlike other planned SEZs, it is far from Myanmar’s major cities and its borders with China and Thailand.

Infrastructure will be crucial in making the SEZ commercially viable.

“It is expected that Myanmar would invite the Asian Infrastructure Investment Bank to build 800km of new roads to connect Kyaukpyu to the Chinese border”, Win Myint, director of the bid evaluation committee for Kyaukpyu, told FT Confidential Research, a research service at the Financial Times.

Yet the days are gone when Myanmar’s military was able to push through its agenda and nullify local opposition.

Grass roots resistance presents a formidable obstacle to all of Myanmar’s planned SEZs. There is growing public opposition to the perceived domineering role of China and other foreign governments in SEZ megaprojects and to the land acquisition processes that typically accompany them.

Unless Citic and its partners are willing to single-handedly assume the risks of investing in the SEZ and sink billions of dollars in new infrastructure, Kyaukpyu runs the risk of following in Myitsone’s footsteps and getting forever embroiled in Myanmar’s vociferous local politics.
Gavin Bowring is director of research (Asean) at FT Confidential Research.

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