World
Myanmar and China
A Fragile Alliance
The suspension of a major Chinese dam project in Myanmar reflects delicate but substantial changes in the bilateral relationship
“I was in shock when I heard about this from the media,” Lu Qizhou, general manager of the State-owned China Power Investment Corporation (CPI) told NewsChina, referring to a statement from Myanmar’s government in late September that it was to suspend the Myitsone dam project, a CPI-led initiative. “So far, we haven’t heard anything directly from Myanmar,” Lu added.
As the first dam to span the Irrawaddy River, the largest river in Myanmar, the Myitsone project has long battled domestic opposition to its construction. With 90 percent of the electricity generated by the dam expected to supply China, locals have argued that the project is unfairly weighted towards the country’s massive neighbor, with the people of Myanmar shouldering the environmental cost.
Exploitation
China continues to claim that the project is mutually beneficial. “The project will not only greatly increase Myanmar’s flood control capacity and upgrade its power industry, but will also add US$54 billion in government revenue through taxation, free power supply and dividends over 50 years,” Lu told NewsChina, “After 50 years, ownership of the dam, which is worth billions of US dollars and has an operational lifespan of over 100 years, will be handed over to the Myanmar government free of charge.” While investment has come exclusively from China, it is reported that Myanmar will own a 25 percent share in the finished hydropower plant.
However, with Chinese businesses rapidly spreading through Myanmar in recent years, Chinese companies are often blamed for deforestation and the exploitation of Myanmar’s rich natural resources.
“Myanmar can benefit enormously from Chinese trade and investment, but there is bound to be a backlash if Chinese projects are undertaken with zero transparency and little concern for their impact on local communities,” Thant Myint-U, author of Where China Meets India: Burma and the New Crossroads of Asia, was quoted as saying in a BBC report.
The opposition to the Myitsone dam project is largely due to its huge impact on the environment, with 1.4 percent of the entire river basin expected to be underwater by 2019 if construction finishes on schedule.
In 2009, the CPI organized a team of 80 experts to investigate the potential environmental impact of the project, though not required by Myanmar law. After five months of research, the team compiled a 945-page report, which the CPI has refused to publish. It is reported that the experts’ conclusions were relatively pessimistic, warning that the dam may be vulnerable to powerful earthquakes, in addition to causing pollution and jeopardizing regional biodiversity.
Changing Tides
Alongside these suspicions, which have existed for years, there are some important political considerations behind the Myanmar government’s decision. In February, Myanmar’s military junta held national elections to form a civilian government. However, the election was boycotted by Aung San Suu Kyi’s opposition, leading Western governments to declare the results illegitimate. Additionally, the new government includes several former military officers, chief among them the new President Thein Sein, in its highest ranks, adding to suspicions that it is simply a puppet regime of the country’s powerful military.
In an effort to convince critics at home and abroad that it is serious about reform, the civilian government has sought to distance itself from the military. In the past months, it has loosened restrictions on the media and started to draft laws on economic liberalization, as well as holding regular meetings with Aung San Suu Kyi.
Since the dam is a prestige project for the junta as China its major benefactor, the decision to suspend the project, which is opposed by many including Suu Kyi, is bold, but not entirely out of the blue.
When announcing the decision, Myanmar President Thein Sein stressed that the government is one “elected by the people, which upholds the aspirations and wishes of the people,” and therefore “should be responsible in solving the problems that worry the public.”
Only two weeks after the decision on October 13, Thein Sein, along with 13 ministerial-level officials, visited India, which is now vying with China for a preferential relationship with Myanmar. Many observers saw the visit as an attempt by the Myanmar government to reduce its economic and political dependence on its erstwhile ally China.
During the visit, India promised to complete the construction of the US$120 million Sittewe deep-water port by 2013, which will allow cargo vessels from India’s landlocked Mizoram state to navigate the Kaladan River to Myanmar and Southeast Asia. It is expected that bilateral trade between Myanmar and India will increase to US$3 billion by 2015. Major Indian energy companies including ONGC Vedesh, GAIL and Eassar also expressed their interest to increase their investment in Myanmar.
“It is obvious that Myanmar does not want to put all its eggs in one basket,” commented Zhao Shilong, vice editor-in-chief of the Guangzhou-based Time Weekly newspaper. “It is likely that other Chinese projects, such as the oil pipeline currently under construction [carrying natural gas and oil from the Bay of Bengal to southern China] may be the next to encounter problems.”
China currently stands as Myanmar’s biggest trade partner and source of foreign investment. In 2010, the trade volume between China and Myanmar was US$4.4 billion, with China’s direct investment in Myanmar at US$12.3 billion. In the first quarter of this year, a US$3.2 billion increase in investment was recorded.
Perhaps with that in mind, President Thein Sein appeared keen not to anger China when announcing the suspension of the dam project, adding that the government would negotiate terms with China “without affecting the friendly bilateral relations between the two countries.’’
Similarly, China’s reaction has been relatively mild, either as a result of being caught by surprise, or else in the hope that the project will be restarted at a later date. “The dam is a joint venture between China and Myanmar which has been approved by both parties after serious research,” read a statement from China’s Ministry of Foreign Affairs. “The two sides should hold friendly talks over matters related to the project.”
Talks
During his official visit to attend the opening of the China-ASEAN Exposition from October 21 to 26, Myanmar Vice-President Tin Aung Myint Oo told Chinese President Hu Jintao that Myanmar would work closely with China to “seek solutions to defend mutual interests.”
The two parties will certainly have a lot to work with. According to Lu Qizhou, many infrastructure projects related to the dam, including roads, power, and telecommunications have already been completed, with a variety of other projects currently underway. It is estimated that China has spent more than US$2 billion on the project since construction began in 2009.
The two countries also need to discuss the fate of other major Chinese-led dam projects, some of which were designed as auxiliary projects to the Myitsone dam. “Dropping the project altogether will have serious legal consequences,” warned Lu.
To add to complications, in a US$4.7 billion interest-free loan agreement with China signed earlier this year, Myanmar borrowed against its share in the hydropower station, intending to repay the loan mainly with expected earnings from the project. If the dam is entirely dropped, the loan agreement may be terminated too.
Myanmar’s decision has thrown a curveball in China’s direction, and will perhaps prove costly for both sides. While bilateral relations remain amicable, the suspension of the Myitsone project shows that even billion-dollar initiatives are not shielded from a political sea change. With international investment playing an integral role in China’s long-term development strategy, experiences in Myanmar perhaps point to a need for a more cautious approach in the future.
December 2011
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