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Story Publication logo October 2, 2019

Power Play: How Chinese Money Damned Myanmar’s Economic Transition

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Image by Hkun Lat. Myanmar, 2019.
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This project explores how globalization has carved its way onto the topography of Myanmar since its...

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Dawng Hkawng, who was displaced by the Chipwi dam project in 2012, sits in his small room in the Chipwi internally displaced persons camp in Chipwi, Kachin State, Myanmar. Image by Hkun Lat. Myanmar, 2019.
Dawng Hkawng, who was displaced by the Chipwi dam project in 2012, sits in his small room in the Chipwi internally displaced persons camp in Chipwi, Kachin State, Myanmar. Image by Hkun Lat. Myanmar, 2019.

View the full interactive experience on the  Frontier Myanmar website.

This series explores Myanmar’s economic relationship with China. It is the story of decades of armed conflict, of valuable and contested natural resources in Myanmar’s borderlands, and of backroom deals, secret negotiations and multi-billion dollar agreements that will determine the future of millions of Myanmar’s impoverished citizens. Each piece in the series will examine a different aspect of the relationship and the forces at play.

This is not just a story about Myanmar; it is the story of many countries that are weighing the risks and the opportunities of participating in China’s Belt and Road Initiative.

Through BRI China is expected to invest billions in Myanmar in the coming decade, much of it into sorely needed road, power and railway infrastructure. But in interviews across the country, the people whose lives will be altered by this investment voiced a common concern that China would economically benefit while Myanmar would suffer the social and environmental consequences.

Mountains along the N'Mai Hka River near the Chipwi dam project, outside of Chipwi, Kachin State, Myanmar. Image by Hkun Lat. Myanmar, 2019.
Mountains along the N'Mai Hka River near the Chipwi dam project, outside of Chipwi, Kachin State, Myanmar. Image by Hkun Lat. Myanmar, 2019.

In the misty mountains that loom over the rivers of northern Kachin State, village administrator Dawng Hkawng recalls the day in 2007 when he was ordered to leave his home to make way for a Chinese-backed hydropower dam. He was told the 3,400-megawatt Chipwi hydropower project would provide electricity to the area for the first time. 

Dawng Hkawng and the other 130 residents of Mandung village in Chipwi Township were promised compensation from Myanmar conglomerate Asia World and China’s state-owned State Power Investment Corporation to enable them to build new homes, improve their standard of living and finally join the modern world. In Myanmar villages more than half of households are yet to be connected to the national grid.

"We couldn’t object because they are more powerful than us. If we opposed the project we would have been in trouble because it was the time of the military regime.”

— Dawng Hkawng, displaced villager

Fighting broke out in Dawng Hkawng’s township in 2012, a year after the collapse of a 1994 bilateral ceasefire agreement between an ethnic armed group, the Kachin Independence Army – which now controls the project area – and Myanmar’s military. The villagers fled and the companies abandoned the site. Today it is a ruin, reclaimed by jungle.

Since then, Dawng Hkawng has been living in a camp for internally displaced people in Chipwi town. He never got the compensation he was promised. With no home, and no electricity, he is struggling to support himself and his family.

“We just want to return to our homes, but we can’t go there because of the land mines." 

— Dawng Hkawng, displaced villager

Representatives of SPIC and Asia World declined to comment. 

Dawng Hkawng is one of an unknown number of people in Myanmar who are living in limbo. Their communities are caught up in a struggle between powerful forces: the Myanmar military and paramilitary groups that are loyal to it, ethnic armed groups, and Chinese companies, some of them state owned.

Unused building materials left by Chinese workers at the Chipwi dam project site in Chipwi, Kachin State, Myanmar. Image by Hkun Lat. Myanmar, 2019.
Unused building materials left by Chinese workers at the Chipwi dam project site in Chipwi, Kachin State, Myanmar. Image by Hkun Lat. Myanmar, 2019.

The Chipwi dam is just one of 31 hydropower projects conceived and agreed on behind closed door by Myanmar’s military junta and Chinese investors in the decade before 2011. At the time, the regime was isolated and relied heavily on Chinese investment as well as the sale of natural gas to prop up the economy. Due to conflicts across the country, most of the projects are now stalled or suspended, with villagers still in limbo.

Regardless of where they lived in the areas where dams were planned, the villagers’ stories are similar. They were promised, coerced or threatened into leaving their homes – and then plans evaporated, usually without a trace in a country where custom, not legal procedure, governs dispute resolution.

Although both the current government and its predecessor created committees for settling land disputes, thousands of cases remain unresolved. Only five percent of cases submitted in 2017 and 2018 were settled, according to international legal empowerment group Namati, which monitors land rights cases in Myanmar.


Myanmar’s democratically elected government faces a dilemma. On the one hand, it desperately needs to generate more electricity. Average electricity consumption per person in Myanmar is just one-tenth of the average for emerging and developing Asia. According to a World Bank survey, almost all investors in Myanmar face power outages and are forced to rely on backup generators to keep their businesses running during blackouts. 

Together, the dams proposed by Chinese companies would provide about 39,000MW of power, increasing Myanmar’s total energy production from hydropower by about 12 times. This could potentially transform the power-starved economy and the lives of people like Dawng Hkawng.  

However, that would depend on a significant amount of the energy remaining in Myanmar.

Although the terms of many of the deals are not public, incomplete data about energy sharing agreements shows that much of it would flow straight back to China.

If the dams were built, they would also flood vast areas of conflict-torn land inhabited by indigenous people, potentially sparking armed resistance, and increasing Myanmar’s vulnerability to climate change. Myanmar is already one of the top three countries for global climate risk.

In March, civil society groups from across the country came together for the first time in Mandalay to protest against these projects. 

“These dams directly threaten and exploit the fragile ecology of the rivers and the ethnic communities who rely on them for their survival and for the survival of their cultural heritage,” protest leaders said in a joint statement. 

At the time of publishing, the Chinese embassy in Yangon had not responded to requests for comment.

The confluence of the N'Mai and Mali rivers in Kachin State, Myanmar, where the Myitsone dam site is proposed to be. Image by Hkun Lat. Myanmar, 2019.
The confluence of the N'Mai and Mali rivers in Kachin State, Myanmar, where the Myitsone dam site is proposed to be. Image by Hkun Lat. Myanmar, 2019.

Dams are only part of the story of Chinese money in Myanmar. For decades, Myanmar has depended heavily on China to grow its industries, buy its raw materials, sell it weapons and provide credit. Although other countries punished the systematic and widespread human rights abuses perpetrated by Myanmar’s military regime with economic sanctions, China provided a lifeline, issuing low-interest loans to finance state-run factories, schools and road construction.

As China looked for new resources and markets, its state enterprises received concessions in the 1990s and 2000s from the military junta to extract oil, gas and minerals.

Beijing “consciously pushed” these deals before the political transition in 2011 to maximise its grip on Myanmar’s natural resources, analyst Ms Yun Sun wrote in a paper for the Stimson Centre.

For Chinese companies, Myanmar was an attractive prospect: no burdensome environmental regulations, no corporate social responsibility requirements, few formal state or local taxes, and no transparency requirements. Entire villages like Dawng Hkawng’s could be moved cheaply and quickly.

Revenue from many Chinese joint ventures with military companies and their cronies was not invested in development, or properly accounted for in Myanmar’s national budget.

Garment workers protest in Yangon, Myanmar. Image by Theint Mon Soe. Myanmar, 2019.
Garment workers protest in Yangon, Myanmar. Image by Theint Mon Soe. Myanmar, 2019.

China’s grip on Myanmar’s economy appeared to loosen after 2011, when the country transitioned to a semi-civilian government, and its new president, former general U Thein Sein, sought to renegotiate deals. He suspended the US$6 billion Myitsone Dam in September 2011 and initiated political and economic reforms that prompted Western countries to re-engage with Myanmar and lift decades-old economic sanctions.

As people took to the streets to protest exploitative investments, Chinese firms with projects in Myanmar were facing angry citizens for the first time. 

Data from the Directorate of Investment and Company Administration shows that new investment from China plummeted during this period. But economists point to a simultaneous spike in investment through Hong Kong, Malaysia and Singapore. Some of this, they said is likely to have been funneled from China to avoid a backlash from local communities. 

Ms Linda Calabrese and her colleagues at the Overseas Development Institute, a think tank based in London, have interviewed more than 30 Chinese companies about their investments in Myanmar. 

“In our research it sounds like some investment from Chinese companies is being routed through Singapore or other countries, because they believe it’s easier to get approved than Chinese investment,” she said.

Today, as the Rohingya crisis deters Western investment, Myanmar’s economy is becoming increasingly dependent on China again. Hopes of an economic boom have been dashed, with foreign investment falling sharply since a military campaign in 2017 forced more than 740,000 Rohingya to flee to Bangladesh. 

History is repeating itself. As other countries impose sanctions on Myanmar, China has come to its rescue. Through BRI it is offering the largest package of foreign investment that Myanmar has ever seen, with the potential to transform Myanmar’s economy and create millions of jobs. A trade war between China and the US has also encouraged Chinese companies to shift their operations into neighbouring countries, including Myanmar, to skirt tariffs.

Creating Trade Dependencies

The garment industry is one example of how inextricably linked Chinese investment and Myanmar’s economic future have become. Since 2013, hundreds of Chinese garment manufacturers have set up factories in Myanmar to take advantage of a European Union programme known as Everything But Arms that enables developing countries to export tariff-free to the EU. 

Half of Myanmar’s garment exports now come from Chinese-owned factories and the industry will “inevitably be dominated by Chinese investors,” said Mr Jacob Clere, who directs an EU-funded programme, SMART Myanmar, which works with factories to improve social and environmental standards. 

“This is the kind of shift we're currently in the middle of in 2019, with a few hundred Chinese invested factories already established and many more on the way,” he said.

This could put China in control of the entire supply chain: it builds the dams that power the factories, it hires workers, builds the roads and sends the ships. More than this, as Peter Cai from the Lowy Institute, a Sydney-based think thank, and others have pointed out, the adoption of Chinese technical and engineering standards could make it hard for others to compete.

The tourism industry is increasingly dominated by Chinese visitors, with the number of arrivals more than doubling over the past year due to relaxed visa rules, sparking concerns over the rise of zero-budget tours. With China also funding agriculture mechanisation, Myanmar has few options for growing its economy without involvement from its giant neighbour.


Crucially, Myanmar also depends on China for trade. But while it imports a huge range of products, from vehicles to construction materials, the export picture is very different. 

China only allows Myanmar to export five agriculture products: a limited amount of rice, cucumbers, watermelons, plums and mangoes. Everything else is considered illegal. It doesn’t mean these products are not exported, it just gives China the power to stop trade at any time to protect its own farmers.

Pineapple farmer U Sein Kyaw stands in his field in northern Shan State, Myanmar. Image by Victoria Milko. Myanmar, 2019.
Pineapple farmer U Sein Kyaw stands in his field in northern Shan State, Myanmar. Image by Victoria Milko. Myanmar, 2019.

Pineapple farmer U Sein Kyaw said this happened five years ago, when Myanmar had a bumper pineapple harvest. There are regular delays at the border, and farmers of other staples including corn – which are exported legally from Myanmar but enter China illegally – tell similar stories about Chinese protectionism.

“We were unable to sell our pineapples, so we just let them rot or gave them to the cows to eat."

— U Sein Kyaw, pineapple farmer

Most other countries are reluctant to buy produce from Myanmar until the supply chain is more reliable.

“If China were to ban our imports we would be in trouble,” said Sai Myint Mon of the Myanmar Fruit, Flower and Vegetable Producers and Exporters Association.

“China is our biggest consumer market, easily.”

The economic corridor highway in Shan State, Myanmar. Image by Victoria Milko. Myanmar, 2019.
The economic corridor highway in Shan State, Myanmar. Image by Victoria Milko. Myanmar, 2019.

Most of Myanmar’s exports to China are raw commodities. This has not changed since the 1990s, suggesting that Myanmar’s economy is not benefitting from the trade as much as it could, while its rich natural resources are fast being depleted. 

Many of these exports are not captured in official data. Research by non-profit groups indicates that private Chinese companies and individuals pour billions of dollars every year into Myanmar’s vast illicit economy. This includes logging, unregulated agriculture, the production and sale of heroin and methamphetamine, and mining for jade, gemstones and minerals.

Leaders of armed groups on both sides of the conflict profit from these shadowy, poorly regulated industries. Illicit business thrives in the borderlands, where most people, like Dawng Hkawng, are poor, rely on subsistence farming and have little or no access to public services.

It is through these areas that China’s Belt and Road corridor would pass. The corridor would only be loosely controlled by Beijing, and would also be difficult for Myanmar to regulate. These are also some of the poorest parts of Myanmar, as measured by electrification rates.

Tatmadaw troops stand guard at the Goktwin bridge as it undergoes repairs after an attack by an armed ethnic organisation in the region in August 2019. Image by Steve Tickner. Myanmar, 2019.
Tatmadaw troops stand guard at the Goktwin bridge as it undergoes repairs after an attack by an armed ethnic organisation in the region in August 2019. Image by Steve Tickner. Myanmar, 2019.

“There are so many actors: the state, public and private companies, criminals, Beijing, Kunming, and then many autonomous prefectures and counties on the Myanmar border,” said Mr Kim Jolliffe, an independent researcher focusing on conflict and humanitarian issues in Myanmar.

Like many villagers who have been pressured to get out of the way, Myanmar’s government has voluntarily signed on to the economic corridor. 

But in reality, the country – not unlike individual villagers who find themselves in the way of megaprojects – has little choice. Myanmar is already dependent on its larger neighbour and owes it huge sums, which puts it in a weak negotiating position.

In his makeshift home in northern Kachin, still awaiting compensation, a new home, a new job or at the very least, a connection to the electricity grid, Dawng Hkawng has no say in the BRI negotiations, and can only wait for his fate to be determined. For him, the deals Myanmar strikes with China could mean a better future, or they could mean losing everything.

Methodology

Data reliability is a major challenge when working with data supplied by both Myanmar and China.  Frontier analyzed economic data provided by Myanmar’s Directorate of Investment and Company AdministrationUN Comtrade as reported by both Myanmar and China, which revealed significant trade flow discrepancies as highlighted in the story, and Myanmar’s Parliamentary Debt Report.  Data on electrification was sourced from the Ministry of Electricity and Energy and geo-located data on active armed groups was provided by The Asia Foundation. The most elusive dataset, disaggregated data on planned hydropower dams, was collected by the Ministry of Natural Resources and Environmental Conservation (MONREC) and the Ministry of Electricity and Energy (MOEE) and vetted by the IFC.

Data analysis was done in python. Notebook and cleaned data can be accessed in this Github repository.

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