According to information released by the Myanmar Ministry of Railway Transportation, the Sino-Myanmar Kyaukpyu-Kunming Railway has run aground.

The Sino-Myanmar Kyaukpyu-Kunming Railway is part of the Sino-Myanmar Kyaukpyu Corridor. According to an agreement signed by the two sides in April 2011, the project was a 20 billion USD investment to be completed by 2015. The Chinese side was responsible for raising most of the funding and would enjoy the right to operate it for 50 years. Suspension of the project represents another major setback that Chinese investors have encountered after the suspension of the Myitsone dam project and the obstacles experienced with the Letpadaung copper mine. It is a clear setback for Chinese investment in Myanmar.

Who Lost Myanmar: Reduction of Chinese Investment and Catch-up by Japan and Korea

Starting from 2011, while Chinese investments expanded elsewhere in Southeast Asia, they shrank shockingly in Myanmar, to the extent that the British Financial Times said that Chinese officials should be asking themselves  “who lost Myanmar”.

According to statistics compiled by the First Business News, Chinese investment in Myanmar reached its peak of 8.2 billion USD in Fiscal Year 2010 (April 1 2010 to March 31 2011). This was followed by major reductions for three consecutive years: by 50% in 2011, by another 90% in 2012 and another 95% in 2013.

At the same time, Japanese and Korean investments have been expanding in Myanmar.

Myanmar revised its foreign investment law in 2012 to lift restrictions on investment, leading to a sharp increase in foreign investment. First Business News quoted official Myanmar statistics as saying that FDI from April to December 2013 in Myanmar was 2.15 billion USD, 1.5 times that of the 2012 Fiscal Year. Investment by the largest investor, South Korea, had reached 17 times that of its investment in 2012.
Since the inauguration of the Abe administration in December 2012, Japan has also rapidly improved its relationship with Myanmar. The Abe government lifted 500 billion Yen worth of debts by the Myanmar government, while providing 100 billion Yen worth of official development assistance. Japan is engaged in the development of a special economic zone in Myanmar. This April, Japan signed three assistance agreements with Myanmar: a human resource development fellowship program (468 million Yen), ASEAN Single-Window Tax System (3.99 billion YEN) and Lashio comprehensive hospital and medical assistance (1.51 billion Yen)

Why did China lose Myanmar?

The setbacks encountered by Chinese investors have coincided roughly with the country’s democratization process.

2010 was the peak year for Chinese investment in Myanmar. November that year, a multiparty election was held in Myanmar. The military government transferred power to a civilian government. Former prime minister U Thein Sein was elected president and began his push for democracy at home.

U Thein Sein was the last Prime Minister of the military government and a real powerful figure in the military. After he became president, he released Aung San Suu Kyi and revised the election regulations to pave the ground for her to return to politics. He also lifted restrictions on foreign media such as Twitter, Facebook and YOUTUBE.

U Thein Sein announced in the following September the suspension of the Myitsone hydropower project during his term. The 3.6 billion USD project is located in the mountainous Kachin area in northern Myanmar, about 200 kms away from Tengchong county of Yunnan. It is an important investment in the Irrawaddy River by China Power Investment.

The Myitsone project met with protest by local political organizations and residents, some of which linger on today. This July, Chinese ambassador Yang Houlan said during an interview with Myanmar media that its resumption “does not seem promising currently”, and “I am not totally confident about the resumption”.

U Thein Sein said back then that the Myitsone project could “destroy the local natural conditions and damage the livelihood of local people”, and “the Myanmar government was democratically elected therefore we must respect people’s will and we are obligated to focus on solving people’s concerns.”

With the democratization of Myanmar, US and Japan changed their previous sanctions and isolation policy and shifted toward deeper involvement.

On November 19, 2012, Obama made a historic visit to Myanmar as the first US president to visit the country while in office. On May 24, 2013, Japanese Prime Minister Abe also visited Myanmar, the first Japanese Prime Minister to visit since 1977.

Three Thwarted “100 Billion Projects”

After the democratic elections in Myanmar, the People’s Daily published an article saying China hopes that Myanmar will have stable politics and takes a welcoming attitude toward strengthened efforts by Myanmar to engage western countries including the US. It also said reports about concerns that China might be elbowed out as Myanmar’s external environment improved were “ridiculous”. Nevertheless,  three “100 billion RMB projects” by China have now been thwarted one after another.

The suspended Myitsone dam is yet to be resumed. The Letpadaung copper mine project was forced to stop in November 2012 and only partially resumed this past February. As for the Sino-Myanmar oil and gas pipeline, financial analysts pointed out that “the biggest risk is the uncertainty of Myanmar politics. How to implement the national strategy while being commercially viable is the critical issue for the pipelines.”

Financial magazines analyzed that the thwarting of Chinese investment in Myanmar originated from the strategic misjudgment of China on Myanmar politics.

First, most of the cooperation projects were signed during the military government. This is did not help China to build an image that it cares about the development of the people and it thus drew opposition from them. Second, China’s Myanmar strategy narrowly focuses on the upper class of the government. Chinese companies lack knowledge about the social changes and people’s will in Myanmar, and they have not assessed local politics accurately. During the unstable years of 2007 and 2008, Chinese companies launched a massive campaign in Myanmar and persisted in expanding investment after the suspension of Myitsone dam. (Translator’s note: this statement is untrue.)

The magazines quoted experts as saying that “China should immediately change  its previous strategy of overly relying on Myanmar government officials and focus instead on the people”.

“Chinese companies in Myanmar need to find a new balance between political risk and economic interest; learn to coordinate the interests of the people, government, and non-state armed groups; strengthen strategic investment and public relations campaigns focused on the people; and expand the scope of stakeholders with a more open political and commercial mindset.”