Trade relations

China as an important but unbalanced trading partner

China occupies an important position in Myanmar’s external trade. Tables 6.1 and 6.2 show the major trading partners of Myanmar since 1980. According to the tables, China has consistently occupied a high ranking, since Myanmar–Chinese border trade—hitherto an activity deemed illegal—was legitimised and formalised in 1988. China’s fifth position in this trade constituted 8.1 per cent of Myanmar’s total exports to the rest of the world and 20.6 per cent of its total imports from the rest of the world (ranking China first in 1990),[4] although Myanmar’s volume of external trade was small at that time. Since then, Myanmar’s trade with China has grown rapidly.

Table 6.1 Myanmar’s major export partners (per cent)
 

1980

 

1988

 

1990

 

1

Singapore

14.3

Africa

19.7

Africa

14.3

2

Africa

10.6

Singapore

9.7

Thailand

12.0

3

Japan

9.9

Hong Kong

9.1

Singapore

11.3

4

Indonesia

9.5

Japan

8.4

India

10.8

5

Hong Kong

7.6

Indonesia

7.0

China

8.1

 

1995

 

2000

 

2008

 

1

Singapore

16.0

United States

22.4

Thailand

49.0

2

India

12.2

Thailand

11.8

India

12.1

3

China

11.3

Africa

8.6

Africa

5.8

4

Africa

9.3

India

8.2

China

5.3

5

Indonesia

8.0

China

5.7

Japan

5.1

Source: International Monetary Fund, Direction of Trade.

Table 6.2 Myanmar’s major import partners (per cent)

 

1980

 

1988

 

1990

 

1

Japan

43.7

Japan

39.0

China

20.6

2

United Kingdom

8.8

United Kingdom

9.1

Singapore

17.9

3

Germany

7.4

Germany

6.7

Japan

16.6

4

Singapore

6.1

United States

6.0

Germany

4.8

5

United States

5.0

Singapore

5.8

Malaysia

4.7

 

1995

 

2000

 

2006

 

1

Singapore

29.9

Thailand

18.3

China

34.0

2

China

29.0

China

18.0

Thailand

21.4

3

Malaysia

10.8

Singapore

15.8

Singapore

15.8

4

Japan

7.4

South Korea

10.5

Malaysia

4.6

5

South Korea

4.1

Malaysia

8.4

South Korea

4.0

Source: International Monetary Fund, Direction of Trade.

Myanmar’s imports from China grew more rapidly than its exports to China throughout the 1990s and up to 2006. Figure 6.1 clearly shows the unbalanced nature of Myanmar’s exports to and imports from China. While Myanmar’s exports to China increased by 6.9 times, from $US33.3 million in 1990 to $US229.7 million in 2006, its imports from China expanded by 9.6 times, from $US137.7 million in 1990 to $US1.328 billion in 2006, resulting in a huge trade deficit of $US1.098 billion in 2006, which was 2.4 times larger than Myanmar’s total trade surplus of $US451.4 million in the same year.

Exports: weak impacts on the economic development of Chinese trade

Myanmar’s exports to China comprise mostly wood, gemstones and fruit and nuts (Table 6.3). Myanmar has, however, become more and more dependent on wood exports, the share of which occupied nearly 70 per cent of the total for the period 2000–03.[5] According to Chinese Customs data, this trend continued through 2007.[6] Wood accounted for 69 per cent of exports in 2004, 71 per cent in 2005, 60 per cent in 2006 and 51 per cent in 2007. In contrast, the share of gemstones declined to a few per cent by the early 2000s, probably because of the government’s export restrictions. Wood is exported mostly in the form of logs or roughly sawn timber without much human and technical input. Such a high dependency on timber has made the levels of Myanmar’s exports to China rather stagnant, since this trade is constrained by the availability of natural resources.

Table 6.3 Myanmar’s major exports to China (per cent)

Rank

Items

1988–91

1992–95

1996–99

2000–03

1

24a Cork and wood

7.4

40.8

43.7

67.7

2

05 Vegetables and fruit

14.6

5.5

3.0

8.1

3

28 Metalliferous ores and metal scrap

3.8

4.3

6.2

4.8

4

27 Crude fertilisers and crude materials (excluding petroleum etc.)

0.2

0.2

8.0

4.0

5

66 Non-metallic mineral manufactures, n.e.s.

20.8

30.8

24.6

3.6

6

03 Fish, crustaceans, molluscs, preparations thereof

9.7

5.0

1.9

3.3

7

29 Crude animal and vegetable materials, not elsewhere specified

8.7

3.6

3.6

2.1

8

22 Oil seeds and oleaginous fruit

9.0

1.3

1.0

1.5

9

23 Crude rubber (including synthetic and reclaimed)

0.1

0.1

0.2

1.2

10

63 Cork and wood manufactures (excluding furniture)

0.1

0.5

0.2

0.5

a Standard International Trade Classification (SITC) numbers

Source: UN Comtrade Database.

More importantly, various studies have identified wood extraction and its export in the form of logs as having had a weak impact on broad-based economic and industrial development, because it fails to generate improved utilisation of existing factors of production, expanded factor endowments or positive linkage effects. This contrasts sharply with Myanmar’s other newly emerged export products in the 1990s, such as beans and pulses for Indian markets and garments for the US and EU markets—both of which had a considerable impact on the national economy. Fujita and Okamoto (2006) explain that the cultivation of beans and pulses grew rapidly by mobilising previously untapped domestic resources, including arable land and labour in the dry season. The sudden emergence of export markets provided farmers and merchants with incentives to utilise idle resources more fully and effectively. Such an export-driven development path is termed ‘vent for surplus’ by Myanmar economist Hla Myint (1959). Garment exports can be described similarly, for which the United States and the European Union presented big export markets, and untapped unemployed and underemployed labour were mobilised from urban and rural areas for this extremely labour-intensive industry.[7]

Contrasting with these examples, wood extraction and log exports that dominated Myanmar–China trade have not produced broad-based economic growth with the development of value-added wood-based industries downstream. Moreover, the Myanmar Government does not seem to pay due attention to the sustainability of wood extraction and export. Some specialists warn that unless effective controls against excessive logging are implemented, Myanmar will lose one of its major exports in the foreseeable future (see, for example, Global Witness 2005).

In order to enhance imports from Cambodia, Laos, Myanmar and Vietnam (known collectively as CLMV), China began its Early Harvest Plan (EHP) under the ASEAN–China Free Trade Agreement (ACFTA) in January 2004. The EHP with the Association for South-East Asian Nations (ASEAN) covered about 600 agricultural products and China and ASEAN’s six advanced members agreed to reduce tariffs on these products to zero within three years, while CLMV should eliminate their tariffs no later than 2010 (Hao 2008). China also initiated special preferential tariff programs under the EHP and exempted 133 products from Myanmar from January 2004 and 87 items from January 2006. The benefits of such programs for Myanmar are, however, not yet obvious, as shown in Figure 6.1.

Imports: China as a major supply source

Soon after the opening up of border trade in 1988, China appeared in trade statistics as a major supplier of commodities and goods to the Myanmar economy. Myanmar’s imports from China have increased since then, although imports have experienced ups and downs, as shown in Figure 6.1.

Imports experienced rapid growth on three occasions: once in the first half of the 1990s, again at the beginning of the twenty-first century and in 2006. Accordingly, Myanmar has become more and more dependent on imports from China. The share of Chinese goods in Myanmar’s total imports rose from about one-fifth in 1990 to about one-third in 2006.

The first rapid growth of Chinese imports resulted from the unleashing of pent-up demand from the Myanmar population after the open-door policy begun in 1988. Myanmar people had long been cut off from daily consumer goods and durables during the socialist period. Once they achieved access, the demand for such goods shot up (Kudo 2005a). While consumer goods made up 6 per cent and 12 per cent of total imports in the fiscal years[8] 1980/81 and 1985/86 respectively, the corresponding figures shot up to 35 per cent in fiscal year 1990/91 and to 42 per cent in 1995/96 (Central Statistical Organisation 2003). China provided the main source of supply and Chinese products poured into the emerging consumer-goods markets in Myanmar.

Just after the opening up of border trade with China, textiles (mostly yarn and fabrics) flooded onto Myanmar markets (Table 6.4). Textiles occupied nearly 40 per cent of total imports from China for the period 1988–91. Tobacco then increased its share, up to 14 per cent for the subsequent period 1992–95. Road vehicles, power generators, electrical machinery and apparatus, and manufactures of metal, each accounted for about 5 per cent in the first half of the 1990s.

Entering the second half of the 1990s, however, the inflow of Chinese imports stagnated. The Myanmar Government became annoyed with the country’s expanding trade deficits by the mid-1990s and resorted to stricter import controls, particularly on luxury and non-essential goods. Accordingly, the influx of Chinese consumer goods and durables declined. Textiles and tobacco provide two examples: the former decreased its share of total imports from China from 38 per cent for the period 1988–91 to 16 per cent for the period 1996–99; the latter declined from 14 per cent for the period 1992–95 to 6 per cent for the period 1996–99.

Table 6.4 Myanmar’s major imports from China (per cent)

Rank

Items

1988–91

1992–95

1996–99

2000–03

1

65a Textile yarn, fabrics, made-up articles

37.7

19.8

16.2

18.1

2

71 Power-generating machinery and equipment

3.6

4.5

5.7

8.5

3

78 Road vehicles (including air-cushion vehicles)

3.7

6.1

4.0

7.5

4

72 Machinery specialised for particular industries

1.0

2.6

7.2

6.3

5

77 Electrical machinery, apparatus and appliances

5.1

4.6

5.1

5.8

6

74 General industrial machinery and equipment

0.6

0.9

3.2

5.6

7

33 Petroleum, petroleum products and related articles

4.5

4.3

2.8

5.2

8

69 Manufactures of metal, n.e.s.

5.4

4.1

6.5

5.1

9

67 Iron and steel

3.6

4.5

3.8

4.5

10

76 Telecommunications and sound-recording equipment

2.0

1.4

1.0

2.7

a Standard International Trade Classification (SITC) numbers

Source: UN Comtrade Database.

In contrast, imports of capital and intermediate goods steadily increased throughout the 1990s. These goods were supplied to the emerging manufacturing sector for import substitution in Myanmar. For example, machinery and transport equipment (SITC 7)[9] increased its share from 12 per cent for the period 1988–91 to 40 per cent for the period 1996–99. Imported textiles (SITC 65) had been used not only for domestic consumption but as raw materials for the growing export-oriented garment industry since the mid-1990s. A garment industry ‘boom’ occurred in Yangon in the late 1990s and at the beginning of the twenty-first century. The rapid growth of the garment industry in Myanmar was supported partly by raw-material supplies from China.

Myanmar’s imports from China showed rapid growth for the second time at the beginning of the twenty-first century. Imports grew at the average annual rate of 22.7 per cent for the period 2000–03. Textiles, road vehicles, power generators, electrical machinery and apparatus and general industrial machinery increased their shares of total imports from China.

Such an increase could reflect the huge inflow of Chinese economic cooperation and commercial loans. As will be discussed later in this chapter, Chinese economic cooperation expanded, in particular towards the end of the 1990s, when successive economic and technical cooperation programs were signed between the two countries. Most of these were tied, whether legally or de facto, to supply from Chinese companies, and state-owned enterprises in particular, and thus stimulated imports from China.

Border trade: the main artery of the Myanmar economy

Trade between Myanmar and China is heavily dependent on cross-border trade. According to the district-specific export and import figures from China Customs,[10] coastal areas such as Shanghai, Shenzhen, Huangpu and Nanjing naturally occupy the major share of China’s external trade. In contrast, Kunming, capital of Yunnan Province, accounts for less than 1 per cent of China’s external trade.

Since Yunnan is a landlocked province, commodities exported to or imported from Myanmar through the Kunming Customs Office are most likely transported by land through border gates such as Muse, Lwejel and Laiza.[11] We therefore regard the commodities that are cleared and recorded at the Kunming Customs Office as ‘border trade’ in this chapter.[12] This means that the border trade between the two countries makes up less than 1 per cent of China’s external trade.

Even though the volume of border trade between the two countries is insignificant compared with China’s total external trade, it represents the lion’s share of China’s trade with Myanmar. Border trade made up about 50 per cent of China’s exports to Myanmar and about 70 per cent of its imports from Myanmar during the period 2000–07 (Table 6.5). Moreover, Yunnan Province’s share of Myanmar’s total border trade was 73 per cent, whereas that of Thailand was 14 per cent in the fiscal year 2003/04 (Than 2005). Border trade is important for Myanmar and for Yunnan Province.

Table 6.5 China’s border trade with Myanmar ($US million)
 

2000

2001

2002

2003

2004

2005

2006

2007

Exports via border

293.5

261.2

358.3

446.3

500.6

540.6

656.0

800.4

(Percentage of total exports)

59.1

52.5

49.4

49.1

53.3

57.8

54.3

47.3

Imports via border

66.9

93.7

105.4

134.5

164.5

223.5

166.8

231.6

(Percentage of total imports)

53.6

69.8

77.0

79.3

79.5

81.5

66.0

62.5

Note: China’s border trade is defined as commodities cleared and recorded by the Kunming Customs Office.

Source: China Customs.

The main route of border trade on Myanmar soil is the 460-kilometre-long road connecting Muse on the Chinese border (opposite Ruili in Yunnan Province) and Mandalay, Myanmar’s second-largest city, in central Myanmar. This road constituted a part of the old ‘Burma Road’ that opened in 1936 to supply the KMT government in Chungking. The road was paved and expanded for truck transportation in 1998 on a build–operate–transfer (BOT) basis by Asia World, one of the biggest private business conglomerates, headed by a son of the former drug lord Lo Hsing-Han.[13] Before the completion of the new road, travel from Mandalay to Muse took a couple of days and sometimes even a week during the rainy season; it now takes only 12–16 hours by motor vehicle.

Border trade between the two countries has experienced ups and downs, reflecting not only market situations but political, security and macroeconomic conditions in a broader sense. It also sometimes falls prey to illegitimate business, corruption and power struggles. It is well known that the ouster of former Prime Minister General Khin Nyunt in October 2004 originated from a clash between intelligence and army units in Muse (Hlaing 2005). Nevertheless, in spite of these ups and downs, border trade between the two countries has been legitimised, regularised and institutionalised.

The first border-trade agreement was signed in August 1988 by Myanmar Export and Import Services (MEIS) and Yunnan Machinery Import Export Corporation to use bank transactions between the Myanmar Foreign Trade Bank and the Kunming Branch of China Bank. MEIS established border-trade offices in Lashio, Muse, Kyugok, Namkhan and Koonlon. According to notification from the Ministry of Commerce (no. 7/91), MEIS implemented the so-called new border-trade system in October 1991.[14] The Myanmar and Chinese Governments signed a formal border-trade agreement in August 1994. A border-trade office was established in Muse in August 1995 and introduced ‘one-stop services’ on a trial basis. The office was extended to the fully fledged Border Trade Department of the Ministry of Commerce in August 1996. In July 1997, the Export First Policy was applied to border trade as well as to seaborne trade, and imports were allowed only against export earnings thereafter. From November 1997, all border trade had to use US dollars to settle transactions, not local currencies such as the Myanmar kyat and the Chinese yuan. In January 1998, the Muse office was expanded and started to function as a one-stop-service border gate.

Further policy changes occurred towards the end of 2000. From November 2000, local currencies—namely, the Myanmar kyat and the Chinese yuan—could again be used for payments in border trade. From January 2001, the Border Control Force (Na Sa Kha) started to supervise and implement border-trade activities. This force was led by a military intelligence officer and comprised all related organisations, including immigration, customs, the internal-revenue department, police, drug-control offices, the Myanmar Economic Bank, and so on. The ostensible purpose of the force was to promote border trade in a systematic manner. In reality, however, military intelligence monopolised the most lucrative route for border trade, which eventually led to a major clash within the regime’s leadership in 2004.

The regularisation and institutionalisation of cross-border transactions and further road development contributed to boosting border trade between the two countries at the beginning of the twenty-first century. China’s exports to Myanmar through border posts increased by 3.1 times, from $US261.2 million in 2001 to $US800.4 million in 2007, whereas China’s imports from Myanmar via border trade expanded by 2.5 times, from $US93.7 million in 2001 to $US231.6 million in 2007. The Myanmar Government also promoted all border trade not only with China but with Thailand, India and Bangladesh, to compensate for the economic sanctions imposed by the West, and the Chinese border recorded the most meaningful success. Myanmar’s border trade with China has therefore become a main artery of its economy.




[4] Imports from Japan made up nearly 40 per cent of Myanmar’s total imports before 1988, due mainly to supplies related to Japan’s economic cooperation programs. Japan suspended most aid after the political unrest of 1988, except for a few continuing projects. Without full-fledged overseas development aid programs, its share declined remarkably to only 2.7 per cent in 2006.

[5] Statistics Canada constructs the World Trade Database based on the United Nations’ Commodity Trade Statistics Database (UN Comtrade), and the database-retrieval services are used for Tables 6.3 and 6.4.

[6] Data from China Customs are classified by the Harmonised Commodity Description and Coding System (HS); HS 44 represents ‘Wood’.

[7] See Kudo (2005b), who provides a detailed account of the growth and decline of Myanmar’s garment industry in the 1990s and up to 2005.

[8] The fiscal year starts in April and ends in March of the next year.

[9] SITC stands for Standard International Trade Classification.

[10] District-wide figures have been available since 1999.

[11] There are five trade posts on the Myanmar side of the border with Yunnan Province: Muse (mile 105), Lwejel, Laiza, Kanpeiktee and Chinshwehaw. Among them, Muse is the most lucrative in terms of the volume of trade, accounting for 87 per cent of the total in 2002 (Than 2005:44).

[12] Mya Than (2005:40) provides five definitions of cross-border trade: formal or official border trade, informal border trade, illegal border trade (smuggling), transit trade and barter trade. He also points out that all statistics on border trade are usually underestimated.

[13] A small part of the road was constructed and owned by another private company, Diamond Palace. That company was said to have been owned by military intelligence headed by Khin Nyunt, then Secretary No. 1 of the SPDC. The Myanmar military saw the strategic importance of the road and intended to avoid full ownership and operation by one private company.

[14] Details of the new system, however, are not known to the author.