Economic and business cooperation

China and Chinese enterprises are heavily involved in Myanmar’s industrial, infrastructure and energy development through economic cooperation. China is not a member country of the Development Assistance Committee (DAC) of the Organisation for Economic Cooperation and Development (OECD) and it does not disclose its economic cooperation programs. The Myanmar Government also does not disclose details of its receipt of economic assistance from abroad. We can only estimate the facts from reports appearing sporadically in the press. China’s economic cooperation programs are often nothing more than commercial-based business. Even though Chinese enterprises offer suppliers credits at no or low interest, in reality they add the cost to the plants and commodities they export to Myanmar (Ebashi 2006). On the other hand, most Chinese economic cooperation programs are tied to Chinese firms, and state-owned enterprises in particular. It is difficult to distinguish genuine economic cooperation projects from commercial ones without detailed information. This section includes both cases.

Gathering information from such scattered sources shows that China’s provision of economic cooperation to Myanmar seems to have expanded from about 1997 when the United States imposed economic sanctions that banned new foreign investments. Appendix 1 shows the list of agreements on economic and technical cooperation signed between the two countries after 1996. Moreover, Senior-General Than Shwe’s state visit to Beijing in January 2003 seemingly marked another epoch, when China offered Myanmar a preferential loan amounting to $US200 million and a grant of $US6.25 million. Just after China’s commitment, the so-called ‘Black Friday’ of 30 May 2003 occurred (when Daw Aung San Suu Kyi was attacked by pro-regime elements), an event that prompted the United States to impose stricter sanctions in July 2003, which included an import ban on all Myanmar-made products. China stepped into the vacuum created by the Western sanctions and compensated for Myanmar’s needs for trade and economic cooperation.

It is said that China’s foreign aid, or economic cooperation, is motivated by two main objectives: to secure a favourable environment in its neighbours and to secure natural resources—energy in particular (Kobayashi 2007). Both of these factors are critically important for the Chinese economy to grow and for China to become a global economic power. Myanmar is a suitable partner under both criteria. Accordingly, Myanmar is one of the major recipients of Chinese economic cooperation (Table 6.6). It was the third-largest recipient of Chinese economic cooperation in 2000, receiving $US186.7 million, and ninth largest in 2005, receiving $US289.8 million—which was about three times more than the total amount of assistance provided by the DAC member countries in the same year.

Table 6.6 China’s economic cooperation, 2000 and 2005 ($US million)
   

2000

   

2005

 
 

Country

Turnover

Resources

Country

Turnover

Resources

1

Pakistan

329.4

Coal, gas

Sudan

1342.8

Oil, gas

2

Bangladesh

231.2

Coal, gas

Nigeria

799.9

Oil, gas

3

Myanmar

186.7

Oil, gas

Pakistan

751.4

Coal, gas

4

Sudan

118.8

Oil, gas

Bangladesh

614.0

Coal, gas

5

Mali

105.1

Gold

Indonesia

534.6

Oil, gas

6

Yemen

97.9

Oil, gas

India

412.9

Coal, iron ore

7

Laos

93.7

Potassium

Angola

305.7

Oil, diamonds

8

Zimbabwe

87.6

-

Vietnam

299.2

Bauxite, coal

9

Vietnam

87.5

Bauxite, coal

Myanmar

289.8

Oil, gas

10

Sri Lanka

63.6

-

Egypt

276.5

Oil, gas

Source: Adapted from Kobayashi (2007:130).

China’s economic cooperation and business dealings with Myanmar were directed to three main fields: infrastructure development, support for SEEs and energy exploitation.

Infrastructure

Among the many infrastructure projects financed and constructed by the Chinese Government and Chinese enterprises, attention is immediately directed to those of electric-power generation. Myanmar has suffered a severe shortage of electricity since the end of the 1990s and the government has initiated massive dam-building programs for hydro-power generation.[15] According to a foreign businessman in Yangon, Chinese companies constructed six hydro-power plants and one thermal power station in the period between 1996 and 2005, the installed capacity of which constituted about one-third of the entire national capacity (Ebashi 2006).

Among these, the Paunglaung Hydro-Power Project in central Myanmar clearly showed the financial, managerial and technical capabilities of Chinese companies in this field. It was completed by the Yunnan Machinery Import and Export Corporation (YMIEC) in March 2005. Its installed capacity of power generation (280 MW) surpasses that of Baluchaung (168 MW), which had long been the biggest power source and which was constructed by Japanese companies with Japanese war reparations and economic cooperation after World War II. The Paunglaung Dam Project was the YMIEC’s biggest undertaking. Indeed, it was the largest hydro-power plant China had exported to South-East Asia and Yunnan’s largest foreign-trade project. The total cost of the project was estimated at $US160 million, which was financed by the Export-Import Bank of China (China Exim Bank).

As of March 2006, Myanmar had 11 major continuing hydro-power projects, with a total generating capacity of 1734 MW. Contracts were signed for seven projects and all were with Chinese enterprises. The largest project is the Yeywa hydro-power plant south of Mandalay, with a capacity of 790 MW. Yeywa will cost $US700 million. In August 2003, the China Exim Bank approved a $US200 million loan at preferential interest rates for the project (Bosshard 2004). The China Water Resources and Hydropower Construction Group (Sinohydro) and the China International Trust and Investment Corporation (CITIC) won contracts to provide generators and other equipment for the project. In addition to low-priced machinery and equipment and services, long-term and low-interest loans and export credits offered by public financial institutions made it possible for Chinese enterprises to become major players in this field.

Another example of significant Chinese economic cooperation in infrastructure development is the Ayeyarwady Transportation Project, which provides a transport line from Yunnan Province to Thaliana Port near Yangon. This project apparently started in October 1999, when a high-level Chinese delegation accompanied by Khin Nyunt visited Bam, the navigation head on the Ayeyarwady River. This project includes three infrastructure developments: constructing a container port near Bhamo, upgrading the road from the new container port to Muse/Lwejel on the Chinese border and dredging the river to ensure a safe shipping lane. The Myanmar Port Authority plans to transport two million containers a year in the future.[16] It also plans to construct a container yard, office buildings, residences and other amenities in the hinterland.[17]

Yunnan Province obviously seeks a direct route through Myanmar to a seaport from which it can export products to South Asia, the Middle East and Europe. Such an outlet would reduce transport costs and time and would bypass the Malacca Strait in the event of a conflict in the South China Sea (Malik 1998). With the completion of the project, the Ayeyarwady will link China’s south-western frontier with the Bay of Bengal and the Andaman Sea.

State-owned economic enterprises

Since the beginning of the twenty-first century, the Myanmar Government has accelerated the construction of new state-owned factories (Kudo 2005a). The number of such factories increased by only 19 for the five years between fiscal years 1985/86 and 1990/91, but by 92 for the next five fiscal years, 1990/91–95/96, and by about 20–30 a year up to 2000. Thereafter there was impressive growth, with 53 public industrial enterprises set up in the fiscal year 2001/02 and 231 in 2002/03. Most of the new factories are for import-substitution industries that target domestic markets. Such a policy shift probably reflects the Myanmar Government’s drive towards self-sufficiency in the agricultural and industrial sectors.[18]

China’s economic cooperation programs strongly supported the massive construction of state-owned factories such as textile mills, plywood plants, rice mills, pulp and paper mills, sugar mills, agricultural equipment factories and other light manufacturing facilities. Table 6.7 shows examples of the Ministry of Industry Number One’s factories that were constructed with the provision of Chinese financial and technical support and their machinery and equipment. Without Chinese support, these factories would never have materialised.

Myanmar’s SEEs, however, have a long history of inefficiency, poor management and vulnerability to all the ills that plague public enterprises, including rent-seeking activities and corruption (Kudo 2005a). The SEEs are highly controlled by the central government in financial and managerial terms. With the lack of financial and managerial autonomy, newly built state-owned factories would not operate efficiently. For example, Japan was the top donor country to Myanmar, with its contributions accounting for 66.7 per cent of the total bilateral overseas development assistance (ODA) received by Myanmar between 1976 and 1990 (Kudo 1998:Table 1). Myanmar consistently ranked within the top-10 recipients and often ranked within the top five. A large portion of Japanese ODA was directed to the so-called Four-Industries Project through Myanmar Heavy Industries, a SEE under the Ministry of Industry Number Two. This project was to become self-reliant once ODA was suspended. In the end, most Japanese ODA provided to Myanmar turned into bad loans. This time around, proliferating state-owned factories could become a burden on the government budget, and eventually become bad loans for the Chinese stakeholders.

Table 6.7 New Myanmar Ministry of Industry Number One factories built with Chinese cooperation

Factory type

Location

Completion date

Contractor

Textile industry

     

Garment factory

Kyaukse

January 2003

China World Best Group Co. Ltd

Textile factory

Pwintphyu

March 2005

Tianjin Machinery Import and Export Corporation

Textile factory

Pakkoku

October 2005

Tianjin Machinery Import and Export Corporation

Textile factory

Salingyi

November 2005

China National Construction and Agricultural Machinery Import and Export Corporation

Garment factory

Taungtha

January 2006

China World Best Group Co. Ltd

200 looms extension plant

Myintgyan

December 2004

n.a.

400 looms extension plant

Yamethin

January 2005

n.a.

Paper and chemical industries

     

Paper factory (3)

Palate

January 2001

Tianjin Machinery Import and Export Corporation

Bleached bamboo-pulp factory

Thabasung

May 2005

China Metallurgical Construction Group Corporation

Ceramics industry

     

Refractory brick factory

Kyaukse

December 2005

China National Building Machinery and Equipment Corporation

Cement factory

Kyaukse

January 2003

China National Construction and Agricultural Machinery Import and Export Corporation

Kiln production line (300 TPD)

Kyaukse

August 2005

n.a.

Foodstuff industries

     

Instant-noodle factory

Sagaing

July 2001

Karehua Noodle Line Machinery Co. Ltd

Note: List includes factories completed after 2001 only. This list might not cover some factories that were not reported in the media.

Source: New Light of Myanmar, Myanmar Times and other press. Compiled by JETRO Yangon Office.

Energy development

As its economy grows rapidly, China’s quest for energy sources abroad has expanded. Myanmar’s oil and gas reserves have naturally attracted China’s attention. China’s presence in Myanmar’s oil and gas fields has, however, been observed only recently. The China National Offshore Oil Corporation (CONIC) signed six contracts for production sharing with the Myanmar Oil and Gas Enterprise (MOGEN) of the Ministry of Energy from October 2004 to January 2005.[19] The China Petroleum and Chemical Corporation (SINOPEC) and its subsidiary Dian Quantum Petroleum Exploration also work the inland fields. Moreover, CONIC and its subsidiary Chimney Assets also won contracts to upgrade the four old oilfields in central Myanmar.

These companies are now at various stages of exploration and they have already made financial commitments of $US163 million. The Chinese investment is rather small compared with the total amount of foreign investment in Myanmar’s oil and gas sector of $US2.635 billion—the largest recipient of foreign investment accounting for 34 per cent of the total outstanding up to March 2006.[20] It is only recently, however, that Chinese companies have started to invest vigorously in Myanmar. Of 26 Chinese foreign investments in Myanmar overall, 16 projects were made either in the fiscal year 2004/05 or 2005/06, representing nearly 70 per cent in terms of investment value. Most of those were invested in the energy and mining sectors.

Another big project is Petro China’s plan to build a gas pipeline from the Shwe gas field off the coast of Rakhine State to Yunnan Province. The Shwe field comprises several large blocks, containing about 200 billion cubic metres of gas. Petro China signed a memorandum of understanding with Myanmar Oil and Gas Enterprise (MOGE) to buy gas from the Shwe fields for 30 years starting from 2009.

Myanmar already exports natural gas to Thailand via a pipeline, and gas exports reached $US2.25 billion in 2007, becoming by far Myanmar’s biggest foreign exchange earner. Myanmar will have another big source of foreign earnings from gas exports to China in the near future. Moreover, oil and gas exports offer the Myanmar Government a diplomatic advantage over its neighbouring countries; indeed, India also made great efforts to secure Myanmar’s gas from the same field. India eventually reached an agreement with Myanmar to purchase the gas with more favourable conditions based on a ‘take-or-pay’ arrangement, by which India gives Myanmar guaranteed earnings every year even if it is not able to access the gas. Myanmar has come out the winner in the Sino–India rivalry for energy.




[15] For details, see Akimoto (2004).

[16] Interview with the Myanmar Port Authority in Bhamo, September 2002.

[17] The implementation of the project has apparently been delayed due to disputes between the two countries on levying customs duties (Wilson 2007:88) and national flags flying on vehicles. A Chinese specialist reports, however, that the project will be implemented between 2011 and 2015 (Bi 2008b).

[18] The agricultural policy of Myanmar has exhibited a strong inclination towards self-sufficiency; see Fujita and Okamoto (2006).

[19] Information is from New Light of Myanmar, Myanmar Times and other media.

[20] It is said that there is a large number of informal Chinese investments and businesses in Myanmar, most of which operate under the names of Myanmar citizens. Such cases do not appear in the Myanmar Investment Commission (MIC) statistics.