Conclusion: who benefits and who pays?

Against the background of closer diplomatic, political and security ties between Myanmar and China since 1988, their economic relations have also grown stronger throughout the 1990s and up to the present. China is now a major supplier of consumer goods, durables, machinery and equipment and intermediate products to Myanmar. China also offers markets for Myanmar’s exports such as timber, agricultural produce, marine products, minerals and, recently, natural gas. Border trade provides a direct route connecting central Upper Myanmar to Yunnan Province in China. Physical infrastructure developments such as roads and bridges and institutionalisation of cross-border transactions, including one-stop services, promote border trade. Without the massive influx of Chinese products, the Myanmar economy could have suffered more severe shortages of commodities.

China also provides a large amount of economic cooperation and commercial-based financing in the areas of infrastructure, SEEs and oil and gas exploitation. Without Chinese long-term loans with low interest rates, the Myanmar Government could not have implemented its massive construction of new state-owned factories such as textile and sugar mills. Although China’s official foreign investment is rather small, it is not insignificant. It has recently poured money into oil and gas exploration and Chinese enterprises could soon be major players in this booming field in Myanmar. There can be no doubt that Myanmar’s economy is now heavily dependent on economic ties with China.

The lop-sided trade with China has, however, failed to have a substantial impact on Myanmar’s broad-based economic and industrial development. About 70 per cent of Myanmar’s exports to China is timber in the form of logs or roughly sawn timber. Wood extraction and its export are quite different from other major export items such as beans and pulses and garments, as the latter has induced the improved utilisation of existing factors of production such as land and labour in the whole economy. In contrast, timber exports are no more than exploitation of a limited natural resource that happened to remain untapped during Myanmar’s past as a closed economy.

Moreover, Chinese firms could exploit natural resources in Myanmar excessively without considering environmental sustainability. Myanmar ranked seventy-eighth for China’s imports and its share constituted only 0.04 per cent in 2007. Even though China is the most important trading partner for Myanmar, Myanmar is not such a significant trading partner for China. China and Chinese firms have little incentive to pay much attention to the sustainability of Myanmar’s export commodities or to the environmental impacts of such exports to China. Chinese firms can shift their import sources from Myanmar to another country. Myanmar benefits from trading with China in the short run, but it could lose from it in the long run.

China’s economic cooperation and commercial loans also apparently support the present regime, but their effects on the whole economy will be limited under an unfavourable macroeconomic environment and a distorted incentives structure. In particular, the newly built state-owned factories could become a burden on the Myanmar Government’s budget and eventually represent bad loans for the Chinese stakeholders. Myanmar’s debt arrears accumulated to $US100 million by 2003 and, in 2005, the China Export and Credit Insurance Corporation (SINOSURE)[21] rated Myanmar eighth of nine in country-risk ratings (in which the first rank indicates the safest countries and the ninth indicates the most risky countries) (Bi 2008a). Moreover, Wilson (2007:87–90) argues, mentioning several examples, that China’s ‘embrace’ of Myanmar is by no means open-ended and China has not always achieved its goals. Chinese stakeholders, including Chinese taxpayers, might have to pay the debts at the end of the day.

All in all, strengthened economic ties with China are instrumental for the survival of the Myanmar regime in the midst of economic sanctions by Western nations. They are not, however, a powerful force promoting the process of broad-based economic development in Myanmar. After all, Myanmar people could be the losers, since they have to live under a repressive regime that might not have survived this long without Chinese support.

[21] SINOSURE is the only policy-oriented Chinese insurance company specialising in export credit insurance. It started operation on 18 December 2001. SINOSURE offers coverage against political and commercial risks (SINOSURE web site, viewed February 2008).