Introduction: Pushing Back State-Coordinated Belt and Road Projects in Myanmar

The Belt and Road Initiative (BRI, formerly called One Belt One Road) is Beijing’s (the Chinese Government) flagship diplomatic tool. The transcontinental strategy, spanning Asia, Europe, Africa and beyond, aims to enhance infrastructure connectivity, trade and financial integration, policy coordination and people exchange. The grand strategy envisioned by President Xi Jinping in 2013 manifests a new phase of China’s rise. Domestically, it aims to materialise the ‘Chinese dream of national rejuvenation’ and stimulate economic growth. Internationally, it exerts Beijing’s assertiveness to reshape the Western-dominated world order. The highly coordinated strategy has been supported by Chinese policy banks, state-owned enterprises (SOEs), private companies, academics, media and even non-governmental organisations in China. The BRI’s success is tied to the rising power’s prestige and President Xi’s legacy.

The China–Myanmar Economic Corridor (CMEC) – which is regarded as China’s shortcut to the Indian Ocean – is a strategic component of the BRI. This bilateral cooperation serves not only Beijing’s geopolitical interests but also Naypyidaw’s (the Myanmar Government) national goals. Beijing’s noninterference policy and ‘no-strings-attached’ development model were appealing to both the military junta and the subsequent democratically elected leaders. A memorandum of understanding (MOU) to establish the CMEC was signed between the Aung San Suu Kyi-led government and Beijing in 2018. Following the 2021 Myanmar coup, political upheavals have posed uncertainties over BRI project implementation. Notwithstanding strong political backing from Beijing and Naypyidaw before the coup, BRI projects encountered different levels of disruption during Myanmar’s 10-year democratic transition, April 2011 – January 2021. The Myitsone hydropower dam was suspended in 2011. The contract of the Letpadaung copper mine was renegotiated in Naypyidaw’s favour in 2013. The construction of the China–Myanmar oil pipeline was completed in 2014, but its operation was delayed till 2017.¹ The progress of other BRI agreements, for instance, the Kyaukphyu special economic zone (SEZ) and deep sea port, as well as the New Yangon City project, has been slow. Cordial bilateral relations that drove these state-coordinated investments, how can we make sense of disputes in BRI projects?

Societal actors’ influence on foreign policy has conventionally been overlooked in the state-centric international relations scholarship. Since BRI’s commencement in 2013, an extensive body of literature has debated Beijing’s policy intention (e.g. Sum 2019; Yan 2014; Summers 2016; Ye 2020; Maçães 2018; Chong 2021). In the face of intensifying US–China competition, BRI countries’ realignment behaviour has drawn considerable scholarly interest (e.g. Chao 2021; Chen 2018). Gradually, burgeoning studies accentuate host countries’ (investment-receiving countries) agency in BRI cooperation. Host countries capitalise on Beijing’s ambition in the BRI and strive for more desirable outcomes in otherwise asymmetric interdependent relations (e.g. Ba 2019; Oliveira et al. 2020; Oh 2018; Chen 2018; Kuik 2021a; Calabrese and Cao 2021). Security and economic priorities (Liao and Dang 2020), development needs and the availability of alternative sources of capital (Lampton, Ho, and Kuik 2020; Goh 2014), the political leader’s preferences and quest for legitimacy (Camba et al. 2021; Freymann 2021), and domestic institutions (Fung et al. 2022; Lamb and Dao 2017) of a host country could all affect the stability of BRI projects. Furthermore, growing research acknowledges social actors’ resistance to BRI projects (Sun 2012b; Reeves 2015; Gong 2020; Lee 2017; Reilly 2021). However, limited studies explain how public outcry could influence the outcomes of signed agreements. Overall, responses and influences of societal actors who are impacted by BRI projects are underexplored. This study specifically examines the role of societal actors’ opposition in BRI project disruption. A mechanism is introduced to illustrate how societal actors, the host government and Beijing interact with each other in an economic dispute.

Contrasting with the view that state capability can always translate into international influence,² this book argues that social resistance could be a source of bargaining power in an asymmetric bargaining structure. Examining BRI projects’ implementation in Myanmar through the 2010s, I contend that societal actors could turn the tables on state-coordinated investments. BRI projects usually bypass prior and informed consent of impacted communities and compromise transparency. If societal actors could impose tangible political costs on Naypyidaw for signing a controversial bilateral agreement; if Naypyidaw cared about its legitimacy; and if Beijing conceded domestic constraints in the host country, it would be unlikely to implement the signed agreement in a business-as-usual manner. Even though societal actors might not shape the project outcomes as they hoped, public outcry could turn cooperation into disputes and even increase Naypyidaw’s bargaining power. The fact that social opposition to these BRI projects emerged after their agreements had been signed further complicated the projects’ implementation. This book elucidates the signalling effects of protests against BRI projects by studying the dynamics among Myanmar’s societal actors, Naypyidaw and Beijing.

BRI project disruption in Myanmar took place during the host country’s political transition, in which political leaders sought to gain democratic legitimacy. Following the 2021 coup, the military’s reign of fear has been resurrected in the host country (David, Aung Kaung Myat, and Holliday 2022). No evidence supports the conspiracy theory that Beijing knew about the military coup in advance. Nonetheless, Beijing’s enthusiasm about CMEC implementation and disregard for Myanmar’s political situation have inevitably fuelled Myanmar citizens’ distrust of their giant neighbour. Citizens’ ability to punish political leaders is a necessary condition to renegotiate a signed bilateral agreement. In post-coup Myanmar, the military junta’s policy options were not conditioned by public opinion nor protests. Nevertheless, armed resistance could pose uncertainties to the CMEC implementation, which could not be dismissed by the coup leaders and Beijing. More importantly, if the democratic forces are restored, it will be difficult to maintain the status quo of the BRI projects concluded by the military junta.

BRI cooperation and disputes between China and Myanmar

Setting aside Beijing’s policy objectives in the BRI, the conclusion of a project agreement was a result of the convergence of interests between the home country – China – and the host countries – the investment recipient countries. Myanmar has been one of the staunch supporters of the BRI. Once a prosperous state in Southeast Asia, the military dictatorship reduced Myanmar to least developed country (LDC) status in 1987.³ Economic stagnation was compounded by international isolation in the 1990s–2000s. In the course of democratisation, both the Thein Sein administration (March 2011 – March 2016) and the National League for Democracy (NLD)-led government (April 2016 – January 2021) pledged to improve people’s livelihoods. China-backed infrastructure projects were expected to serve the LDC’s development needs. Moreover, Naypyidaw also hoped that economic growth could de-escalate tension in conflict-laden regions (Ministry of Information of the Republic of the Union of Myanmar 2020). In the wake of the Rohingya exodus⁴ in August and September 2017, former United Nations High Commissioner for Human Rights Zeid Ra‘ad al-Hussein deplored the situation as a ‘textbook example of ethnic cleansing’ (UN News 2017). Western investors recalibrated their business plans in the country as a result. The Chinese capital has become vital to Myanmar’s economic development (Lee and Zaharia 2017). Furthermore, Beijing harboured Myanmar at the UN Security Council (Gong 2020). Myanmar was pushed closer to China’s orbit, just as had happened in the pre-reform period.

Against this background, Beijing put forward the CMEC proposal to Naypyidaw in 2017. The plan would involve constructing a Y-shape transport corridor, starting from China’s landlocked Yunnan province and connecting to Myanmar’s second-largest city, Mandalay, then extending to the commercial capital Yangon and western port city Kyaukphyu. During his visit to Myanmar in January 2020, the advancement of CMEC was President Xi’s foremost agenda. Several strategic BRI MOUs and agreements on a high-speed railway, a highway, an SEZ and cross-border economic cooperation zones were signed.

Chinese state-coordinated investment repeatedly experienced setbacks – project suspension or contract renegotiation – during the host country’s political transition in 2011–2021.⁵ Under the Thein Sein administration, political opportunities were widening in the country. Societal actors rose to challenge Chinese infrastructure projects that were deemed to pose adverse impacts on affected communities. The anti-Myitsone dam campaign was the first major social movement in a democratising Myanmar. Notwithstanding the fluid political space, the anti-dam movement was able to amass nationwide support. In September 2011, President Thein Sein suspended the project unilaterally for the duration of his tenure, which would end in March 2016. Beijing routinely pushed Naypyidaw to restart the project but failed. (As of April 2023, the dam remained stalled.) In the following year, vehement protests against the Letpadaung copper mine led by villagers prompted a temporary suspension of the mining project. The project resumed in late 2013 under a revised contract, in which Naypyidaw obtained a much bigger slice of profits. By and large, the China–Myanmar oil and gas pipelines were implemented in accordance with their initial contracts. The gas pipeline began to operate upon the completion of construction in 2013. The oil pipeline’s construction was completed in 2014. Its operation, however, encountered a short delay because Naypyidaw requested a higher transmission fee for crude oil. Beijing refused to give in. The oil pipeline finally started to operate in April 2017.

The CMEC made significant achievements but also met pushback under the NLD-led government. The NLD came into power after a resounding victory in the 2015 general elections. The new government fostered ties with the West but assured Beijing that robust Sino–Myanmar relations would remain. In 2016–2021, more BRI projects were underway, including economic zones, highways, high-speed railways and power plants. Meanwhile, the tension in BRI projects persisted, despite the popularity of the Aung San Suu Kyi-led government. The resumption of the Myitsone dam has failed to proceed, despite Beijing’s ongoing endeavours. The expansion plan of a copper mine project in Sagaing Division was halted in 2019. The new administration agreed to proceed with strategic projects, including the Kyaukphyu deep sea port, and the Yangon new city, but continued negotiating better terms in the agreements. Contrary to disruption to the Myitsone dam, the Letpadaung copper mine, and the China–Myanmar pipelines, new project negotiations did not constitute economic disputes before signing the contracts. In the Kyaukphyu deep sea port, the project was downsized from USD 7.3 billion to USD 1.3 billion in 2018. The Yangon new city was divided into smaller components in 2020 to enable other companies to compete with the preselected Chinese state-owned enterprise (SOE) under a ‘Swiss challenge’ framework.⁶

Table 1: Major China–Myanmar mega infrastructure projects, March 2011 – February 2021.

Project	Chinese investor	Agreement signed	Project value	Project status
Myitsone hydropower dam	China Power Investment (restructured as State Power Investment Corporation in 2015)	Dec 2009 (contract)	USD 3.6 bn	Suspension from Sep 2011 (remains shelved)
Letpadaung copper mine	Wanbao (subsidiary of China North Industries Group Corporation)	Jun 2010 (contract); Jul 2013 (revised contract)	USD 1 bn	Operation under a revised contract
China–Myanmar oil and gas pipelines	China National Petroleum Corporation	Jun 2010 (contract)	USD 2.5 bn	Maintenance of the status quo of the agreement (with a short delay in the oil pipeline operation)
Kyaukphyu SEZ and deep sea port	CITIC Group	Jan 2020 (shareholders’ agreement)	SEZ: USD 2.3 bn Port: USD 1.3 bn (initially USD 7.3 bn)	Environmental and social impact assessments (ESIA) to be conducted (ESIA commenced in mid-2022)
Kyaukphyu combined cycle power plant	Power China	Jan 2018 (‘notice to proceed’); Nov 2019 (electricity purchase agreement)	USD 180 mil	Construction started in February 2021
New Yangon City	China Communications Construction Co. Ltd.	May 2018 (framework agreement)	USD 1.5 bn (first phase)	Proposals received in a ‘Swiss challenge’ process in Oct 2020
Muse–Mandalay railway project	China Railway Eryuan Engineering Group	Oct 2018 (MOU to carry out a feasibility study)	USD 9 bn	Feasibility study and environmental impact assessment completed in 2019
Mandalay–Kyaukphyu Railway project	China Railway Eryuan Engineering Group	Jan 2021 (MOU to carry out a feasibility study)	–	–
Muse–Htigyaing–Mandalay expressway	China Harbour Engineering Company	Mar 2018 (MOU for feasibility test)	USD 820 mil	–
Myitkyina economic zone (Namjim Industrial Zone)	Yunnan Tengchong Heng Yong Investment Company	May 2018 (MOU)	USD 400 mil	–
Kanpiketi business park	Yunnan Tengying Trading company limited	Mar 2020 (MOU)	USD 22.4 mil	Proposal approved by the Kachin State parliament
Muse–Ruili cross-border economic cooperation zone	–	–	–	–
Wazeintaung copper mine	Myanmar Yang Tse Copper Limited (Wanbao’s subsidiary)	–	–	Permission for feasibility test cancelled in Sep 2019

Source: Author’s summary.

The puzzle

The contractual parties are obliged to comply with the provisions upon signing an agreement. Breaking terms set in the agreement constitute a breach of contract and involves ramifications. Breaches of foreign direct investment (FDI) contracts are not unusual across the world.⁷ Nonetheless, cases of breaking bilateral agreements are less common. Project disruption in BRI countries often makes headlines. The cases impair not only Beijing’s geopolitical and geoeconomic interests but also its prestige. In the cases of BRI project disruption in Myanmar, Beijing did not coerce Naypyidaw to honour the contracts. What accounted for setbacks in these state-coordinated investments? Furthermore, these economic disputes concerned the same host country, Myanmar, and the same home country, China, in the same period of time. How could we explain the discrepancy in the project outcomes? More interestingly, Myanmar could sometimes achieve more favourable outcomes in the asymmetric bargaining structure. What explains Beijing’s accommodation, notwithstanding Naypyidaw’s defection in the agreements?

The suspension of the Myitsone dam and subsequent BRI project controversies in Myanmar has drawn much international attention for several reasons: First, Naypyidaw’s unilateral disruption to Chinese investment projects, one after another, drew speculation about a shift in the host country’s foreign policy. Robust bilateral relations can facilitate economic cooperation between a home country and a host country (Blanchard 2011). Greater bilateral economic cooperation often indicates closer diplomatic ties between two sides and, by the same token, an attempt to diversify economic partners – in an extreme case, disruption to a bilateral economic agreement – could be interpreted as a tactic to reorient foreign relations (Goh 2006; O’Neill 2014b; Liao and Dang 2020). With varying degrees of realignment strategy, which can signal cooling bilateral relations, a state may engage in hedging strategies, such as adopting ambiguous policies and not taking sides among competing powers, in order to maintain a fallback position during periods of insecurity. A state may even render a balancing strategy, which involves allying with another great power that is the rising power’s adversary (Kuik 2016; see also Chen 2018). Under the Obama administration, Washington (the US Government) announced its ‘pivot to Asia’ policy. It abandoned its isolation policy and engaged in ‘pragmatic engagement’ with Naypyidaw to propel the military dictatorship to political and human rights reform (Clapp 2010). Against the backdrop of US–Myanmar policy adjustment, Chinese pundits often attributed BRI setbacks to Naypyidaw’s realignment strategy (Chenyang Li 2013; Lu 2016a; Sun 2012b). If such a proposition was valid, what explained the implementation of the mining and pipeline projects after the suspension of the dam?

Second, Naypyidaw’s ability to extract concessions from Beijing in an asymmetric bargaining structure is even more bewildering. Myanmar is an LDC while China is a global power. With such enormous differences in state capabilities, Naypyidaw was perceived to be largely disadvantaged in the negotiations with Beijing. The leading structural realist Kenneth Waltz points out the importance of a state’s structural power in influencing international outcomes to its favour. He asserts that ‘the stronger get their way – not always, but more often than the weaker’ (Waltz 1993, 77–78). In the early phase of the political transition, the Myitsone dam and the Letpadaung copper mine were disrupted at Beijing’s costs. Unexpectedly, Beijing did not condemn its counterpart’s project suspension in the dam case. It even redistributed gains with Naypyidaw in the copper mine case. Beijing’s concessions to Naypyidaw contests the realist assumption that state capability can mean the upper hand in international negotiations.

Third, economic disputes between Beijing and Naypyidaw took place in the same period of time and under a largely similar bargaining structure, but the outcomes varied. The Myitsone dam was suspended throughout Thein Sein’s tenure. It remained shelved during the NLD-led administration. The contract of the Letpadaung copper mine restarted under a revised contract. Meanwhile, the China–Myanmar oil and gas pipelines operated as planned, notwithstanding a short delay. Naypyidaw requested to renegotiate the transmission fee with Beijing but to no avail. International obligations are entailed once a contract is signed. Why is it that some of the contracts could be implemented, but others encountered setbacks?

Context: A decade of political transition in Myanmar

Challenges to BRI projects were embedded in the activation of the two-level game during Myanmar’s political transition in 2011–2021. Robert Putnam’s (1988) two-level game theory crystallises that international negotiation cannot be isolated from negotiating parties’ domestic politics (see also Evans, Jacobson, and Putnam 1993). A leader bargains with the foreign counterpart to maximise gains in an agreement in the international game, and appeals to domestic actors, including political institutions and citizens, to minimise constraints in the domestic game simultaneously. In reality, a leader cannot sign an international agreement without a domestic ratification process. As such, leaders of the two states will reach a tentative agreement at the international game first. Only if constituents from both sides agree, with the tentative agreement in their respective domestic games, could an agreement be reached. Put differently, if domestic audience⁸ of either side disapprove of the terms of the tentative agreement, no agreement could be reached (Putnam 1988). The leader neither fails domestic constituents nor breaks any international obligations in the situation of no agreement.

The sequential order in the two-level game implies that domestic actors can influence the leader’s foreign policy decision. It is generally believed that democracies are more accountable to citizens because leaders’ political survival depends on voters’ popular support. As such, their policy preferences cannot go against voters’. In contrast, dictatorships may only consult the winning coalition, for instance, the ruling party leaders, military, political elites and business tycoons. Hence, it is more difficult for dictatorships to show that their bargaining positions are conditioned by domestic pressure (Putnam 1988; Fearon 1994; Pelc 2011). Hinging on this point of view, societal actors in democracies can influence leaders’ bargaining positions, but societal actors in dictatorships cannot (cf. Weiss 2014). Interestingly, governments’ responsiveness to societal actors may not be linear in regime type. This book contends that transitional polities can be more vulnerable to domestic pressure (Slantchev 2006). Transitional governments usually intend to gain legitimacy and distinguish themselves from old regimes by attending to citizens’ expectations (Gorjão 2002). Leaders worry that widespread discontent from societal actors, including activists, villagers, workers and ordinary citizens, could create political instability during the political transition period.

State–society relations changed dramatically amid Myanmar’s reform period. Under military rule, societal actors had no place in Myanmar’s public and foreign policies. The Thein Sein administration comprised former generals. To many people’s surprise, consistent signs of political reform were observed in the nominally civilian government. The Labour Organisation Law, and the Peaceful Assembly and Peaceful Procession Act were passed in October 2011 and December 2011, respectively. Citizens could apply for protest permits. Burgeoning protests were reported not only in major cities but also in rural areas and ethnic states (Buschmann 2018). Furthermore, trade unions were legalised. Workers also actively participated in strikes to bargain their rights with employers (Kyaw Soe Lwin 2014). Prepublication censorship was officially lifted in August 2012. Although political liberalisation has been marred by rights violations, the Thein Sein administration’s commitment to reform was showcased by NLD’s sweeping victory in the parliamentary by-election results in April 2012. After winning the by-election, the formerly persecuted opposition leader Aung San Suu Kyi became a lawmaker. The most unmistakable sign of political transition was the peaceful power transition from the nominally civilian government to the NLD-led government after the 2015 general elections (Huang 2020; David and Holliday 2018, Ch. 3).

At the time of political reform, the Thein Sein administration sought to gain legitimacy in order to retain power through the electoral process (Callahan 2012; Dossi 2015). Furthermore, political stability was the transitional government’s primary concern. Thein Sein was vigilant against public discontent that might spark social unrest and derail the political process (Ye Htut 2019, 159). As a result, Naypyidaw was sensitive to public opinion on its governance. For instance, in May 2012, it announced measures to tackle the electricity shortage problem following small-scale but rare protests in major cities (Holliday 2013). Naypyidaw’s response increased citizens’ confidence in reform. The change in the political environment activated the two-level game and opened the door to agreement renegotiations.

After five decades of dictatorship, there was naturally a long list of issues that people were eager to speak out about. The general public may not be aware of or care about international agreements. The state-coordinated BRI agreements received sustained public concern owing to their direct impacts on communities, including environmental degradation, forced land confiscation, loss of livelihoods, and revenue non-transparency. With activists’ support, villagers staged protests and demanded the annulment of the previously signed agreements. Even though these protests took place at the domestic level, their objective was to challenge state-coordinated investments at the international level. The advent of societal actors, who were discontented with the committed international cooperation, paved the way for economic disputes.

To many people’s surprise, the Myanmar military, commonly known as Tatmadaw, seized power and ousted the democratically elected government led by Aung San Suu Kyi on 1 February 2021. The country’s decade-long democratisation abruptly ended. The coup redraws the relationship between the government and the people. Despite unwavering resistance to the Tatmadaw, political mobilisation has scaled down due to the regime’s systematic attacks against civilians and abhorrent human rights violations. In the first two years after the coup, at least 2,940 civilians and resistance group members were killed (Assistance Association for Political Prisoners 2023). People have to bear grave risks in expressing their defiance. Meanwhile, the regime does not care about its legitimacy. Citizens can no longer constrain the powerholder’s policy options. If the Tatmadaw signed new international agreements with other states in the post-coup era, negotiations would slide back to a single-level game.

Argument in brief

Societal actors in host countries could influence international negotiation outcomes if they can impose political costs on leaders, and if the home country recognises domestic constraints faced by the negotiating counterpart. Protests against BRI projects could turn bilateral cooperation into international disputes. Paradoxically, they could increase the host country’s bargaining advantage in agreement renegotiations. Assuming both negotiating parties are committed to reaching an agreement, the leader who faces more formidable domestic constraints can demand more favourable terms by stating that concessions are out of his/her reach. The ‘hand-tying’ strategy shifts the burden of offering concessions to the opponent (Putnam 1988, 440; Schelling 1960, 28–29; Moravcsik 1993, 28). In a nutshell, a visible signalling effect opened opportunities for agreement renegotiations. Naypyidaw might prefer project continuation or discontinuation. If Naypyidaw preferred to implement a BRI project, its preference clashed with the domestic constituents. In this case, it could request Beijing to redistribute gains to increase the acceptability of the bilateral agreement. If Naypyidaw preferred to suspend a BRI project, its preference aligned with the domestic constituents. Then, it would tell Beijing that project continuation was beyond its control. The renegotiation outcomes would be subject to the interplay among the three sets of actors in the two countries. Renegotiation outcomes could be project suspension, profit redistribution and project redesign. Divergent outcomes of opposition to the three BRI projects demonstrated that domestic political costs alone could not annul a bilateral agreement.

Arguably, a party may have incentives to misrepresent its bargaining position in order to achieve more gains in negotiations. Audience costs in an international crisis help to increase a negotiating party’s credibility in two ways – providing information to the negotiating counterpart and signalling resolve in a dispute (Fearon 1994). Suppose a political leader sends threats to the opponent in an international crisis but fails to carry out the commitment. He/she will be punished by domestic audience for his/her inconsistency. As an international crisis and domestic political survival are intertwined, a leader will probably refrain from making empty threats and then backing down (Fearon 1994; Tomz 2007; Smith 1998). Audience costs are also incurred in non-crisis negotiations: for example, bilateral economic agreements (Leventoglu and Tarar 2005; Chaudoin 2014b). Contrary to the view that the domestic audience disapproves of foreign policy inconsistency, nascent literature observes that they care more about whether the leader’s policy preferences align with theirs (Chaudoin 2014a, b; Nomikos and Sambanis 2019). The political leader can lose office for acting against the public’s expectations for foreign policy.

President Thein Sein aspired to retain power through elections. In response to social opposition to BRI projects, his policy options were constrained by voters’ preferences. Nonetheless, Naypyidaw encountered a conundrum due to the activation of the two-level game in the BRI cooperation. Domestic audience costs incurred in maintaining the status quo of the projects were displayed by the turnout and the geographical scope of protest actions. The higher the audience costs, the more unlikely Naypyidaw could maintain the status quo of a BRI project, lest social discontent escalate into a political crisis. More problematically, domestic actors opposed to the previously signed international agreement deviated from the two-level game’s bargaining sequence. Once a contract is signed, the parties are bound by international obligations. When social opposition emerged after the signing of the bilateral agreement, Naypyidaw faced a dilemma. Implementing the project agreement would face political consequences at home – that is; paying domestic audience costs (Fearon 1994; Chaudoin 2014b). Breaking away from the contract would entail legal, economic and political consequences – that is, paying international audience costs (see Martin 1993). Considering that the two audiences held opposing positions in the dispute, either continuation or discontinuation of the project entailed an unfavourable outcome for Naypyidaw. I call this conundrum an ‘audience cost dilemma’ (Chan 2017a). Even the well-respected NLD-led government was bounded by the same difficulty when signed BRI projects were opposed by citizens later on.

Under the constraint of an audience cost dilemma, a high level of audience costs was necessary, yet insufficient, to guarantee that the executive would shift its foreign policy decision. On the one hand, Naypyidaw was not fully accountable to its citizens. On the other hand, it needed to consider the consequences of breaking away from the bilateral agreement. The transitional government had to weigh between domestic audience costs and international audience costs. At the same time, Naypyidaw also has its policy preference, which reacted to the change of domestic and international environments. Its preference to implement, renegotiate or cancel a BRI project could vary case by case. Protest management, tactical protest toleration and protest repression could indicate the executive’s diplomatic preference. To capitalise on domestic constraints for bargaining advantage, the executive would facilitate the social movement’s escalation. In this regard, a popular campaign would push up domestic audience costs. Conversely, the executive would repress the anti-Chinese project movement to maintain flexibility in international renegotiations. That means the government could contain the audience costs to a manageable level (see Weiss 2014; Ciorciari and Weiss 2016). Naypyidaw’s protest management reflected its preferences in the three BRI projects. Naypyidaw neither arrested the major organisers nor rejected the public activists against the Myitsone dam. On the contrary, the government arrested the leading anti-mining activists protesting the Letpadaung copper mine and imposed long-term imprisonment for their peaceful resistance. Additionally, it violently repressed protesters and removed them from the project site. For the anti-pipeline campaign, the executive adopted mixed approaches to protest management. They imprisoned villagers opposed to the pipeline projects but allowed other protesters who demanded land compensation to channel their grievances. The inconsistency in handling protests was deliberate, to facilitate or contain audience costs in the light of Naypyidaw’s diplomatic objectives in the disputes.

Regardless of Naypyidaw’s policy preference, Beijing’s reaction was vital to the international payoff in renegotiations. With the intention to maintain cooperation with Naypyidaw, Beijing might offer concessions to its counterpart. Nonetheless, Beijing’s compromise was contingent upon the credibility of Naypyidaw’s domestic constraints in continuing the project. Amid the public outcry, Beijing probably noted that the protests posed threats to political stability and project sustainability in Myanmar.⁹ Hence, the higher the audience costs generated from a movement, the more likely that Beijing would compromise in the renegotiation. Otherwise, Beijing would not budge. Naypyidaw’s domestic audience costs explained Beijing’s accommodating positions in the dam and copper mine disputes and its rejection of redistributing gains in the pipeline case.

Beijing’s perception of Naypyidaw’s audience costs can also be observed by its new diplomatic strategy. Beijing cares about its international image, but its economic statecraft is not always cooperative. It is willing and capable of taking an assertive stance to demand compensation or impose countermeasures for mega project cancellation, especially if it perceives that the host country’s interests clash with its (Norris 2016, 63–64; Fung et al. 2022).¹⁰ In the aftermath of the suspension of the Myitsone dam, Beijing initiated the ‘people-to-people’ approach of diplomacy. Despite the abundant resources of Beijing, it deliberately reached out to societal actors who could influence Naypyidaw’s domestic audience costs. Firsthand interviews indicated that the Myitsone dam and the Letpadaung copper mine were the main agenda items discussed in the exchange programs. Attention to the pipelines was limited. The discrepancy reflected Beijing’s assessment of the audience costs that correlated with the business risk in Myanmar. Case studies in the empirical chapters will present the audience cost mechanism in response to the ‘audience cost dilemma’.

Table 2: Divergent outcomes of BRI project renegotiations.

	Myitsone dam	Letpadaung copper mine	China–Myanmar pipelines
High level of audience costs (turnout & scope)	✓	✓*	✗
Naypyidaw’s intention to change the status quo of the project	✓	✓	✓
Beijing’s recognition of domestic constraints	✓	✓	✗
Change of status quo	✓	✓	✗
Project outcome	project suspension	contract renegotiation	maintenance of status quo

* Phase 1 of the anti-Letpadaung copper mine movement, from March 2012 to February 2013.

Remarks: BRI projects that are still under negotiations are excluded from the table.

Source: Author’s summary.

Significance

This book, grounded in Myanmar’s 10-year political transition, illustrates variations in BRI projects’ status. During the Thein Sein administration, the Myitsone dam was stalled, the Letpadaung copper mine’s contract was renegotiated, and the China–Myanmar oil pipeline was briefly delayed. During the Aung San Suu Kyi-led administration, the Kyaukphyu deep sea port was downsized, and the Yangon new city was unbundled. This process-tracing analysis of the empirical cases that examines the strategic interaction among societal actors, Naypyidaw and Beijing seeks to contribute to the BRI scholarship on three fronts.

First, it joins the debate about asymmetric bargaining by underpinning social resistance as a source of contextual power for the weaker host country. Conventional wisdom assumes that a state’s bargaining power corresponds to its state capabilities (Waltz 1986, 1979). A more powerful state can influence a weaker party through the delivery of threats (negative inducements) and promises (positive inducements) to achieve a preferred outcome in a negotiation (Hopmann 1996). This proposition is inadequate in explaining why Beijing refrained from pressing Naypyidaw to honour the contracts in the Myitsone dam case and the Letpadaung copper mine case. This research also uncovers the signalling effects of the anti-BRI project movements that strengthened Naypyidaw’s bargaining position in the disputes, even though societal actors alone could not determine the dispute outcomes. In connection with the structural power argument, this study challenges the speculation that the US–Myanmar rapprochement disrupted the China–Myanmar cooperation. There has been vigorous discussion about the bandwagoning and hedging behaviour among small and medium states in Asia, in which development, security and political considerations have been interwoven (Roy 2005; Goh 2006; Kang 2003; Acharya 2003; Kuik 2016). Unlike most of its Association of Southeast Asian Nations (ASEAN) counterparts, there was little doubt about Myanmar’s foreign policy orientation towards China before 2011. The military regime isolated by the West had no alternative but to bandwagon China. Under the Thein Sein administration, Naypyidaw’s defection from BRI cooperation was often portrayed as the host country’s signal to the West that it was willing to distance itself from China (Maung Aung Myoe 2015; Fiori and Passeri 2015; Sun 2012b). Empirical cases in this study, however, find that Naypyidaw did not consistently derail committed Chinese projects. Naypyidaw’s repression on protests in the disputes, showed that the transitional government was not attempting to reorient Sino–Myanmar relations by disrupting the Chinese projects in the country. An additional consideration is Beijing’s concessions in the disputes, not only in the form of redistributing gains but also in their restraint from resorting to coercion. Beijing’s engagement with diverse societal actors affirmed the hypothesis that domestic actors could constrain the host country’s diplomatic options.

Second, this research contributes to the Chinese foreign policy literature by explaining why BRI projects are prone to conflict. The underlying cause of conflict lies in a distortion of the negotiation sequence theorised by Putnam (1988). After reaching a tentative agreement at the international level of negotiation, the negotiator must secure domestic support before signing the agreement. Otherwise, the political and legal effects of the agreement will be in question (Haftel and Thompson 2013). Domestic endorsement of an international agreement is crucial to the legitimacy and stability of the agreement. Under the repressive military regime in Myanmar, societal actors were silent over the Chinese development projects, lest the government punish them. At the time when the political landscape changed, they rose to challenge the signed agreement. Consequentially, Naypyidaw was caught in a dilemma. It had to pay international audience costs – compensating the Chinese investors for reneging on international obligations – or pay domestic audience costs – be punished by domestic constituents for failing their public expectations. Regardless of Naypyidaw’s policy preference, a bilateral agreement that bypasses societal actors is likely to trigger disputes.

Chinese SOEs’ social and environmental noncompliances also trigger tension in host countries (e.g. Yeophantong 2015; McDonald, Bosshard, and Brewer 2009; Economy and Levi 2014; Gonzalez-Vicente 2011). While some studies point out that SOEs replicate their domestic business practices to overseas investments (Power, Mohan, and Tan-Mullins 2012), others argue that they defy Beijing’s foreign policy (Jones and Zeng 2019). These views downplay Beijing’s role in BRI implementation (see Liao 2019). In terms of SOEs’ noncompliances in host countries, Beijing could have used its political and financial levers to rectify violations of Chinese companies. Yet, there is little evidence that Beijing and its policy banks have enforced the guidelines to regulate Chinese companies’ overseas business practices (Liao 2019).

Third, this study explores the BRI’s impacts on China’s international image, which is vital to its rise. To counter suspicion that China’s grand strategy aims to weave neighbouring countries into ‘a Sino-centric network of economic, political, cultural, and security relations’ (Callahan 2016, 226), Beijing attempts to win the hearts and minds of the developing world by promising mutual prosperity. President Xi put forward the vision of building ‘a community with a shared future for mankind’ in the first Belt and Road Forum, organised by Beijing in 2017.¹¹ In this regard, Beijing wants to be perceived as a responsible power by delivering international public goods through the BRI (Fung 2019, Conclusion).

The ‘no-strings-attached’ BRI projects are welcomed by political leaders of the host countries but may encounter pushback from societal actors. In the wake of repetitive economic setbacks in BRI project implementation in Myanmar and elsewhere, Beijing has shifted away from its traditional state-to-state relations and engaged in public diplomacy to gain societal actors’ support for Chinese investments in Myanmar (Transnational Institute 2016; Chan 2020; Gong 2020). The essence of public diplomacy is to engage with the foreign public through soft power – that is, by attraction rather than coercion. A sender country’s public diplomacy can only work if the target state’s public finds its culture, values and foreign policy appealing (Nye 2008). Beijing has become more proactive in reaching out to non-state actors and stepping up corporate social responsibility (CSR) programs to craft a more favourable investment environment for the BRI (Tan-Mullins 2020; He and Tritto 2022; Carrai 2021). Even though BRI projects and their CSR programs may benefit the local people, considerable Myanmar societal actors characterised the projects as coercion from the outset. Resistance to BRI projects was observed not only in Myanmar but also in China’s other peripheral states. Social opposition to BRI projects has tarnished China’s responsible power image and could potentially undermine its foreign policy goals.

Data

In the universe of Chinese investment projects in Myanmar, I adopt three case selection criteria for the asymmetric bargaining study. First, the investment project must be concluded out of a bilateral agreement. As such, jade mining, timber logging, plantation, tourism and so on invested in by Chinese private firms did not fall into the scope of this study. Second, the agreement must have been signed and embedded with contractual obligations. No economic dispute would arise if the project was still under negotiation. Third, there must be social opposition against the economic cooperation that triggered the possibilities of agreement renegotiations. Among a long list of Chinese investment projects in Myanmar, the Myitsone dam, the Letpadaung copper mine and the China–Myanmar pipelines fit these criteria. The project renegotiations took place during the Thein Sein administration. BRI projects, specifically the Kyaukphyu deep sea port and economic zone, and the Yangon new city project, under negotiations during the Aung San Suu Kyi-led administration, will also be discussed. However, invoking the second case selection criteria, contracts of the deep sea port and the new city have yet to be signed. Arguably, either negotiating party was entitled to walk away in the negotiations. For this reason, changes in the project terms would not constitute economic disputes, even though they could impede Beijing’s honour.

The evidence was compiled from primary data, including firsthand interviews, official documents and company reports, and secondary data, including newspapers and civil society organisation (CSO) publications, in English, Chinese and Burmese. I conducted over a hundred interviews in 2015–2017 and in 2019. Most interviews were conducted in Yangon, Myitkyina, Mandalay, Kyaukphyu, Sittwe and Naypyidaw in Myanmar. Additional interviews were held in Chiangmai and Bangkok, Thailand. There was a wide range of stakeholders in movements against the three BRI projects in this study. Stressing that social opposition to the Chinese infrastructure projects was the catalyst for changes in signed agreements, I prioritised villagers affected by the Chinese projects, community-based organisations and national CSOs as primary target interviewees. To examine Naypyidaw’s preference over the economic disputes, government officials and people close to the government, such as members of government-affiliated think tanks, were approached. In addition, I reached out to the main opposition parties to understand their positions on the projects because that could increase or decrease the audience costs. The level of audience costs is vital to the audience cost mechanism. This study also collected insights from Chinese companies through interviews, but accessing these was challenging.

This research surveyed newspaper articles, CSO reports and statements and other secondary data to supplement the information collected from in-depth interviews with societal actors. I comprehended Naypyidaw’s preferences regarding the project outcomes by analysing official statements and state media reports. Furthermore, Naypyidaw’s protest management was an indicative factor of its policy preference. Similarly, Beijing’s perception of the signalling effect of anti-BRI project protests in Myanmar was captured by statements from the Ministry of Foreign Affairs, the embassy in Yangon, publications from respective SOEs and state media. Additionally, Beijing’s public diplomatic efforts in Myanmar showed its eagerness to influence public opinion on the BRI projects. Therefore, I paid special attention to SOEs’ CSR activities and Beijing’s public engagement programs, which aimed to change societal actors’ views. Moreover, I observed CSO activities, such as report launches and seminars, to enhance my understanding of the anti-BRI project movements.

Many interviewees consented to reveal their names in this research. This book anonymises all names to protect interviewees in the post-coup Myanmar. Codes are assigned to interviewees accordingly. Interviews with Chinese company staff are coded as (C); journalists as (J); CSO members and activists as (N); politicians and think tank analysts as (P); and community members and workers affected by Chinese projects as (V). The list of interviewees can be found in the Appendix.

This study does not suggest that other sources of FDI are more benign or responsible in Myanmar or other parts of the world. Forced displacement, environmental degradation, child labour, poverty wages, hazardous working conditions and even conflict minerals have been well-documented in non-Chinese overseas investments (Ruggie 2013; see also CK Lee 2017). This book highlights BRI projects in Myanmar because of the puzzling events of disruption to state-coordinated investments in an asymmetric bargaining structure. BRI disputes hampered not only Beijing’s economic interests but also its prestige. This study investigates under what circumstances a weaker country could defect from signed international agreements. Additionally, it examines what made a great power offer concessions to the weaker partner in the disputes. Findings shed light on BRI project stability and societal actors’ role in international politics. Further research that compares mega infrastructure projects from different sources of capital in Myanmar can illuminate the scholarship of the BRI.

Plan of the book

This book consists of seven chapters. Chapter 1 sets the scene for increasing Sino–Myanmar economic cooperation by outlining their bilateral relations since the independence of the Union of Burma (renamed as the Republic of the Union of Myanmar in 1989) and the founding of the People’s Republic of China (PRC). In 2020, the two countries marked the 70th anniversary of their diplomatic relations. Although the two countries have used paukphaw to depict kinship-like relations, Sino–Myanmar ties were characterised by mutual distrust in the first four decades. The two countries normalised their relations in the late 1980s. It was not until the 2000s that the convergence of interests cemented the ties between the two states. China’s SOEs began to set foot in Myanmar. Beijing’s assertiveness in reshaping the Western-dominated global order through the BRI, and Myanmar’s domestic problems, further fostered economic cooperation between the two countries. Sino–Myanmar relations had been defined by government-to-government ties. Beijing paid more attention to public diplomacy amid Myanmar’s reform period. Societal actors turned into a new group of stakeholders in foreign relations. Their policy preferences over bilateral cooperation with China could no longer be ignored and therefore reshaped Sino–Myanmar relations.

Chapter 2 highlights the signalling effects of societal actors in international negotiations. Disagreeing with the single-level analysis of international relations, I draw on the two-level game scholarship in the analysis. Two-level game theory spells out a sequence of international negotiation: (1) arriving at a proposed agreement at the international level first, (2) then seeking ratification at the domestic level. In BRI cooperation, international agreements had been signed, then opposed by domestic audience. The signing of an international agreement without domestic endorsement reversed the bargaining sequence in the two-level game. As a result, the negotiator faced a dilemma when the international partner and domestic constituents held different policy preferences. Project continuation or project discontinuation consequently incurred either domestic audience costs or international audience costs. Existing studies have barely interrogated this new bargaining context. Furthermore, I build on Weeks’ (2008) audience cost model for authoritarian states, and develop an audience cost mechanism that explains how audience costs changed the course of events in the Sino–Myanmar economic cooperation when the host country underwent its political transition. My audience cost model measures the strength of opposition to BRI projects by the protest turnouts and geographical scope of actions, in order to assess the domestic audience costs to be paid by Naypyidaw.

Chapter 3 through Chapter 5 exhibit variations in project outcomes in the wake of movements that challenged BRI projects during the Thein Sein administration, 2011–2016. The dispute settlement is the synthesis of audience costs, Naypyidaw’s diplomatic intention and Beijing’s acceptance of signals sent by Naypyidaw. The anti-Myitsone dam campaign in Chapter 3 attributes the project suspension to the alignment of domestic preference and Naypyidaw’s diplomatic objective. Anti-dam cultural events successfully mobilised nationwide support to stop the project. The first major social movement that amassed nationwide support compelled President Thein Sein to shelve the project in the early phase of the transition. The fact that Beijing refrained from coercing Naypyidaw to restart the dam signified its recognition of its counterpart’s domestic constraints.

Chapter 4 highlights Naypyidaw’s success in capitalising on social opposition to the Letpadaung copper mine to renegotiate gains with Beijing. Contrary to the Myitsone dam dispute, Naypyidaw signalled its commitment to implement the copper mine project by repressing protests. It forwent legitimacy to mend ties with Beijing. Naypyidaw demanded Beijing’s concessions in the project to allay the anti-mining sentiment. The revised contract in Myanmar’s favour affirmed that public outcry could strengthen Naypyidaw’s bargaining position. The case also highlights how Aung San Suu Kyi influenced the level of audience costs in the controversy.

Opposition to the China–Myanmar oil and gas pipelines, discussed in Chapter 5, shows that the level of audience costs is essential in activating the two-level game negotiation in a signed agreement. The anti-pipeline campaign, supported by transnational activism, was unable to translate international moral pressure into the domestic opposition’s advantage. Owing to a divergent agenda in the transnational movement and a lack of influential allies in central Myanmar, resistance to the pipelines was weak. In spite of Naypyidaw’s intention to renegotiate the profit-sharing agreement in the oil pipeline, a low level of audience costs could not motivate Beijing to offer concessions to Naypyidaw. Beijing stood firm till the end of Thein Sein’s tenure.

Chapter 6 analyses the implementation of BRI projects under the Aung San Suu Kyi-led government, 2016–2021. The former opposition leader was critical of FDI projects signed by her predecessor. Surprisingly, more BRI projects were concluded during her leadership. The chapter examines whether a more democratic government would improve FDI transparency. It focuses on negotiations of the Kyaukphyu deep sea port and the Yangon new city. Even though these development plans were revisited by Naypyidaw, the government did not encounter audience cost dilemma, as the contracts have not yet been concluded. In the light of the unsettled Myitsone dam dispute, Beijing often demanded Naypyidaw restart the project. Interestingly, the Aung San Suu Kyi-led government, with strong domestic support, could not keep the anti-dam sentiment at bay. To date, the Myitsone dam has remained stalled.

Chapter 7 summarises the book’s findings and explores the regional implications of the audience cost dilemma for BRI projects beyond Myanmar. It explains when and how social opposition can affect the status quo of bilateral economic cooperation outcomes. Meanwhile, it examines BRI projects’ effectiveness in constructing an image of a responsible power for China. Project disruption in Myanmar not only caused SOEs’ economic loss, but also undermined China’s external environment. The post-coup situation in Myanmar further poses uncertainties to BRI projects. Beijing is cautious about current BRI projects’ stability on the one hand, and prospective projects’ risks on the other hand. Furthermore, the chapter offers broader implications of BRI disputes in other China’s peripheral states. Beyond Myanmar, project disruption in the wake of social opposition in Cambodia, Sri Lanka, Pakistan and Kenya affirms the signalling effect of anti-BRI project protests in renegotiations between the home country and respective host countries in an asymmetric bargaining structure.

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1. 1 To date, Beijing has not released the official project lists for the Belt and Road Initiative (BRI). The agreements of the Myitsone dam, the Letpadaung copper mine and the China–Myanmar oil and gas pipelines were signed before the official launch of the initiative. Nevertheless, these projects were often described by the Chinese state media as BRI projects (e.g. Myitsone dam: Ding 2020; Letpadaung copper mine: Cao 2020; China–Myanmar pipelines: People’s Daily 2020).

2. 2 For discussion about the gap between China’s state power and international influence, see Fung et al. (2022).

3. 3 Myanmar was likely to graduate from least developed country status before the military coup in 2021. The UN Committee for Development Policy deferred the decision on Myanmar’s graduation to 2024 (United Nations Conference on Trade and Development 2021, 2).

4. 4 For generations, Rohingyas have resided primarily in Rakhine State, Myanmar’s western region that borders Bangladesh. Their citizenships were stripped under the 1982 Citizenship Law. Rohingyas faced systematic persecution under military rule. Unexpectedly, political liberalisation in the 2010s did not mean more protection for Rohingya (David and Holliday 2018; see also Han 2021).

5. 5 After the 2021 military coup in Myanmar, the country returned to military dictatorship. This book uses the term political transition to refer to the decade-long political reforms in 2011–2021.

6. 6 The China Communications Construction Company (CCCC) was selected to develop the New Yangon City project under a ‘Swiss challenge’ model in 2018. Other companies can submit counterproposals during the bidding process. If a company offers a lower bid, the Chinese state-owned enterprise can decide to match the funding amount or forego the project.

7. 7 By December 2022, at least 1,257 investor–state dispute settlement claims involving 146 countries have been reported (United Nations Conference on Trade and Development 2022). The number of international economic disputes is presumably the tip of the iceberg: it has not yet included the arbitration cases over pursued settlements that did not go public (Wellhausen 2015, 30).

8. 8 This study uses societal actors and domestic audience interchangeably.

9. 9 The executive in Myanmar worried that the anti-Chinese project protests might run amok (interview: P01).

10. 10 For instance, in Mexico, Beijing demanded compensation after the USD 3.75 billion high-speed rail contract was unilaterally revoked by the host country in 2014. Mexico promised to pay USD 1.31 million to the China Railway Construction Corp Ltd (Yuan 2016). In Malaysia, the Mahathir administration announced the cancellation of the East Coast Rail Link in 2018. The host country was supposed to compensate the China Communications Construction Company Ltd with USD 5.3 billion (Ng 2019). In Australia, the host country cancelled Victoria’s two Belt and Road agreements in 2021. Beijing suspended economic talks with Australia amid tension between the countries (SBS News 2021). Its move was perceived as a retaliation on top of existing informal economic sanctions on Australia (Ferguson, Waldron, and Lim 2022).

11. 11 The vision to create ‘a prosperous and peaceful community with a shared future for mankind’ is documented in the Joint Communique of the Leaders Roundtable of the Belt and Road Forum for International Cooperation (Ministry of Foreign Affairs of the People’s Republic of China 2017a). Zhang Denghua (2018) observes that Beijing primarily invokes the concept in diplomatic relations with the developing world because of their shared development trajectory and political values.