Apr 15th 2015

The Impact of Energy of China/Myanmar Relations

by Daniel Wagner

 

Daniel Wagner is the founder and CEO of Country Risk Solutions and a widely published author on current affairs and risk management.

Daniel Wagner began his career at AIG in New York and subsequently spent five years as Guarantee Officer for the Asia Region at the World Bank Group's Multilateral Investment Guarantee Agency in Washington, D.C. After then serving as Regional Manager for Political Risks for Southeast Asia and Greater China for AIG in Singapore, Daniel moved to Manila, Philippines where he held several positions - including as Senior Guarantees and Syndications Specialist - for the Asian Development Bank's Office of Co-financing Operations. Prior to forming CRS he was Senior Vice President of Country Risk at GE Energy Financial Services. He also served as senior consultant for the African Development Bank on institutional investment.

Daniel Wagner is the author of seven books: The America-China Divide, China Vision, AI Supremacy, Virtual Terror, Global Risk Agility and Decision Making, Managing Country Risk, and Political Risk Insurance Guide. He has also published more than 700 articles on risk management and current affairs and is a regular contributor to the South China Morning Post, Sunday Guardian, and The National Interest, among many others. (For a full listing of his publications  and media interviews please see www.countryrisksolutions.com).

Daniel Wagner holds master's degrees in International Relations from the University of Chicago and in International Management from the Thunderbird School of Global Management in Phoenix. He received his bachelor's degree in Political Science from Richmond College in London.

Daniel Wagner can be reached at: daniel.wagner@countryrisksolutions.com.

China and Myanmar have had a mixed post-war relationship, ranging from warm to hostile, with Burma being the first non-communist country to recognize the PRC in 1949, then expelling much of its Chinese population following anti-Chinese riots in the 1960s. Since the repression of pro-democracy riots in 1988, Myanmar has generally sought a closer relationship with China, as the government wished to strengthen itself in the process. Today, the relationship is characterized by strong bilateral trade and investment, but also a similar sensitivity as other Southeast Asian nations to China’s growing strength and influence in the region.


Myanmar’s Strategic Energy Play

The acquisition of energy has become a dominant influence in China’s foreign policy orientation generally, and has been a driving force in its relationship with Myanmar in recent years. While Myanmar is resource-rich, it does not have particularly noteworthy hydrocarbon reserves, but, because of its geostrategic position has punched above its weight in perceived significance to China. China views Myanmar as important to its own strategic objective of having access to more ports in the Andaman Sea and Indian Ocean.

The Shwe Gas Pipeline (otherwise known as the Myanmar-China Oil and Gas Pipeline), which commenced operation in 2013, certainly symbolizes China’s willingness to invest in Myanmar in order to achieve its energy acquisition objectives. Although built by a consortium that includes India and South Korea, the pipeline is an important component of China’s ability to deliver oil and gas to southwest China.

China has taken this a big step further with the inauguration last month of a 478-mile crude oil pipeline the runs the length of Myanmar and will transport oil from the Middle East and Africa to southwest China. China’s CNPC owns 50.9% of the venture, which included the construction of a new deep-water port and oil storage facilities on Myanmar’s Maday Island. The completion of the port was also a long-held strategic ambition of China in terms of its ability to project its military power in the region. So, it is fair to say that bilateral economic relations have never been better between the two countries, nor has Myanmar’s economic significance to China ever been higher.


You Can’t Always Get What You Want

It didn’t get that way without a few bumps in the road, however. The government of Myanmar halted the construction of the Myitsone Dam in the country’s north, a large hydroelectric project that was under construction along the Irawaddy River and was to be completed in 2017. It was to generate up to 6,000 megawatts of power for Yunnan Province in China. The project had been highly controversial, largely because of the environmental damage it would cause and the thousands of people who would have needed to be displaced to build the Dam.

A broad range of interests and organizations opposed construction of the Dam, which was being was being built by the China Power Investment Corporation – one of China’s largest power producers – and Sinohydro – one of the world’s largest hydropower contractors. In 2011, Myanmar’s then President, Thein Sein, succumbed to pressure and canceled the project, to the great consternation of the Chinese Government, and to the great delight of environmentalists.

Cancellation of the Dam raised a whole host of issues which China had never before had to address in public. It is extremely rare for a developing country government with a long history of friendly relations with China, and seeking its investment, to publicly challenge the Chinese government in such a manner. Even more interestingly, it was one of the first instances when major Chinese government-owned companies had been forced to deal with issues related to contract cancellation and de facto expropriation of Chinese assets related to Overseas Foreign Direct Investment (OFDI).

As a result, the Chinese government learned that it is ultimately as powerless as any other government when contracts are canceled in another country – even Myanmar. The Dam remains suspended. While China has sought to portray the project in a more favorable light, local environmental activists remain adamantly opposed to the project, and allegations of fraud, corruption and lack of transparency remain rife. A rather thought provoking dichotomy – the Dam and the Pipeline – since it may certainly be presumed that many of the objections Myanmar had to the Dam may surely also be said of the Pipeline, but are not.

The Myanmar people have raised, and continue to raise, objection to the manner in which a variety of Chinese-sponsored and funded projects have evolved. Although there are more than two dozen mega-dams either in place or planned in Myanmar, 90+ percent of the electricity generated by them end up being exported either to China or Thailand, meaning that the benefits for Myanmar’s citizens are ‘limited’. Power shortages are still common in Myanmar as a result. How will this simmering enmity manifest itself in terms of domestic politics?

 

The Lady and the Dragon

Myanmar’s growing economic interdependence with China would appear to be consistent with its backtracking on ‘democratization’. Opposition leader Aung Sung Suu Kyi has distanced herself from the ongoing love-fest with China, which has saved her from inevitable domestic criticism given the anti-Chinese sentiment. The Lady (as she is known) has in the past experienced a backlash when she has appeared to be too close to Chinese interests. How she plays her China card may ultimately prove to be important in how her evolving political power unfolds.

In 2012 a violent crackdown was initiated by police on peaceful protestors at the Letpadaung Copper mine in northwestern Myanmar. The mine was at the time a joint-venture between the military-owned Myanmar Economic Holdings and Wanabo Mining, an affiliate of China North Industries Corporation. The project was marred by accusations of land expropriation and environmental damage, and was temporarily shut down.

Suu Kyi was appointed to head a parliamentary commission tasked by President Thein Sein to investigate the crackdown and whether the project should continue to operate. In March 2013 the commission issued a report recommending that the government permit the mine to resume operations. The backlash was swift, in part because the entire incident was seen as a test of Myanmar's will to stand up against China, but also because of allegations it had failed to meet requirements for transparency vis-à-vis its compliance with environment and health standards. Anger among opponents of the mine continues to simmer, fueling the notion that Myanmar has served as a pawn for Beijing, taking a back seat to its economic interests.

So Suu Kyi has a dilemma -- whether to embrace Beijing or continue to distance herself from it -- and contemplating the political implications of doing either. The international community has called for amendments to be made to Myanmar's 2008 Constitution prior to the 2015 elections; in particular, section 59(f), which bars anyone whose spouse or children are foreign nationals from holding the position of president. Through her marriage to the late British academic Michael Aris, they had two sons, which makes her ineligible to become President under the law. Should an amendment be made, and Suu Kyi were to become president, it remains to be seen whether closer engagement with China would be the result. Many of her constituents have already lost faith in The Lady as a result of her failure to more forcefully speak out against human rights abuses occurring in Myanmar.

Regardless of who becomes president later this year, the National League for Democracy is likely to remain a dominant party in parliament, making the question of when, rather than whether, Suu Kyi visits Beijing somewhat academic, given that she will remain the party leader. Establishing stronger ties now would probably be beneficial for the NLD's post-2015 future, but could put Suu Kyi at risk of appearing too close to Beijing. The last thing she would want is to end up being compared to the political establishment she fought so hard to unseat.

Suu Kyi has learned that the seemingly limitless praise she has received in the past can no longer be taken for granted -- either by her constituents or the international community. The price of becoming an international human rights icon is that there she has little room to maneuver outside of the personae she has established. The Lady is learning that with political power comes the need for compromise in order to get to the finish line. Her embrace of Beijing would therefore appear to be inevitable.

 

Beating the West at its Own Game

That said, China has gotten used to getting its way, one way or another. If it weren't for the West's preoccupation with achieving a higher moral standard and adherence to international standards of acceptable behavior, China would not have been as successful as it has been in securing OFDI in the developing and emerging world to the degree that it has. China is in the process of beating the West at its own game - identifying what is sees as the West's 'weakness' on the grand chess board and filling in the gaps left behind.

If the West played the game the same way, China's investment ambitions would be restricted, least more expensive, and would presumably be achieved with more difficulty. But the West is not going to change its stripes any more than China will be changing its own. In some respects, China is outmaneuvering the west in the "great game" that the West invented. But as the Myanmar example has shown, China is quickly learning about the potential benefits of establishing more equitable and genuinely mutually beneficial bilateral economic relationships, as well as being more sensitive to environmental issues and the concerns of host country inhabitants. Perhaps that will be one enduring legacy of Myanmar’s growing importance to the economy of China.

 

Daniel Wagner is CEO of Country Risk Solutions and author of "Managing Country Risk", please see below for link to Amazon. For Country Risk Solutions' web site, please click here.

You can follow Daniel Wagner on Twitter: www.twitter.com/countryriskmgmt



To follow what's new on Facts & Arts, please click here.


 


This article is brought to you by the author who owns the copyright to the text.

Should you want to support the author’s creative work you can use the PayPal “Donate” button below.

Your donation is a transaction between you and the author. The proceeds go directly to the author’s PayPal account in full less PayPal’s commission.

Facts & Arts neither receives information about you, nor of your donation, nor does Facts & Arts receive a commission.

Facts & Arts does not pay the author, nor takes paid by the author, for the posting of the author's material on Facts & Arts. Facts & Arts finances its operations by selling advertising space.

 

 

Browse articles by author

More Current Affairs

Sep 29th 2022
EXTRACTS "Ever since she became a prominent political figure 12 years ago, Truss has been a shapeshifter. She started as a Liberal Democrat before becoming a Conservative, and she voted to remain in the European Union before championing Brexit. As a minister, it is hard to think of anything she accomplished. She signed a few EU trade deals as Secretary of State for International Trade, but most of those were rollovers." --- "But if until recently it seemed that Truss was driven solely by political ambition, her government’s 'mini-budget' proposal sheds light on her deeper ideological affinities."
Sep 20th 2022
EXTRACT: "Russia’s focus on Ukraine and Putin’s choice to frame this as a civilisational struggle with the west has created opportunities for China to enhance its influence elsewhere – at Russia’s expense."
Sep 20th 2022
EXTRACTS: ”The Ukrainian army is making spectacular advances,” --- “…the European Union has fully mobilized to confront the energy crisis.” ---- “we are helping our partners in the Global South to handle the fallout from Russia’s brutal aggression and cynical weaponization of energy and food.” ---- “In short: the overall strategy is working. We must continue to support Ukraine, pressure Russia with sanctions, and help our global partners in a spirit of solidarity.”
Sep 8th 2022
EXTRACT: "In 1950, a team of sociologists, including the philosopher Theodor Adorno, conducted an empirical study, later published as The Authoritarian Personality, which ....... “If a potentially fascistic individual exists, what, precisely, is he like? What goes to make up antidemocratic thought? What are the organizing forces within the person?... what have been the determinants and what is the course of his development?”
Aug 29th 2022
EXTRACT: "Russian aggression certainly poses a threat; but it is a familiar one that we know how to deal with. Rising temperatures, dry riverbeds, parched landscapes, falling crop yields, acute energy shortages, and disruptions to industrial production are something else."
Aug 25th 2022
EXTRACTS: "As the revolutionary founder of a new Chinese state, Mao emphasized ideology over development. For Deng and his successors, it was the opposite: De-emphasis of ideology was viewed as necessary to boost economic growth through market-based 'reform and opening up.' Then came Xi. Initially, there was hope that his so-called 'Third Plenum Reforms' of 2013 would usher in a new era of strong economic performance. But the new ideological campaigns carried out under the general rubric of Xi Jinping Thought, including a regulatory clampdown on once-dynamic Internet platform companies and associated restrictions on online gaming, music, and private tutoring, as well as a zero-COVID policy that has led to never-ending lockdowns, have all but dashed those hopes." ----- "With the upcoming 20th Party Congress likely to usher in an unprecedented third five-year term for Xi, there is good reason to believe that China’s growth sacrifice has only just begun."
Aug 23rd 2022
EXTRACTS: "Less widely noted, however, is that the prices of many commodities fell this summer. The price of oil decreased by about 30% between early June and mid-August. The politically sensitive price of gasoline in the United States fell by 20% over the same period, from $5 per gallon to $4 per gallon. The overall index fell 12%." ---- "There are two macroeconomic reasons to think that commodity prices in general will fall further. The level of economic activity is a self-evidently important determinant of demand for commodities and therefore of their prices. Less obviously, the real interest rate is another key factor. And the current outlook for both global growth and real interest rates suggests a downward path for commodity prices."
Aug 22nd 2022
EXTRACT: "How Trump planned to use the classified documents remains a question that investigators presumably have made a high priority. Depending on the answer and the resulting charges, if any, one thing is certain: Trump will play hardball, including by amplifying his claims of victimhood at the hands of the fictional Deep State, and denying any wrongdoing in purloining the documents. His lies and hyperbole, however, don’t preclude seeking a plea deal. In his previous tangles with the law, such as his Trump University scam, he agreed to compensate the victims (in that case $25 million) after his prevarications were exhausted."
Aug 21st 2022
"On one side, there is the foreign secretary, Liz Truss, for whom all but the most partisan Tory would struggle to count many successes during her lengthy cabinet career." ---- "Rishi Sunak, whose proposed policies appear more attuned to the imperative of tackling inflation and the hardship it is causing. But on the big issues of the past few years, Sunak has been wrong. He backed Brexit from the beginning, denies the damage it is doing, and enthusiastically supported Johnson’s bid for the premiership." ---- " Which of these two can offer honesty to the British people, who deserve to be treated like grown-ups? To paraphrase the US Democratic politician Adlai Stevenson, the average man and woman are better than average."
Aug 10th 2022
EXTRACT: "Central banks are thus locked in a “debt trap”: any attempt to normalize monetary policy will cause debt-servicing burdens to spike, leading to massive insolvencies, cascading financial crises, and fallout in the real economy. ---- With governments unable to reduce high debts and deficits by spending less or raising revenues, those that can borrow in their own currency will increasingly resort to the “inflation tax”: relying on unexpected price growth to wipe out long-term nominal liabilities at fixed rates."
Jul 29th 2022
EXTRACT: ".... the likelihood is that Biden, who spent his life as a senator, played a central behind-the-scenes role in turning Manchin around and keeping the Democratic Party Senators together on this pared-down version of Build Back Better. Biden’s legislative accomplishments, not to mention his administrative ones, will likely end up being very impressive for the first two years of his presidency. ------ In matters of climate, every ton of CO2 you don’t put into the atmosphere is a decrease in how hard life will be for our grandchildren. They will have reason to be grateful to President Biden and the Democratic Party if this bill becomes law."
Jul 29th 2022
EXTRACTS: "Right-wing media outlets including Fox News, One America News (OAN), Newsmax, and talk radio are grossly abusing the right to free speech and are causing profound, if not irreparable damage to our country at home and abroad. They have been engaged in these deliberate practices of spreading poisonous misinformation all in the name of free speech." ---- "A team at MIT, analyzing propaganda techniques in the news, underscores the use of logical fallacies – such as strawmen (the misrepresentation of the other’s position), red herrings (the provision of irrelevancies), false dichotomies (offering two alternatives as the only possibilities), and whataboutism (a diversionary tactic to avoid directly addressing an issue). ---- Whataboutism is worth considering more closely because it is becoming ubiquitous among Republicans – perhaps this is not surprising given that it is certainly Trump’s “favorite dodge.” It is one of the fundamental rules by which he operates: when you are criticized, say that someone else is worse. In an interview with Trump, Bill O’Reilly states the obvious fact that “Putin is a killer,” and who can forget Trump’s response: “There are a lot of killers. You got a lot of killers. What, you think our country is so innocent?” That is classic whataboutism. And it is also of course all over Fox News’ most popular line-up."
Jul 24th 2022
EXTRACTS: "For three hours, against the unequivocal advice of his counsel, friends, and family, Trump purposefully and steadfastly declined to give the mob he had summoned any signal to disperse, to exit the building peacefully, or to simply cease threatening the life of his vice president or other members of Congress." ------ "Trump is corrupt to the core, a traitor who deserves nothing but contempt and to spend the rest of his life behind bars because he remains a menace to this country and an existential threat to our democratic institutions."
Jul 21st 2022
EXTRACT: "For some countries, diasporas also are not new. Just ask the Russians. For three-quarters of a century, Stalin’s NKVD and its successor, the KGB, kept close tabs on expatriate Russians, constantly worrying about the threat they might pose. And now, Russian President Vladimir Putin’s security service, the FSB, is continuing the tradition. According to recent FSB estimates, almost four million Russians left the country in the first three months of this year. Obviously, FSB statistics are hard to verify. But the sheer magnitude of this year’s departures is striking."
Jul 20th 2022
EXTRACTS: "We need leaders who will be honest about our problems in the short, medium, and long term. We are becoming poorer than our neighbors, with our per capita growth and productivity lagging behind theirs. We confront surging energy prices, soaring inflation, and public-sector strikes. Our fiscal deficit is uncomfortably high. Our influence is diminished. Far from recognizing these challenges, let alone proposing sensible solutions, the candidates to succeed Johnson are trying to win votes with reckless proposals like ever-larger tax cuts." ----- "There is one exception. Former Chancellor of the Exchequer Rishi Sunak refuses to abandon the notion that expenditure should bear some relationship to revenue. "
Jul 13th 2022
EXTRACT: "Looking ahead, five factors could make today’s energy crisis even worse. First, Putin has opened a second front in the conflict by cutting back on the contracted volumes of natural gas that Russia supplies to Europe. The goal is to prevent Europeans from storing enough supplies for next winter, and to drive prices higher, creating economic hardship and political discord. In his speech in June at the St. Petersburg International Economic Forum, Putin made his reasoning clear: “Social and economic problems worsening in Europe” will “split their societies” and “inevitably lead to populism … and a change of the elites in the short term.” ...... As it is, Germany is now anticipating the need for gas rationing, and its minister for economic affairs, Robert Habeck, warns of a “Lehman-style contagion” (referring to the 2008 financial crisis) if Europe cannot manage today’s energy-induced economic disruptions."
Jul 5th 2022
EXTRACT: "Fortunately, I am not alone in claiming that the survival of democracy in the US is gravely endangered. The American public has been aroused by the decision overturning Roe. But people need to recognize that decision for what it is: part of a carefully laid plan to turn the US into a repressive regime. We must do everything we can to prevent that. This fight ought to include many people who voted for Trump in the past."
Jul 2nd 2022
EXTRACT: "The Israeli philosopher Avishai Margalit described this succinctly in his book On Compromise and Rotten Compromises. In “politics as economics,” material interests are “subject to bargaining, everything is negotiable, whereas in the religious picture, centered on the idea of the holy, the holy is non-negotiable.” This, then, is why politics in the US is now in such a perilous state. More and more, the secular left and the religious right are engaged in a culture war, revolving around sexuality, gender, and race, where politics is no longer negotiable. When that happens, institutions start breaking down, and the stage is set for charismatic demagogues and the politics of violence."
Jul 2nd 2022
EXTRACT: "...EU enlargement is essentially a political decision by member states, based on a multitude of considerations that sometimes include dramatic events. Russia’s war of aggression against Ukraine is such a turning point."
Jun 29th 2022
EXTRACT: "Most market analysts seem to think that central banks will remain hawkish, but I am not so sure. I have argued that they will eventually wimp out and accept higher inflation – followed by stagflation – once a hard landing becomes imminent, because they will be worried about the damage of a recession and a debt trap, owing to an excessive build-up of private and public liabilities after years of low interest rates." ----- "There is ample reason to believe that the next recession will be marked by a severe stagflationary debt crisis. As a share of global GDP, private and public debt levels are much higher today than in the past, having risen from 200% in 1999 to 350% today (with a particularly sharp increase since the start of the pandemic). Under these conditions, rapid normalization of monetary policy and rising interest rates will drive highly leveraged zombie households, companies, financial institutions, and governments into bankruptcy and default."