New balance in China, Myanmar ties

By Yun Sun
in Program

Myanmar President Thein Sein’s decision to suspend construction of the China-backed Myitsone dam project has surprised many observers and raised questions about the state of the two countries’ bilateral ties. Civil society groups and other observers have celebrated the decision as a people power success under a new democratic regime and perhaps Myanmar’s first overt rebuff of China’s economic dominance. 

Different analyses have emerged as to why Myanmar has turned its back on its powerful and wealthier northern neighbor. Many believe that Thein Sein’s government responded to public opposition to the US$3.6 billion project, which threatened environmental degradation and the livelihoods of local communities in the area. Some think Naypyidaw is catering to the West to show it is genuinely different from the outgoing military junta and deserves a more positive and welcoming treatment. 

Others have argued that the decision was the result of an internal power struggle among different factions inside the government. However, none seems to be asking the critical question: What happens next? 

The suspension of the dam will not change immediately a basic hard fact. That is, China is currently Myanmar’s biggest economic patron in regard to foreign direct investment and aid. As the new government of Myanmar eagerly seeks to reform and develop its national economy, China is and most likely will remain an indispensable player in that process. 

Although China also needs Myanmar for a variety of reasons, namely border stability, natural resources, energy transportation and an outlet to the Indian Ocean, such mutual dependence is hardly symmetrical. China has a lot to lose if the bilateral relationship turns sour. However, Myanmar has even more at stake considering China’s overwhelming economic importance to the country. 

The real value of China for Myanmar is heightened by existing Western sanctions. Under the current investment, trade and financial restrictions imposed by the West, including the United States and the European Union, Myanmar is yet to find a realistic alternative to China to meet its economic needs. 

Neither the 10-member Association of Southeast Asian Nations (ASEAN) nor India generate as large or steady a cash flow into Myanmar as China. Although pleased by the changes inside Myanmar and disturbed by China’s dominance and problematic projects, the West seems to be in no hurry to remove these punitive measures. Even if the Myanmar government may not relish its over-dependence on China, at the moment it does not really have other feasible options. 

Therefore, the decision to suspend the Myitsone dam has raised some serious questions. Most immediately, the two countries need to resolve next steps regarding the dam project. The differences in perceptions are striking and threaten future diplomatic complications. Most in Myanmar seem to have taken Thein Sein’s decision as the cancellation of the project, while many in China have noted that the decision was only to suspend the project during this government’s term rather than abandon it altogether. 

It remains to be seen whether this disconnect reflects Thein Sein’s strategic planning to leave the door open for further negotiations or instead a step-by-step approach to mitigate harsh feelings. Either way, Beijing seems hopeful that there is still room for maneuver. 

According to China’s Ministry of Foreign Affairs, the legitimacy and validity of the dam is not at issue since the project has “gone through scientific verification and strict examination of both sides”. The ministry added that any issues about the project at this point are merely “relevant matters arising from the implementation of the project” and “should be handled appropriately through bilateral friendly consultation”. 

For China, the issue is not whether the project should or will be implemented, but how to resolve the differences on the specifics of its implementation. The more hardline response from China Power Investment Corporation (CPI), the Myitsone dam’s lead investor, adds one more layer of complication to the future of the project. CPI’s general manager has publicly threatened that Myanmar’s decision will lead to “a series of legal issues” and “immeasurable” financial losses. 

CPI has invested heavily in the Myitsone dam, including $18 million alone on the relocation of local populations. If the project is abandoned and the Chinese government does not intervene, CPI will almost certainly press Myanmar to compensate it for losses and collateral damage. 

The abandonment of the dam will also completely change the original seven dam mega-project of which Myitsone is the central link. CPI has also invested in spin-off infrastructure projects such as factories, bridges and roads. The total compensation amount demanded could be astronomical. 

Beyond dam diplomacy 
In the longer term, the Myitsone dam controversy raises other serious challenges to Myanmar’s relationship with China. Some China analysts have argued that broad bilateral relations will not be determined by one single project. However, Thein Sein’s surprise decision has been interpreted by many Chinese as a serious betrayal which should not be brooked without some sort of retribution. 

More profoundly, Thein Sein’s apparent disregard of Chinese interests, the public embarrassment created by his announcement, combined with Naypyidaw’s parallel efforts to improve relations with the US, all feed into growing Chinese suspicion about Myanmar’s strategic intentions and its dependability as a bridge into Southeast Asia, South Asia and the Indian Ocean. 

The suspension decision will thus influence how Myanmar’s government and its people manage their future relations with China. To minimize the damage, Thein Sein will need to convince Beijing of the necessity of the suspension (or even abandonment) and help China understand the changes underway inside Myanmar and their implications for China-Myanmar relations. 

To be sure, playing on domestic public opinion could provide Myanmar’s government useful new leverage. Some civil society groups in Myanmar have already expressed their wish to collect one million signatures and send the petition to Beijing for the complete abandonment of the project, as well as a waiver on compensation for work completed. 

Nevertheless, both the government and civil society groups should be cautious when playing the public opinion card. China has viewed anti-China sentiment bubbling in Myanmar as a conspiracy stirred up by the West and pro-Western nongovernmental organizations to undercut China’s national interests. Thus any over-emphasis placed on public sentiment by Thein Sein will be viewed by Beijing with suspicion and might result in bigger economic losses. 

Clearly, China does not want the dam controversy to stir wider anti-China sentiment and cause a domino effect on other Chinese-invested projects, including several other hydropower projects, mining ventures and, most importantly, major new oil and gas pipelines. The pipelines, similarly beset with controversy, are one of China’s four national strategic energy transportation routes and its most important project in Myanmar. 

It’s unclear what, if any, broad lessons China’s government and companies have drawn from the Myitsone dam experience. Public opposition to the dam had never been acknowledged by Beijing or CPI. Widespread resentment of the dam, however, was learned the hard way in April 2010 when the construction site was bombed by locals. An ethnic Kachin insurgency in the dam’s area has also reignited in recent months. 

For almost 18 months, Beijing and CPI stood aside and watched the hostility fester rather than engaging the different groups and stakeholders that could have worked towards a solution, or at least a less embarrassing public result caused by the abrupt suspension. The failure, it appears, is the result of a strategic miscalculation that CPI could bribe its way out of the predicament and reflects a fundamental misjudgment about Myanmar’s new political reality. 

Myanmar’s new government is not the old military dictatorship and China cannot hope its previous business model of working through cronies and corrupted government officials will continue to guarantee commercial success and new investment opportunities. A lot needs to be done to mend China’s image and improve its relationship with the people and civil society groups in Myanmar who rallied against the Myitsone dam. 

Most importantly, Beijing might want to consider that the strong anti-China sentiment in Myanmar has deeper causes beyond Western instigation. Single-minded, profit-driven Chinese companies will need to be reined in before they undermine the many good things China has recently done for Myanmar. However, without a change in official thinking, China can expect more surprises like the Myitsone dam suspension and new tests to the bilateral relationship. 

This article originally appeared in Asia Times, on October 13, 2011. 

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