Chinese Investment in Myanmar
This study seeks and explores Myanmar’s economic ups and downs, local, regional, and international challenges of economic growth for Myanmar, and an impact of Covid-19 Pandemic crisis on Myanmar economy under globalization and a major role of Chinese investment in Myanmar’s in industrial Zones and Projects during 2011 -2020.
Myanmar is a country, in which is political instability, ethnic armed conflict over seventy years and western sanction around thirty-two years. Only after 2011, Myanmar could poorly join with international trade, market, and investment and connect with international economic organizations and has received international aid and supports for multiple development. Furthermore, though from 2011 to 2015, Myanmar’s economic growth, politics, and civil society seemed to be going stable, after 2016, economy has fluctuated and the political impact has eroded unity amongst civil society. Covid-19 Pandemic crisis hit a flow of economy, education contribution, health care, and civil network in Myanmar.
In Myanmar’s industrial Zones and Projects, China’s investors and SOE are playing a major role compared to other foreign investors for years. Chinese investment has been aiding Myanmar under local and regional issues and western sanctions. When implementing some industrial Zones and Projects such as Myitsone dam, Latpadaung Taung, and KyaukPhyu Pipeline, though there were protest and conflict of civil society against Myanmar government and Chinese investors, all projects between Myanmar and China could reach to an end. China attaches great importance to its investments, imports, and exports from or into Myanmar.
The rate of Chinese investments in Myanmar’s industrial sector particularly indicates that Myanmar could again cooperate with international organizations to promote local and regional economy, but political risk pushes back Myanmar into a place where it was and continues to rely on China to be able to solve problem and challenges in region and pressure by Western countries. Hence, the only one way to reduce political risk and to sustain political stability is to increase Myanmar’s economy and to promote social welfare in future.
The Covid-19 Pandemic has intensively made waves human society, global network, and global trade flow. Progress of every feature such as education, health, financial, and economic sectors in developing countries has been lost, though not in developed ones as hit by the recent pandemic. As WTO mentioned, “Global trade is set to shrink as much as 18.5% in Q2”. Myanmar is also affected by the Pandemic so that GDP growth rate has dropped from 6.8% in 2018 to 1.8% now. Asian Development Bank (ADB) expects that Myanmar has good economic growth potential following year and reach 6%. But it will depend on how long a viral infection of Corona virus is going around. International Labor Organization (ILO) states that 1.6 million people are losing their jobs during Covid-19 Pandemic. According to the Global New Light of Myanmar -Myanmar Daily News (28 June 2020), nearly 140,000 employees from a total of 5,700 factories, workplaces, and restaurants have given away their jobs. Just as the economy is in crisis around the world, Myanmar’s economy has plummeted as it takes time to recover.
China is a neighboring country of Myanmar since the period of Kingdom. The relation of Myanmar and China has always remained firm, but being a powerful country, some movement on border between two countries crashes the relation and waves Myanmar civil society. On the hand, whenever Myanmar government changes, it can be thought that China adjusts itself to Myanmar’s policy and strategy against US and European countries. For over thirty years, Myanmar has still been suffering from international debt and bank loan, weakness of economic development and loss of human resources as consequence of sanction by Western and European countries. Myanmar was lonely away from international trade and market and as an ally of China, it was mainly engaged in trade. There are significantly lots of China’s interests, investments, firms, and companies small or large led by not only China government like SOE but also private businessmen.
The following two questions are the heart of the study and will emphasize on with strong factors, information, and data from not only the main sources, but also from the secondary sources published by officially researchers, scholars, and reporters from 2011 to 2020.
- What were Myanmar economic environment for foreign investment and economic growth under globalization?
- To what extent has Chinese investment played a role in Myanmar’s industrial Zones and Projects?
It can be said that Myanmar is a potential country for rapid growth and development while having social instability, political risk, and other challenges because it has rich natural resources, abundant labor force, and major strategic location between two powerful countries: China and India. In addition, Myanmar is a member of the Association of Southeast Asian Nations (ASEAN) and it can utilize regional cooperation strength and great geographic position amongst East, South, and Southeast Asia to increase its multinational trade and investment across border.
Myanmar is trying to connect with the international community to develop all aspects of the country, but international pressure is still mounting due to domestic social unrest and some humanitarian crisis in Rakhine State. Investors are consciously worried about the problems that will arise when implementing their projects in Myanmar. The main concern for investors in Myanmar is political risk, unstable democratization, and various tensions between government and ethnic groups.
Major challenges of such factors undermine the confidence of international investors. It is obvious that Myanmar government is working with a modern legislative framework to reduce regulatory barriers to foreign investment under the New Myanmar Investment Law (2016) and the New Myanmar Companies Law (2017), but it will not be possible for the Myanmar government to attract international investors unless it stabilizes domestic issues. There are significantly not only strengths and opportunities but also weakness and risks in implementing economic growth for Myanmar.
| Strengths
· Strong commitment to reform · Large youthful population, low-cost labor force for foreign investment · Rich supply of natural resources · Abundant agricultural resources · Tourism potential |
Weakness
· Weak macroeconomic management and lack of experience with market mechanisms · Limited fiscal resource mobilization · Underdeveloped financial sector · Inadequate infrastructures: transports, electricity access, and telecommunications · Low education and health achievement · Limited economic diversification |
| Opportunities
· Strategic location · Potential of renewable energy · Potential for investment in a range of sectors |
Risks
· Risks from economic reform and liberalization · Risks from climate change · Pollution from economic activities · Tension from internal ethnic conflicts |
Source: Asian Development Bank (ADB)
Moreover, some western firms left China and invested mostly in Vietnam, Thailand, Laos, and Cambodia although economists expected international firms to invest in Myanmar in which belongs to favorable position for investors. Within this Covid-19 pandemic, global crisis also, some international companies left Myanmar for various reasons. Some experts comment this is due to weakness of labor laws, its undiversified industrial, infrastructures for firms, a weak budgetary base, deficit of trade balance, insufficient electricity supplies, a low-quality of transportation, and an under develop- ed financial sector.
The below chart describes most invested countries in Myanmar from 2011 to 2020.
Source: DICA
According to a survey by The Asia Foundation, nearly one third of companies in Myanmar temporarily shut down under pressure of the Covid-19 outbreak and others, remaining else are (Asiafoundation, 2020) facing drop of more than 50% in turnover. Flowing in tourism, automotive, garments, fast-moving consumer goods and retail distribution are now significantly in slow (Asiafoundation, 2020).[1] Before the Covid-19 pandemic break out in Myanmar, the rate of economic growth was 6.3% in FY2019/20 and is 6.4% in FY2020/21. It is expected that Myanmar economy continued to decline from 6.8% in FY 18/19 to 0.5 % in FY2019/20. A quick recovery action from economic downside will help economic growth in FY2020/21 (Worldbank, 2020).[2]
Myanmar has been pursuing a better policy and principle based on an independent economy and politics for the provision of foreign investment since 2011. Myanmar government started building special industrial zones like Thilawa in Yangon Region, Kyauk Phyu in Rakhine State, Dawei in Taninthayi Region, etc., to attract international investors. According to U Thaung Tun (MIFER) and Mr. Masa Michi Kono (DSG.OECD), more than a hundred of investors from around 20 countries took a special interest in the Thilawa Industrial Zone. It increased 12% of FDI stocks on an annual average in 2011 and 2019 (OECD, 2020).[3] In May, 2015, for example, Chinese firms invest in energy projects of the Paunglaung, the Shweli Projects etc. to establish a 500 MW gas-fired plant supporting major supply of electricity to Yangon, the SEZ of Thilawa since mid-2018 (UREC, 2009).[4]
OECD roughly predicts that global FID activity could fall by at least 30% in 2020 and 2021 (OECD, 2020).[5] If FID flowing of the developed countries drops significantly, the developing countries will be unexpectedly affected by falling of GDP or GNP. Supply and demand based on exports and imports start shocking at some of Myanmar investment sectors. This could be especially difficult for Myanmar, which particularly relies on input from neighboring China.
Chinese government actively support its firms and state-owned enterprises investing and operating abroad. Chinese firms investing in Myanmar on infrastructure construction are mostly SOEs; national or sub-national government owners. Chinese investors are largely in the garment, medium-sized and low-income housing constructions. In some projects like Myitsone, Kyaynitaung, etc., there are conflicts between the two countries on some projects. Despite pressure on the two governments over Myitsone Project in 2011, the project has been put on hold due to bilateral relations. Commentators said that instead of Myitsone, the project of oil and gas pipeline is being implemented in Kyaukphyu, Rakhine State.
In 2015, a rice trade agreement was signed between two countries and EXIM bank of China made extension of its loan for microcredit of Myanmar’s small farmers implemented since in 2013. The Chinese government received also a road construction of Myanmar government in August, 2016 and in this mid-month, Chinese president Xi Jinping invited Aung San Suu Kyi and welcomed her in Beijing and they declared the joint statement to support Myanmar development (Stephen, Linda, & Xiao, 2017).[6]
The Chinese government and its private firms support large-scale projects such as pipeline, hydro dams, agricultural credit programmes for opium substitution. On the contrary, there is something to think about that Chinese entrepreneur are only interested in their national profits and obtaining regional resources of Myanmar in informal deals. The damages of natural resources come along with the plans and projects of Chinese firms throughout Myanmar. It clearly shows the lack of relevant regulations and rule of law on investment. Generally, China is still the gateway to Myanmar’s natural resources or raw materials such as woods, forestry, fisheries, mining, gemstones, and agricultural crops.
In addition to China’s national interests, keeping its power over Myanmar and preventing US domination in its region or especially in Myanmar include in implementing the China’s Belt and Road Initiative for Beijing (Andrew & James, 2020).[7] The lots of plots in Myaung Daga industrial Zone, Hmaw Bi township in Yangon is mostly owned by Chinese investors. There are eleven garment factories of foreign investors from China in Hlaing Thar Yar Industrial Zone, Yangon. The ninety-five percentages of the total forty garment factories are registered by foreigners under names of Myanmar citizens in principle. Moreover, there are also different scales of industry in medium and large-scale in Mandalay industrial Zones. Most of them are by implication owned by foreign investors from China, but are registered as local private industries. All in all, industrial sectors of Myanmar are taken over by China (Aung & Toshihiro, 2013). In 2019, China is a second-largest of foreign investment and nearly 26% of total FDI in Myanmar (Lwin, 2019).[8]
According to the Directorate for Investments and Companies Administration (DICA 2016), a total of USD 18.52 billion investment by China was from 1988 to 2016. China increased its investment rapidly only in 2008 (Bissinger, 2012).[9] The lists described the USD 997 million Letpadaung copper mine and the USD 856 million Tagaungtaung Nickel Mine, the multi-bilion USD Shwe Pipeline and dams in Kachin, Shan, and Karen States. The suspension of Myitsone Dam by Myanmar government affected Chinese investment significantly in 2012 and 2013. However, a total investment of USD 4.5 billion was increased again from 2013 to 2016. Overall, China invested largely in the power sector, as small in the sectors of oil and gas, and in infrastructure; roads, railways, ports, and economic zones.
This below line chart describes the rates of Chinese investment in Myanmar.
Source: Directorate of Investment and Company Administration (DICA)
In 2011, the force of Myanmar civil society, which seem to accompanied with political shadow was more active to protest implementing the project of Myitsone Dam. Consequently, President U Thein Sein suspended it only six months later after he took presidential office. The project was implemented as a tri-joint venture by China Power Investment Corporation (CPI), [ later it became State Power Investment (SPI)], the Myanmar government Ministry of Electric Power, and the Asia World Company.
After the Myitsone Dam in Kachin, the case on the Letpadaung Copper Mind arose in civil society in 2012. It is locally owned by Monywa District, Sagaing Division and 7868 acres of farmland and areas of 26 villages controversially contained in this project which established as a joint venture between the Union of Myanmar Economic Holdings Company (UMEHL) and Wanbao Mining (Wanbao), a Chinese Company and a subsidiary of China’s state-owned arms firm the China North industries Corporation (Kyu, 2014).[10] The issues of two projects changed local civil society’s attitude toward Chinese investors. Moreover, the Global Witness report said that a public criticism of Chinese investments was continuously waving until 2015 on Myanmar’s illicit jade trades. The Global Witness called this “the biggest natural resource heist in modern history” (Globalwitness, 2015).[11] It shows that Myanmar has a lot of challenge to formally make its economic development with natural resources.
Another prominent project is the Kyaukphyu special economic zone, which consist of the industrial zone and a deep seaport throughout total 4300 acres of land in Rakhine State led by the China International Trust and Investment Corporation (CITIC) and 42 private Myanmar companies under Myanmar Kyaukphyu Special Economic Zone Holding Public Co. According to U Aung Htoo, deputy commerce minister, Myanmar government has 45% and CITIC Consortium from China owns 51% from this project, which has 2400 acres of land. Furthermore, housing project of 1235 acres will be also implemented (Htwe, 2020).[12] It can be said that the Kyaukphyu SEZ and deep seaport are an essential role of achieving OBOR vision of China. This project also has challenges against civil society and local communities. But they met with representatives of local communities and reached agreement to create local and regional development opportunities.
To date, the main exit of Myanmar’s import and export is China and China also keeps Myanmar in playing a major role in regional power. Whenever Myanmar is under the political and economic sanction pressures from West and Europe, China supports and stands by Myanmar. It can be said that a symbol of firm friendship between the two countries. In contrast, under the western and europium sanctions, a developed country like China has no losses, but a big loss for a LDC country like Myanmar in trade between the two countries. Myanmar is heavily dependent on China for trade, and on the other side, it is facing the loss of natural resources and the profiteering of businessmen. These conditions are uncontrollably happening throughout Myanmar.
FDIs are significantly playing a major role in the development of human resources and nation-building throughout the world. Thus, Myanmar government should implement modernized infrastructures like transportation for supply chain, sufficient energy power for electricity, barrier reduction and free markets with technology-based industrial zones as economic city. Potential foreign investors are ready to work in Myanmar, but underdeveloped infrastructures, the high rental price of land and buildings, issues of local firm owners, and political risk or instability of politics are an awful obstruction for them to invest in Myanmar. Myanmar should be performing political stability and building basic infrastructures to ensure the social well-being of its people.
In brief, firms of local private and national levels should be driven and supported in hard and soft skills to compete with foreign investors as host. Moreover, Myanmar should invest in human capital which particularly limits in Myanmar to maximize economic growth and social welfare. Scholars or students should explore the ways to increase Myanmar’s economic force to promote political stability, good education and health care for human capital and better strategies for economic growth.
Aung Thu
[1] The Asia foundation’s forecast on economy of the World
[2] The World bank’s overview
[3] Organization for Economic Co-operation and Development. It is an international organization, working for better policies and lives.
[4] Union Resources & Engineering Co (OECD, 2020) (OECD, 2020) (OECD, 2020) (Worldbank, 2020) (Worldbank, 2020) (Worldbank, 2020) (Worldbank, 2020) (Worldbank, 2020).,Ltd.
[5] OECD’s Economic Outlook December, 2020
[6] It is a study on Myanmar economic transform in the past two decades and its potential in the future.
[7] China’s strategy is analyzed on old and new silk road in this Article.
[8] Data based on DICA and YRIC
[9] Contemporary South East Asia Academic Journal
[10] Kyu Kyu’s dissertation for Master, submitted to Chulalongkorn University.
[11] Global Witness emphasizes on jade under Myanmar Military.
[12] Chan Mya Htwe interviewed U Aung Htoo, Deputy commerce minister.
