Robert Walsh, sometime Seattle resident and long-time friend of our law firm (we have worked on a number of Asia deals together and we — Dan and Steve — met up with him on our last trip to Myanmar), has spent the last four years in Myanmar, where he operates a vibrant business consultancy. Robert is fluent in Chinese and Korean and, amazingly enough, Burmese (multiple dialects), having learned Burmese while working in the U.S. Embassy in Yangon many years ago.
Last year, in Doing Business in Burma/Myanmar: An On the Ground Report, Robert wrote how optimism in and about Myanmar is waning as things just keep getting worse there.
Yesterday, Robert emailed us an article from the Irrawaddy (for more on this newspaper and its interesting history go here) aboutChina’s ambassador to Burma going up to Kachin State to throw his weight around. In response to that, we asked him to provide us an on the ground report of China’s activities in Myanmar. The below is Robert’s report:
Over the past five years I’ve had front row seats to watch how Chinese companies in Burma operate, as SOEs, as SMEs and as outright outlaws. The latter predominate.
The Chinese SOEs were initially focused on getting a beachhead at Kyaukhpyu on the Rakhine coast NW of Rangoon. Between 2012-2014 a pipeline running from the coast across Burma to Yunnan was built. There were on again/off again plans for a railroad paralleling the pipeline, but nobody could figure out what good it would be for anybody local.
I’ve previously described other Chinese mega-projects in Myanmar, but the only place where anything is happening is a bizarro 5000-acre resort-industrial zone-Las Vegas in the Jungle sort of thing on the Thai border across the river from Mae Seot being done by Jilin Yatai Group. For background on this project go here. I am baffled how the Chinese are doing a very large project by working directly with an ethnic armed organization, on Burmese soil, and without much in the way of compliance with Burmese foreign investment laws and procedures. I am even more baffled with how Yatai’s operation is being done in an area where the local armed groups haven’t exactly hammered everything out with the government yet.
Other Chinese SOE projects like the Myitsone dam and other hydropower projects are stalled, largely due to pushback from locals in the intended project areas. The Myitsone dam project has gotten nationwide pushback because it would affect the entire watershed of the country and China does not have a great track record on either domestic or overseas hydropower projects, especially when it comes to having environmental impact studies done that are deliberately superficial. As of this writing we know of six such projects that are going nowhere. For a really great story on a really botched Chinese dam, check out It Doesn’t Matter if Ecuador Can Afford This Dam. China Still Gets Paid.
The major feature of all these Chinese projects in Myanmar is that Chinese SOEs think engagement with locals is not needed and so long as the right people in the Union government are paid enough under the table any and all objections should cease. The Chinese are not alone in this approach, as many international NGOs also take the same approach, pouring out largesse in Naypyidaw, while leaving crumbs to filter down to project areas. Up in Putao, people are fighting against various conservation NGOs because they have paid off people in the forestry department in Naypyidaw to expand the national parks in a way that drives people off the land. For an example of this, see Over 200 villagers march to demand the abolishment of Hkakhaburazi National Park.
For Chinese SMEs and outlaws looking to do something here, compliance with local law is the last thing on their minds. Their collective mode of operations are as follows:
- Acquire the land via local straw buyers.
- Acquire the land with payoffs to the military, especially where a hapless local is occupying land that the military or affiliated cronies can easily seize. In many cases in Kachin and Shan State this occurs even more quickly if local farmers have been forced out due to conflict. A family can return home from months in a refugee camp to find their land under bananas or rubber plantings.
- Import of seeds, cuttings, and/or seedlings without following agriculture rules on phytosanitary safety. This is a big deal because it is being done on such a massive scale.
- Use illegal agrochemicals, some of which have been banned in China for decades. This has led to massive contamination of ground water.
- Divert local water sources to Chinese plantations, basically robbing locals with longstanding arrangements. Bananas are awfully thirsty.
- Develop industrial/agricultural/mining operations in areas outside direct government control, such as those controlled by various ethnic armed organizations. This allows the Chinese outfit to do whatever it wants, especially with gold, silver, and antimony mining. Entire riverbeds get messed up this way.
- Operate in areas that have REALLY been out of government control for decades, such as the United Wa State Army (UWSA) areas in NE Shan State. These areas run by a notorious drug-trafficking army have been pretty much annexed by China. RMB is the preferred currency, Chinese banks and mobile systems are used, and there are few if any border controls. It’s my understanding that the Chinese Communist Party’s International Liaison Department is responsible for maintaining the relationship with UWSA, which could be a vestige of past relations when the UWSA was still the Burmese Communist Party. Christians and missionaries are repressed in these annexed areas.
In general, the Chinese approach is basically “how much will it cost me in bribes until I’ve squeezed all the juice out of this lemon?”
As local opposition to Chinese activity in Burma heats up, several features of Burmese political and commercial culture will act as countervailing factors:
The Burmese do not intend for any foreign entity from any country to make any money here via foreign investment (FDI) — nothing personal against Chinese. This is just how things have been set up under the foreign investment laws and this is local practice. Burmese generally view FDI as an extension of some sort of foreign government donor program and they bitch mightily when the flow of FDI slows, as it has for the past couple of years.
To the best of my knowledge the Burmese government still has no procedure for issuing debt guarantees for foreign debt. This makes it impossible for China to ensnare Myanmar with a debt load that facilitates de facto annexation of property, as has been done elsewhere (See the New York Times article on Ecuador above). What grates on the Chinese about the Myitsone dam project is that cancelled or not, China will not recover any of the costs already put into that project, as the Burmese government never made any commitments to pay if things went South. And China has almost zero leverage. Burma will be one place where the give and take over the Belt & Road initiative is likely to be all give — by China.
As far as infrastructure development, the Chinese have done virtually nothing here that the Burmese people need, want, or sought. Everything currently under discussion would directly benefit China, be it a highway, railroad, or hydropower dam and pretty much all the Burmese know this. So China is in no position to be able to accuse the Burmese for being “ungrateful,” as they like to do with Tibetans, Vietnamese, North Koreans, Ecuadorians, or whoever is their ingrate of the week.
Taiwanese companies are also here and they have a decidedly better reputation for compliance and how they handle local matters. In many cases, these are Sino-Burmese repats. There still might be a Taiwanese government high school running up in Lashio and I used to know people who graduated from it. The Taiwanese businesspeople I know and work with here are studiously make certain to distinguish themselves from the Mainlanders.
Sooner rather than later I expect to see a nationwide backlash against China — such as occurred in the 1960’s — and it . will likely be ugly indeed. See The backlash against China is growing. Heads on pikes and businesses reduced to smoking rubble are not outside contemplation. All it will take to light the match is for the Chinese ambassador to say something stupid like he did the other day in Kachin State.