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.
May 16, 2022 Update: Myanmar is Turning Its Back on Everybody but China
This updated Myanmar report comes from Robert and it also comes from John M. Whalen. John retired in 2014 as a Supervisory Special Agent for the U.S. Drug Enforcement Administration (DEA) with 32 years of combined federal and military service, 27 years as a DEA Special Agent and 5 years as a U.S. Marine Officer. Posted twice to the DEA Country Office, U.S. Embassy, Rangoon, Burma (1997 – 2003) and (2007 – 2014) as both a Special Agent and Country Attaché, John has worked issues in and related to Myanmar continuously since 1997. He owns a Singapore-incorporated private security consulting firm, South East Asia Risk & Research Pte Ltd (a/k/a SEARCH).
It’s been 16 months since the military took over in Burma, with the generals, perhaps, inspired by the heights of Trumpista rhetoric over “stolen elections”. In fact, the military’s party did not do well in the November 8, 2020 elections here, getting less than 20% of the vote. The showing was a great loss of face for the military and for Min Aung Hlaing. So far, the military’s so-called State Administrative Council (SAC) has yet to announce a date for the new elections promised when it seize power and jailed the opposition. Aung San Suu Kyi and her lieutenants are in court, having one charge after another prosecuted, and predetermined sentences handed down.
As the coup unfolded on February 1, it was clear the SAC had failed to read “How to Stage a Coup 101”. The entire world was given a front row seat on television and social media. At 6:30 a.m., television stations were taken off the air. At 8:00 a.m., mobile phone service was taken down, but resumed at 11:45. Fiber internet continued to work and Channel News Asia never ceased broadcasting live on their YouTube Channel.
Since 2016, Myanmar’s mobile network has been pretty good, covering more than 90% of the country. Attempts by the SAC to throttle the internet and block social media were easily defeated by widespread use of VPNs. When mobile was finally taken down, foreign SIMs were still able to access data networks until an April 1, 2020, visit by CNN, and other than brief periods when everyone was asleep, fiber internet continued to work.
Pushback from the Myanmar people to the coup was immediate and universal. Peaceful mass protests were organized through Facebook and other social media platforms. The SAC did not expect this pushback, nor did they understand its tech savvy, well-educated, and well-informed younger generation. The SAC was locked in a 1988 mentality and failed to plan accordingly. So, the SAC moved to crush nationwide protests and jail anyone regarded as a leader and anyone who expressed anti-coup views.
On February 15, the SAC deployed the military into Yangon and other cities. On February 28, security forces began violently cracking down on peaceful protests, and several people were killed. March 8 saw the Burmese security forces indiscriminately throw flash bangs and fire small arms into inhabited structures throughout Yangon. March 15 saw the enactment of martial law in select townships in Yangon and Mandalay.
In April 2020, as Myanmar’s military continued its crackdown, we started to see small armed groups form and start to harass SAC troops assigned to internal security duties. These self-proclaimed “People’s Defense Forces” (PDFs) popped up everywhere in the majority-Burmese heartland. In the cities it seemed like there was another PDF every other block.
In the border areas, the well-established Ethnic Armed Organizations (EAOs) were also not happy with the SAC taking over. All but one of the EAOs had been enjoying a durable peace with the previous government. None were looking forward to a return to status quo ante (2012). At the moment, hostilities have resumed between SAC forces and at least four of the EAOs. In addition to the ongoing COVID restrictions, the resumption of belligerence has had a catastrophic effect on cross-border trade with China and Thailand.
The fighting in Myanmar has generated large numbers of internally displaced people. I find this particularly sad because over the past ten years many of these people had been repatriated from long sojourns in refugee camps on the Thai side of the border; riding through the areas in which they were resettled one can see brick buildings (people who feel safe build permanent dwellings; the default in conflict zones is hastily constructed, inexpensive bamboo and thatch huts).
After deposing the legally elected government, the SAC pretty quickly showed that it did not have anything like a plan for governance. It looks like the military assumed that the various ministries would just keep ticking and everything would be hunky-dory. Instead, many civil servants in every ministry and department boycotted work, bringing entire sectors of government to a standstill. I won’t get into it for lack of space, but the inability to deal with the government offices we need for doing business is of course having an impact. I’m also not entirely sure that the civil servants and military stand-ins are even getting paid what they are due in salaries and benefits. What naturally follows is that paying bribes to get anything done resumes being a cost of doing business. Procedures that could have been conducted two years ago with a minimum of fuss and bother now require a series of under-the-table negotiations to fix the level of quid pro quo.
Prior to the military takeover, Myanmar’s COVID response had been a model for the rest of the world. The NLD government’s public guidance had been both timely and trusted. Myanmar people are public-spirited and will comply with guidance as long as it’s trustworthy. But after the SAC took over, all that went out the window. The SAC’s one interest was in laying its hands on any donations from INGOs or other international donors that might be lodged in the Ministry of Health and Sports (MOHS). At least one senior MOHS official we know is reported to have done her best to divert these funds and is now either in jail or in hiding. Just a couple of days before the February 1, 2020 takeover, COVID vaccines donated by the Indian government had been delivered. As far as we are able to ascertain, the SAC seized the whole lot of these vaccines and their fate is unclear. For those lucky enough to get one of the few COVASHIELD doses, there was a lingering question as to whether the cold chain had been broken.
A young woman who used to work for us had established a thriving business in one of the northern states. She had mastered the rules and regulations for her various business units, and she supported the NLD government’s efforts to reinforce the rule of law. She was running a compliant business during the late stages of transition from government by military fiat to that of legislation by elected parliamentarians. I expected her to be mentally and financially crushed by the military takeover and the return to everything being done the way it used to be done. But no.
“Bob, since the rule of law is now suspended, and the SAC is just showering us with stupid orders and edicts, the only way to prosper is to go full-bore criminal. As long as my business does not involve drugs or the flesh trade, if there is money to be made, we’ll do it. We’ll only follow rules that are being enforced at any given moment in any given place. In order to do this we have to have good situational awareness, since the assumption that local authorities follow a set of settled laws is right out the window.”
The only thing the SAC has done to keep foreign businesses in Myanmar is to retain U Aung Naing Oo as head of the agencies governing company administration and foreign investment. Under U Aung Naing Oo’s hand, these departments modernized, and the costs of registering and administering a company went way down, and most actions can still be done online. He enjoyed a reputation with the foreign chambers of commerce as an honest broker.
But of course, everything else the SAC has done can be described as putting the dogs on businesses, both foreign and domestic. I can safely say that 90% of foreign companies have withdrawn from Myanmar, and others are just waiting for permission to sell off what remains of their Myanmar businesses. Only KDDI/Sumitomo and Coca-Cola seem like they aren’t budging, but then both have money-making businesses (at the moment).
The American embassy has changed its security policy, and overseas staffers can no longer be unaccompanied by their children. USAID folded faster than Superman on washing day, taking with it a constellation of aid and development industrial complex exemplar companies (“implementation partners” they’re called). According to a 2017 U.S. State Department Inspector General report on the American Embassy in Rangoon, just the amounts paid for leases on housing for embassy staff each year made it a singular economic player here.
As for anything aid and development-related, the SAC pretty early on indicated that it would control any and all funding, and that all funds should be funneled straight to it; this was a no-go for donors and INGOs.
A major problem is that Myanmar’s domestic banks have not been functioning normally over the past 16 months. Commercial and retail customers are allowed to withdraw only small amounts, and in most cases have to pay some sort of commission to get whatever they’re given. Most ATMs remain empty and personal withdrawals from banks continue to be restricted.
Twice I’ve had to get on a plane for a long flight to a remote town just to deliver salaries and operating expenses for one of my companies. Though we can wire money to the government bank in the town, the company can only withdraw the equivalent of $4.25 per month. So hand-carrying large amounts of cash is once again something people are having to do in Myanmar, since most electronic means of moving money are not functioning. Having done it twice, I can tell you that 30 million Burmese Kyat in notes of 1000 and 5000 weighs a lot and fills a couple of duffel bags, and takes up three entire overhead bins on an ATR-72. When checking in at the airport, the police and other security organs show great interest, so the provenance of the money and its intended use must be documented. The fear is that money is heading to support anti-government groups, such as PDFs.
But in a recent self-inflicted wound, the SAC basically outlawed the use of dollars. All dollar accounts in domestic banks have been forcibly converted to the Burmese Kyat at a rate set by the SAC itself. Big foreign firms must now do everything in Kyat or Chinese Renminbi. Many old Burma hands (including me) think the SAC will soon start issuing the Foreign Exchange Certificate (FEC), which was in circulation starting back in the 1990s. Since dollars and other foreign currencies were not legal for Myanmar citizens to hold or trade, they were given FECs, which in theory could be used to import goods from overseas. Note that I said, “in theory”. Foreigners arriving at the airport were required to exchange $300 into FECs as a condition of entry. They were then allowed to exchange the FECs into Kyat at a more liberal rate with gray market money changers. At the time, the country still had an official rate of 6 Kyat to the dollar, but the gray market rate was 115 Kyat to $1 in FECs.
A few days ago, I met with a friend who is a local IT professional. He tells me that the private banks have been told to set up and offer Renmimbi-denominated accounts, which will be electronically tied to China’s banking systems for ease of transfers and payments. As Visa and Mastercard transactions are now banned, the friend says that China Union Pay will take over the market. We think the SAC’s long-term objective is to further link to China so as to insulate Myanmar against any renewed sanctions against Myanmar’s banks. This, though, will effectively make impossible any foreign investment remittances except those denominated in Chinese currency. It took several years to overcome the effect of bank sanctions, even long after they’d been lifted. A lot of Americans spent much time and effort to enable banking relationships between Burmese and U.S. banks. We don’t think anybody is going to be interested in beating a dead horse a second time.
Likely exacerbated by the failing economy and the breakdown of the rule of law, crime is on the rise. There have been a number of brazen armed robberies of banks and cash in transit, several of which have been recorded on social media. The previously immune diplomatic community has also been subject to petty break-ins when not at home.
An additional factor of difficulty is energy, and the lack thereof. Rolling blackouts are back, as the country’s grid now gets about half the electricity of two years ago. Much of this is because the SAC is regarded as a bad credit risk by foreign suppliers of oil and gas used in power generation. Since the SAC took over, the citizenry has avoided paying its light bills, and some of the PDFs have actually attacked bill collectors and offices. Motor fuel prices have skyrocketed, and reliable supplies of diesel for factories to run generators during blackouts are scarce.
A partly-solved mystery is where the airlines have been getting their fuel for running flights. The popular theory is that Myanmar’s international airlines are leaving the country with just enough fuel to get to a destination airport, then filling up there and flying back to download fuel.
Foreign airlines have not resumed service here since the April 2020 COVID-related suspensions. Until April 17, the country was served only by “relief flights”, for which the foreign traveler must have permissions granted by the Myanmar embassy in their home country. Recently the requirement for 10-day quarantine on arrival was rescinded, replaced by a rapid antigen test on arrival, and the SAC announced the resumption of tourist visas. Regardless, the prognosis for the tourism sector is grim. When, on April 17th, the SAC announced that suspensions on flights were to be lifted, the government’s interference with the U.S. dollar caused many foreign carriers to say “no thanks”.
The litany of woes laid out above begs the question, “Why do foreigners stay?” In my case, I’m managing an American-invested forestry business that’s in the final two years of its business plan. The business covers seven plantations, as well as hundreds of planters in a co-op. The core business has over 60 hardworking employees who depend on their salaries getting paid on time and in full. My being here and working in this environment keeps me mentally and physically fit, much more so than if I were mouldering away in Washington.
Other foreigners are hanging on waiting for better times, or at least a partial reversal of fortunes. Many Koreans, Japanese, Taiwanese have very long-term associations with the country and so are more familiar and temperamentally equipped to deal with the current situation.
Myanmar’s future appears bleak. If it isn’t already, it likely will soon become a failed state.
