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China Business Weekly

Beijing's economic diplomacy in Myanmar

In a landmark event, the US$2.5 billion Myanmar-China pipeline began pumping gas on July 28. This project is strategically important for both countries - it will enable China to save on costs of importing fuel through the Strait of Malacca while Myanmar will be able to tap into its rich energy sources and gain income, employment and a more reliable domestic energy supply.

This will be the first natural gas pipeline from Southeast Asia to China and is part of a much bigger project that will include gas-field development, a special economic zone, deep sea port and crude oil pipeline.

The starting point for the pipeline is Kuaykphyu, a coastal town on the west coast of Myanmar. If all proceeds as planned, it will become a hub of activity. Rigs will tap into the energy-rich Shwe gas field in the Bay of Bengal, Chinese tankers will dock at the port with millions of barrels of oil from Africa and the Middle East, new industries will populate the 120 square-kilometre Special Economic Zone, railways will carry freight and passengers between Kyaukpyu and Kunming, and an expressway will run from Kyaukpyu to Ruili, a Chinese city near the border.

However, before this vision can be realised, many challenges must be faced. The most pressing one is that Kuaykphyu is in the strife-ridden Rakhine state, and the region has been the scene of frequent clashes between the Muslim and Buddhist populations there.

Another challenge is that massive transformation such as this will be extremely disruptive and so compensation will have to be paid to the local people. While China has indicated its willingness to do this - and indeed has already provided millions of dollars for education, medical treatment and disaster relief - there are still complaints due to problems in delivery of the benefits. Moreover, the locals are highly politicised and this will have an impact on the project - for example there are many NGOs helping to organise the local people. In early August people from 30 villages in Rakhine delivered a list of demands to the government that included monetary compensation, the construction of schools and clinics, better infrastructure such as roads and electricity, and new jobs paid at international rates.

The project has caused tensions between China and India. India had originally staked a claim to the gas fields but, after it experienced problems with neighbouring Bangladesh, China stepped in.

If China can overcome these kinds of obstacles and difficulties, it stands to gain tremendous benefits from the project. The pipeline is expected to supply one-quarter of China's natural gas needs and it will save 5,000 kilometres in travel compared with the shipping route through the Straits of Malacca.

Moreover, it will help China to reduce its usage of coal and cut down on air pollution by using more clean-burning gas.

After experiencing a major setback in 2011 when a hydropower dam project was suspended in northern Kachin state, China is anxious to avoid this kind of problem happening again and in March a new Chinese ambassador was appointed to Myanmar - Yang Houlan. He has considerable experience of working in hotspots; his previous postings included Kabul and Kathmandu and he has been working hard to build relationships and promote China's good reputation in Myanmar. He has met with Aung San Suu Kyi, the opposition leader, and civil society activists as well as government officials, and is using Facebook to try to get the Chinese government's message across. He even helped to broker a peace deal between the Myanmar government and the Kachin state.

The Myanmar-China pipeline and development of Kuaykphyu has parallels with the massive developments planned for Dawei, which will be a joint project between Thailand and the Myanmar government.

So, Thailand should be watching the developments in Rakhine with interest as its success will augur well for our project.

For more columns in this series please see www.bangkokbank.com


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