What’s Behind the China-Myanmar Economic Corridor ‘Plus’ Initiative?

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What’s Behind the China-Myanmar Economic Corridor ‘Plus’ Initiative?

The vague plan would see mainland Southeast Asian countries contribute to the flagship Chinese infrastructure initiative.

What’s Behind the China-Myanmar Economic Corridor ‘Plus’ Initiative?

Myanmar’s leader Aung San Suu Kyi and Chinese President Xi Jinping pose for the media during their meeting at the Presidential Palace in Naypyidaw, Myanmar, Jan. 17, 2020. Aung San Suu Kyi was ousted in a coup in February 2021, sparking an internal conflict that continues today.

Credit: AP Photo/Aung Shine Oo, File

Just over a month after China’s Foreign Minister Wang Yi visited Myanmar and announced that a China-Myanmar Economic Corridor (CMEC) Plus initiative would be explored at a proper time, there have unsurprisingly been no further details released by Chinese officials or Myanmar’s military-led State Administration Council (SAC) on just what the “plus” would entail. More surprisingly, there has been little media or expert commentary on this either.

Only a single sentence in a July 11 report in The Irrawaddy suggests what the “plus” might mean. Without quoting any sources or referencing any documents, the outlet states that the new initiative will involve China inviting the members of the Lancang-Mekong Cooperation (LMC) mechanism – Thailand, Vietnam, Cambodia and Laos – to cooperate on CMEC projects in addition to China and Myanmar.

This vagueness and lack of information raises questions on what has motivated China and Myanmar to invite LMC members to participate in what was originally conceived as bilateral projects, and whether LMC members themselves would be interested in participating in the CMEC.

Answering these questions with the current scarcity of information is an exercise in conjecture. Having said that, re-examining developments in China-Myanmar relations since Xi Jinping’s visit to Myanmar in January 2020 can offer some insights into the possible motivations behind the CMEC “plus” initiative.

CMEC Under the NLD Government 

The CMEC is a 1,700-kilometer, inverted Y-shaped corridor featuring strategic infrastructure projects including roads, railways, and ports that will connect Kunming, the capital of China’s Yunnan Province, to Mandalay and then onward to Yangon and Kyaukphyu in Rakhine State.

Myanmar signed an MoU with China to establish the CMEC in September 2018, and on January 18, 2020, then-State Counsellor Aung San Suu Kyi and President Xi Jinping oversaw the signing of 33 project MoUs during Xi’s two-day visit to Myanmar. These included memorandums on the Kyaukphyu Special Economic Zone and Deep-Sea Port, the Muse-Mandalay Railway, the Muse-Mandalay Expressway, and the Kyaukphyu-Naypyidaw Highway.

In the months following the signing of the MoUs, which raised concerns over Myanmar’s economic dependence on China, Myanmar officials took a series of steps to assert Myanmar’s authority over the CMEC. Officials were vocal in emphasizing the dangers of over-indebtedness to China, and subsequently presented plans to financially unbundle projects by inviting third-party project partners and investors, and systematized the screening of CMEC projects for their commercial viability.

For instance, on June 8, 2020, then-Auditor General Maw Than cautioned government officials about the country’s reliance on high-interest Chinese loans, citing that the 4.5 percent interest rates were the highest among countries that lend to Myanmar. At the time, Myanmar’s national debt stood at about $10 billion, of which $4 billion was owed to China. Noting that Myanmar was set to take on more Chinese debt through CMEC projects, Maw Than told officials that Myanmar was no longer in international isolation and was not compelled to take Chinese loans.

Following this, then-Deputy Minister for Planning, Finance and Industry Set Aung said on June 24 that the Myanmar and Chinese governments had signed an agreement stating that Myanmar had the authority to choose the projects it wanted to execute and seek co-financing from international financial institutions such as the World Bank and the Asian Development Bank, to avoid incurring unsustainable debt obligations to China.

Set Aung also said the Myanmar government would add all CMEC projects to the Myanmar Project Bank, a database of major projects to be screened and appraised in a transparent manner. This move was intended to allay fears that CMEC projects would leave Myanmar in a “debt trap” through excessive borrowing from China to pay for projects that were not commercially viable.

China was somewhat mute on these strategic moves by the National League for Democracy-led government. Analysts pointed out that China’s government was ready to move at Myanmar’s pace regarding CMEC project implementation, recognizing that it was viewed with suspicion in the country. This appeared to be a lesson learned from 2011 when under the military-backed government of President Thein Sein, the Myitsone dam project in Kachin State was suddenly suspended amid sustained nationwide opposition from the Myanmar public. The Chinese government thus feared that if it took a heavy-handed approach and attempted to force through the CMEC, this strategy would backfire and ultimately constrain its ability to move forward with the projects.

CMEC Projects Under the SAC

No major work on any CMEC project got underway under the NLD-led government, and negotiations and project planning essentially came to a halt amid the twin crises of the COVID-19 pandemic and the military takeover of February 2021. Since the military seized power, many have speculated that the SAC would look to China for massive investment to help prop up the faltering economy, yet in reality, both the Chinese government and SAC have been wary of rapidly pushing ahead with projects.

Since the military takeover, the SAC has pledged its backing for the CMEC in two notable instances. In December 2021, the SAC Ministry of Information and Ministry of Investment and Foreign Economic Relations issued a statement that celebrated Myanmar and China’s 71 years of bilateral ties and called for “early harvest” projects worth $569 million to be completed on schedule. The specific projects were not named, although they were thought to include components of the Kyaukphyu SEZ and Deep-Sea Port.

Furthermore, SAC Minister for Foreign Affairs Wunna Maung Lwin and Chinese Foreign Minister Wang Yi pledged to expedite CMEC projects and step-up construction of major landmark projects during the former’s visit to Anhui Province from March 31 to April 2 of this year.

As is often the case following grand announcements on expediting projects in Myanmar, in reality, these pledges have been slow to translate into substantial progress. Nonetheless, two CMEC projects appear to be moving ahead, even if they are still some way from reaching the implementation phase.

The most significant is the Kyaukphyu Deep-Sea Port in Rakhine State. In February this year, CITIC Consortium Myanmar Port Investment, the investment arm of CITIC Myanmar, announced that a consortium led by Myanmar Survey Research had been awarded a tender to carry out the environmental and social impact assessment (ESIA) for the port. This ESIA is expected to take a year to complete, after which construction of the port components can begin.

The other significant project is the 410-kilometer, $8.9 billion Muse-Mandalay Railway. On June 16 this year, the Department of Environmental Conservation under the Ministry of Natural Resources and Environmental Conservation invited feedback on the environmental management plan for the project. Myanma Railways, China Railway Eryuan Engineering Group, and China Railway Group had earlier signed an MoU to conduct feasibility studies for the project.

Moreover, July saw the opening of the Dali-Baoshan railway in China, which is envisioned to link to the Muse-Mandalay Railway at Ruili on the border with China. A Mandalay-Kyaukphyu railway is also being discussed. If all these railway projects eventuate, China will achieve its long-held strategic ambition of securing rail access from Yunnan Province to the Indian Ocean.

Strategic Hedging on Both Sides 

Returning to the question of what the motivations are for inviting LMC members to take part in CMEC projects, the Myanmar military may see that inviting project participation from LMC countries would lessen its financial dependence on China. This follows similar trends under the NLD government, which sought to financially unbundle projects by seeking co-investment from multilateral development banks.

The Myanmar military may also view LMC countries as the only viable option for seeking investment, given that multilateral development banks, as well as traditional infrastructure investors in the West, South Korea, and Japan have suspended financing for new projects under the SAC.

The military also has little bureaucratic capacity to screen projects for commercial viability, as it has been unable to sustain the Project Bank system, the website of which has now been taken offline. The SAC would also struggle to secure technical assistance from multilateral development institutions or traditional technical partners, given the reluctance of foreign bureaucracies to assist the SAC and bring massive infrastructure projects to the implementation phase. Seeking participation from LMC countries that are motivated by profit rather than strategic concerns therefore may help the SAC to bring in the expertise and mechanisms necessary to ensure that CMEC projects are commercially viable before being implemented.

From the Chinese government’s perspective, inviting LMC members’ participation may not be problematic if it can maintain a dominating position over CMEC projects. Indeed the CITIC Group, which will develop the Kyaukphyu projects, includes Thailand’s Charoen Pokphand Group, while the other four companies in the group are Chinese state-owned enterprises. This model could be replicated for other CMEC projects and would also help China deflect criticisms that it is fostering dependency from Myanmar.

Moreover, the Chinese government may also be hedging against the risks that the SAC may be deposed and a civilian government may return. The shadow National Unity Government’s position is that it will not recognize new investments made under the SAC. Chinese officials may be of the opinion that bringing on partners from other countries would raise the costs for a future civilian government to rescind agreements made under the SAC, as it would have to deal with disputes with multiple countries from whom a future government would be seeking assistance to recover some of the economic damage done to the country under the military administration.

Would LMC members be interested in participating?  

Regardless of the logic behind inviting new participants, there have been no indications that any LMC country is remotely interested in taking part in CMEC projects amid the ongoing political and economic turmoil in Myanmar. While CMEC projects might still be attractive to the Chinese government for political and strategic reasons, the same cannot be said for Southeast Asian states and enterprises where decisions to participate are of low strategic value and where profit-making would be a primary objective.

It is further worth highlighting that, given the relatively low levels of development and outbound investment from Laos and Cambodia, and the fact that Vietnam has little to gain from strategic infrastructure in Myanmar given its geographical distance, it appears that only Thailand would have either the strategic motivations or the economic capabilities to pursue massive infrastructure projects in Myanmar.

However, even Thailand has been reluctant to engage in a project that could be considered of high strategic value for the country, namely the Dawei Special Economic Zone and Port projects, which at more than 19,400 hectares is slated to become one of Asia’s largest economic zones.

Shortly following the military takeover in February 2021, Thailand’s Deputy Prime Minister Supattanapong Punmeechaow said the Dawei projects would be halted, and talks would resume once there was a new government in Myanmar. Moreover, a dispute appears to still be unresolved after the Dawei SEZ Management Committee in January 2021, during the final month of the NLD-led government’s first term, terminated all concession agreements with the Thai company ITD, after the firm was accused of causing repeated delays and breaching its financial obligations.

ITD previously stated it would challenge the decision, and had submitted a request for help to the Thai government. There have been no recent reports on the status of this dispute, and the SAC leadership last commented on the project back in November 2021, when its claims that the project was moving ahead were treated as bravado.

The Thai government appears to be sticking to its pledge that it will not resume talks on the Dawei projects until there is a new government in Myanmar. Given this stance on a project with direct strategic value to Thailand, there are likely few attractions for Thai entities to participate in CMEC projects, which even if commercially viable will face challenges in implementation due to broader macro-economic and security instability, as well as a poor economic manager in the SAC.

Indeed, while there are currently obvious commercial and security concerns about investing or operating in Myanmar, which saw its economy contract by 18 percent in 2021, one key aspect of the SAC-managed economy is that politics and economics are more closely intertwined. The SAC’s recent political behavior also signals that it will be a poor and self-interested business partner, even toward countries with which it is perceived as having cordial ties.

All LMC members excluding China are members of the Association of Southeast Asian Nations (ASEAN), which brokered a five-point peace plan in April 2021 that was agreed to by the SAC. Yet the SAC from the outset has been accused of making a mockery of the plan and embarrassing ASEAN and its would-be development partners on numerous occasions.

The first two points of the plan call for an immediate cessation of violence, and constructive dialogue to seek a peaceful solution to the political crisis. Yet under the SAC’s watch, the military has continued its repression of the Myanmar public. Most recently, it went ahead with the executions of four democracy activists, including a former NLD lawmaker, despite repeated calls from ASEAN not to go ahead.

ASEAN, in a statement from chair Cambodia, said it was “extremely troubled and deeply saddened by the executions,” as well as by their timing. “The implementation of the death sentences just a week before the 55th ASEAN ministerial meeting is highly reprehensible,” it said, adding it showed the SAC’s “gross lack of will” to support ASEAN’s Five-Point Consensus peace plan.

The United Nations Security Council also condemned the execution in a statement approved by all 15 members, which was significant given that it was supported by China, Russia, and India, countries which have previously been reluctant to approve statements condemning the military’s atrocities.

Moreover, the SAC and the economic institutions under its control have been willing to shift the consequences of its mismanagement of Myanmar’s economy onto foreign partners, again flagging concerns about the SAC’s reliability as a business partner.

For instance, the Central Bank of Myanmar (CBM) recently instructed businesses to halt foreign loan repayments amid currency shortages. This led Maybank to warn in a recent report that Myanmar’s ban on payments of private external debt suggests it may choose not to honor its obligations, and that the likelihood of a sovereign default in Myanmar was increasing. A recent article in the Bangkok Post highlighted the problems faced by Thailand’s steel sector as a result of this policy, as they were not receiving payments for loans made to Myanmar entities.

The SAC also reversed on July 2 the yuan-kyat and baht-kyat settlement schemes, causing significant disruptions to border trade between Myanmar and China and Thailand, and ordered that trade be carried out with U.S. dollars at the overvalued official exchange rate of 1,850 kyats to the U.S. dollar set by the CBM. The kyat is currently trading at around 2,400 to the dollar in the informal market, and this exchange rate discrepancy has destroyed margins for border traders.

On July 13, the CBM also revoked instructions to exempt certain companies registered under the Directorate of Investment and Company Administration from the compulsory 24-hour kyat conversion policy, a month since the instruction was given on June 16. This policy has meant that the U.S. dollar holdings of foreign companies in Myanmar banks have been frozen, with some companies receiving notification that their holdings have been converted to kyat. These companies essentially have no means of recourse to appeal against the policy.

In none of these decisions was it apparent that the SAC sought to consult with foreign investors or companies, while it has been resistant to adjust its policies in response to feedback. Given the behavior of the SAC and economic institutions under its control, it is hard to fathom how anyone would be interested in participating in massive, multi-year CMEC projects of great political significance with an unreliable and self-interested business partner.