Analysis: Myanmar sanctions lifting a boon and a test for China firms

Reuters News
Posted: Apr 25, 2012 3:08 PM
Analysis: Myanmar sanctions lifting a boon and a test for China firms

By Ben Blanchard

BEIJING (Reuters) - The lifting of decades of broad Western sanctions on Myanmar will prove to be both a boon and a test for China, for years the former Burma's top investor and trading partner, bringing both risk and opportunity for long-established Chinese firms.

The United States, European Union, Japan, Canada and Australia have all moved in recent weeks to ease or suspend sanctions on Myanmar, as the once pariah nation embarks on landmark democratic reforms and seeks engagement with the world.

While sanctions have blocked many Western investments, China has become Myanmar's biggest ally, investing in infrastructure, hydropower dams and twin oil-and-gas pipelines to help feed southern China's growing energy needs.

But with European, U.S. and Japanese firms all chomping at the bit to get in, Chinese firms long present in Myanmar with little competition could be in for a shock.

"Being based in Yunnan, which shares a long border with Myanmar, and not having to worry about sanctions, has been great for Chinese companies in the past," said Wei Jijian, a manager at a Chinese mining company which operates in Myanmar.

"But now American and British companies are sniffing around, and once they go in a big way, it's going to create difficulties for Chinese companies," he told Reuters by telephone from the Yunnan provincial capital, Kunming.

"So Chinese firms should get in now and grab the first-mover advantage."

Moves to ease or suspend sanctions have been accompanied by a degree of hand-wringing in Chinese media, especially in publications from southwestern Yunnan province and those linked to Chinese industry, the energy sector in particular.

China's energy industry has more reason than others to be nervous.

Last year, Myanmar's new civilian President Thein Sein suspended the $3.6 billion Myitsone dam being built and financed by Chinese companies in northern Myanmar after weeks of public criticism of the project.

But a more crucial project - twin oil and gas pipelines being built at huge expense across Myanmar and into China - appears safe despite unhappiness among some residents who live along its route and conflict with ethnic minority rebels close to the Chinese border.

CNPC, parent of PetroChina, is in charge of that project. China's top three oil firms - CNPC, Sinopec Group and CNOOC Ltd - all operate in Myanmar.

Energy, a magazine published under the auspices of China's state-owned Assets Supervision and Administration Commission, said in a recent blog on its website that Myanmar's democratization would pose a big challenge to energy cooperation, noting Myanmar was "drifting away" from China.

"In the eyes of some of Myanmar's top leadership, the country relies excessively on China, from daily necessities to strategic resources, and that is bad for the country's international image and political and economic security," the magazine said.

"The appropriate way to deal with this then is to put some distance between Myanmar and China and draw closer to other large powers."


China has counted on Myanmar as a bulwark against what China sees as U.S. attempts to surround it. That reliance could be threatened now the United States has renewed contacts with Myanmar as it embarks on political liberalization.

China's pledged investment in Myanmar was more than $14 billion in the 2010/11 (April-March) fiscal year, as total foreign direct investment promises soared to $20 billion from just $300 million a year earlier, official data show.

The Chinese government has called on all sanctions on Myanmar to be lifted, after pro-democracy leader and Nobel Peace Prize laureate Aung San Suu Kyi and more than 40 members of her party won April 1 by-elections.

Still, China has expressed concern its influence in the country could be affected, especially by U.S. moves to re-engage with Myanmar. Vice Foreign Minister Cui Tiankai said on Wednesday he hoped better U.S. ties with Myanmar were not aimed at excluding China.

Chinese executives will also be hoping that Myanmar's reforms lead to less corruption and bureaucracy and a better, fairer regulatory and governance environment.

"China has over the years monopolized the market, but that actually was not necessarily a good thing. Some of the investments there turned out to be bad bets," one Chinese oil executive told Reuters.

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"If we now get a more transparent environment, Chinese companies would be obliged to take a more objective look at potential opportunities," said the executive, who declined to be identified as he is not authorized to speak to the media.


Not everyone in China is so sanguine about the prospects for Southeast Asia's poorest country, sanctions or not.

The state-run Yunnan Information Daily this month outlined the case of a Yunnan firm which has invested millions in Myanmar, yet had an unspecified new project called off by a city mayor because of a dispute between the central and regional governments.

"This kind of thing just adds to the risks for Chinese companies. National reconciliation may be happening, but the old problems are still there and are just as prominent," the newspaper said.

While some Chinese companies fret about competition from Western firms, it may actually in the nearer term be Japanese or South Korean companies that prove quicker on their toes.

Japanese companies have long conducted business in Myanmar, but interest has grown since the reform-minded government took office, particularly in planned industrial zones.

Japan will help draw up a blueprint for the Thilawa Special Economic Zone, potentially giving Japanese firms a leg-up over rivals in winning infrastructure projects for the area.

"Japan has started providing assistance again, including loan resumption and debt forgiveness, and has been sending numerous business delegations to look at deepening investment ties," said Stephanie Kleine-Ahlbrandt, Northeast Asia director for the International Crisis Group.

"Competition at the regional level is likely to deepen, and Japanese - and probably also Korean - investment will move much faster than that from the West," she said.

(Additional reporting by Chen Aizhu and Sabrina Mao; Editing by Robert Birsel)