But Ties To China Still Important

Burma is ripe for new foreign investment following the suspension of U.S. and European Union sanctions against the military-led government. So how would new business affect China’s economic and political patronage?

Doug Bandow, a senior fellow at the Cato institute in Washington D.C., believes one important factor in Burma’s recent political reforms is the desire to avoid ending up like North Korea — a pariah state dependent entirely on China.

“Part of it may be that the generals recognize that the system isn’t working, they are tired of the isolation,” Bandow says. “Clearly part of it is this sense that the only real firm support they have is China.”

Nowhere is that shift more clearly illustrated than in Burma’s suspension of the $3-billion, Chinese-financed Myitsone hydroelectric dam following protests by civilian activists, including Nobel Peace laureate Aung San Suu Kyi.

Heralded by Burma’s previous military government, the 6,000-megawatt hydroelectric station would have been the first to span the Irrawaddy River and was designed to supply electricity to southern China.

“They have run into these issues about this dam,” Bandow says. “They have had the war in Burma that has pushed people into China. China has gotten very upset. I think they suddenly say, ‘Maybe we need a little more maneuvering room. So if we are engaged with the U.S. and the EU, suddenly there are other places we can go, more money coming in.'”

Burmese Foreign Minister Wunna Maung Lwin explains the cancellation by saying the Myitsone project is only part of his country’s cooperation with China, and the government in Beijing understands.

“We have explained the situation very clearly to the authorities and the respective and responsible ministry, and the Chinese company (state-run China Power Investment) is discussing the matter also,” he says. “We have had very good cooperation with China. So I think that this will not jeopardize the future relations with China.”

Lex Rieffel, a global economy and development fellow at Washington’s Brookings Institution, says that instead of discouraging new Chinese investment in Burma, the suspended dam deal may help move the relationship forward.

“There is not a single China,” Rieffel says. “There is the government in Beijing. There is the provincial government. And there are the big Chinese companies, like the company that undertook this investment. They don’t all work together. This is not a single, homogenous China Inc.”

“There are some parts of the policy community in China that were upset by the dam being built in the first place and are not unhappy that it has been stopped and believe that this very important long-term relationship will improve once this obstacle is removed,” Rieffel adds.

Even without Myitsone, China remains Burma’s largest partner, passing Thailand with nearly one-third of all outside investment, primarily in hydroelectricity, mining, and oil and gas. That is partly a result of economic sanctions that kept out Western competition.

But now that those sanctions are easing, Western competition may be coming back. U.S. Secretary of State Hillary Clinton, for one, says China has nothing to fear from greater U.S. and EU involvement in Burma.

Secretary of State Hillary Clinton meets with Burmese Foreign Minister earlier this month at the State Department. Photo: AP

“The United States does not expect any country to give up relationships with their neighbors,” Clinton says. “China is a neighbor (of Burma) and there are longstanding ties that certainly are deep in the soils of both nations.

“What we are doing,” says Clinton, “is providing additional support for the kind of development, both politically and economically, that the reform process, which the government in Nay Pyi Taw has begun, has made possible.”

“So this is not about any other nation,” Clinton adds. “This is between us. This is rooted in the changes we have watched happen and our desire to support the continuation of those changes. And we fully expect that there will be many countries, as you’ve already seen, who want to develop stronger and better relationships in the neighborhood, in the region, and around the world. We think that’s good to open up the country and give the people more opportunities.”

And Rieffel says the ability of Burma’s banking sector to carry out normal financial transactions will be critical to raising living standards. He fears, however, that Burma is already being “smothered in love” with too many potential investors moving too quickly.

“My concern today is that there will be too much investment too fast, particularly in the natural resource sector,” Rieffel says. “Countries that invest heavily in natural resources tend to underinvest in human resources. Experience tells us that it’s the investment in human resources that pays off in the long term.”