BEIJING/YANGON -- Data shows that under the Myanmar government led by State Counselor Aung San Suu Kyi, who was ousted on Feb. 1, economic ties with China weakened. As the Myanmar military junta tightens its grip on power, bilateral relations will be key for the military-led government's efforts to buttress the economy.
Under the government led by Suu Kyi's National League for Democracy, the economy expanded its ties with the West; as a result, outstanding debt with China decreased by 26%. Also, trade with Western countries increased and the trade deficit with China shrank.
If the U.S. and Europe impose sanctions, it will be a huge blow to the economy. The military junta could once again turn its attention to China, which is expanding its clout through the Belt and Road Initiative.
China has been seeing the Association of Southeast Asian Nations as an important region for its massive infrastructure-building Belt and Road Initiative proposed by President Xi Jinping in 2013.
According to Refinitiv, BRI-related funding for the 10 ASEAN countries since 2013 has amounted to $304.1 billion, equivalent to half their annual fiscal spending.
Of them, Myanmar, Laos, and Cambodia are the three countries that rely heavily on China. Although the funding for Myanmar at $21.7 billion is less than one-third the size for Indonesia, all three of the mainland Southeast Asian countries have accepted Chinese investment and loans that are 1.6 to 2 times larger than their annual fiscal expenditures.
China's heavy economic influence can be easily seen in Myanmar. In Yangon, where motorcycles are banned, buses are indispensable when citizens travel and most are made in China. Although trade with Japan, the U.S., and Europe has been increasing, China is still the largest importer and exporter, accounting for over 30% of Myanmar's trade.
Myanmar, however, has a history of keeping itself at arm's length from China to avoid being swallowed up by its giant neighbor.
According to the World Bank, Myanmar's outstanding debt to China was $3.34 billion at the end of 2019, down 26% from the end of 2015, right before the NLD government came to power. This is in contrast to the 72% and 34% increases in neighboring Laos and Cambodia, respectively, over the same period. Also, China's share of external debt fell from about 45% in 2015 to about 30% in 2019.
If the country falls into default, there is a risk of falling into a debt trap in which it is forced to hand over critical infrastructure to Beijing. And Myanmar has been keenly aware of this.
One example of the change in policy is the revised plan to build a port in Kyaukpyu, overlooking the Indian Ocean. The port is connected to two 870-km pipelines carrying oil and natural gas to Yunnan Province. If large ships could enter the port, oil and gas from the Middle East and Africa could be transported to inland China without traveling through the Strait of Malacca, a geopolitical choke point.
The scale of this project was initially planned at $7.2 billion but was slashed to $1.3 billion when the basic agreement was reached in November 2018. The project's details were changed at Myanmar's request, and additional investment will be decided on once demand for the port is known.
But Myanmar's attempt to ease economic dependence on China has not been easy.
For example, the persecution of the Rohingya Muslim minority, a crisis which deepened in 2017, has drawn criticism from foreign countries, and Western companies have become cautious to invest in the country.
Moreover, the U.S. and Europe are considering sanctions against the military junta -- high risks in the country will inevitably make foreign investment stall. On Friday, Japan's Kirin Holdings announced it will terminate its two joint beer ventures in Myanmar.
If the junta is further isolated, one country that Naypyitaw is likely to approach is China -- a country with historic ties as well as one that has been cautious toward sanctions.
However, it is unclear whether the military regime will get what it wants.
"How to handle the Myanmar issue will also depend on the U.S.," a Chinese Communist Party source told Nikkei. Currently, Beijing is seeking dialogue with U.S. President Joe Biden. On Tuesday, Yang Jiechi, a member of the Communist Party's Politburo and China's top diplomat, said, "It is a task for both China and the United States to restore the relationship to a predictable and constructive track of development."
China has more of a "wait-and-see" policy on dealing with the Myanmar coup. This means the junta will eventually risk the investment not only from the U.S. and Europe, but also from China.
Western nations and Japan are facing the daunting challenge of coming up with a policy that both prevents Myanmar from tilting toward China and supports democracy in the country.
Additional reporting by Kazuhiro Kida and Kazuya Manabe in Tokyo.