Myanmar in the spotlight and its tie with China

Transcription

1 4 Feature Myanmar in the spotlight and its tie with China Text: Jonathan Leung and John Leung China has been forced to rethink its strategy towards Myanmar since the latter began its process of democratisation in Now that Myanmar has opened up to the world, China can no longer use the country as an anchor point for the security of its western border. A new gate to the world has opened up next to China, and the US is marching through it, establishing another operational base as part of its bid to surround China. Linking up with the rest of the world provides Myanmar with more economic and security opportunities, and the vast resources and strategic location that Myanmar offers ensure the international community will engage with it. In December 2013, Japan and Myanmar signed the Japan-Myanmar Investment Agreement, and in April 2014, the US announced it would establish its first commercial office in Myanmar. This follows the establishment of similar offices by the UK and Canada in 2012, after the National League for

2 Democracy won 43 seats in by-elections in the country. According to the United Nations Conference on Trade and Development (UNCTAD), foreign direct investments (FDI) in Myanmar grew by a staggering 90 per cent between 2011 and 2012, according to the International Business Times. China has three objectives in Myanmar: energy procurement and energy security, enabling access to the Indian Ocean, and border trade and the security of its border areas. These three objectives stem from China s strategy to ensure domestic security. Maintaining energy supply lines is the top priority for China, as Myanmar provides China with access to shipping lanes that do not pass through the bottleneck of the Straits of Malacca. Fundamentally, Myanmar is China s western bridgehead to the world. CHINA HAS THREE OBJECTIVES IN MYANMAR: ENER- GY PROCUREMENT AND ENERGY SE- CURITY, ENABLING ACCESS TO THE IN- DIAN OCEAN, AND BORDER TRADE AND SECURITY OF ITS BORDER AREAS Executive MBA 2016

3 6 Feature According to the Norwegian Peacebuilding Resource Centre, between 2011 and 2012, trade between China and Myanmar reached US$3.6 billion, making China the top trading partner of Myanmar. As of 2011, 40 per cent of Myanmar s exports were energy and natural gas. These resources play a key role in China s Western Development project. The west of China has lagged behind China s eastern coast, which is hurtling towards ever-higher levels of development. As a result, infrastructure is significantly underdeveloped in the western provinces. Energy in the western region is on average 30 per cent more expensive than in the east. 29 PER CENT OF MYANMAR S FDI COMES FROM CHINA The development of China s western provinces is a top priority for those in charge of its border security agenda, because of the tensions created by the ethnic minorities in the western border provinces. So Myanmar plays a critical role in not only preventing China from being cut off from shipping lanes, but also in its western domestic border security. After the 1988 military crackdown in Myanmar, the state essentially functioned in isolation until the reforms. Although Myanmar joined Asean in 1997, its relationships with other countries, particularly those in the west, were characterised by sanctions. Japan decided to distance itself from Myanmar after the 1988 crackdown, and that led to a decline in investment from what was traditionally its staunchest supporter. As result, after 1989, Myanmar became increasingly dependent on China for trade and military aid. In Myanmar, this relationship was defined by term Pauphaw (Blood Brother), and it enabled China to retain Myanmar as an ally in its security calculations. China is certainly Myanmar s top trading partner. Furthermore, 29 per cent of Myanmar s FDI comes from China. Officially, China

4 has consistently supported Myanmar s reforms, stating that China supports Myanmar pursuing a development path that is suited to its national conditions. But between 2012 and 2013, China drastically cut its investments in Myanmar by US$4.35 billion and US$8.27 billion respectively. Aung San Suu Kyi will be the key to Myanmar s future The reduction in FDI has not stopped Myanmar stalling discussions about China s hydroelectric dam projects, such as the Myitsone Dam project in Myanmar, and its flexing of muscles has not pushed Myanmar to break support for Asean s condemnation of China s aggression in the South China Sea. Myanmar s reforms give it some leverage over China, which does not want it to develop closer relationships with the US (and its Japanese ally), or India. More hawkish strategists have pushed China to make use of Myanmar s ethnic tensions, particularly in northern regions such as Kachin State, to find some leverage against the government. There are allegations that China is arming ethnic forces like the United

5 8 Feature Wa State Army, which Myanmar s newspapers claim has received funding and training from the Chinese. This strategy, while seemingly running counter to China s border security, has historical parallels with China s support of communist group in Myanmar s northern region until the 1970s. By providing support for these groups, the hawks say, China could maintain control over its border region. Given the military s declining resolve to directly intervene in ethnic unrest, and the growing civil society under Myanmar s new reforms, Myanmar s government does not seem to be a dependable ally in confronting the issue of ethnic unrest. But so far, Beijing does not seem to be embracing this extreme

6 policy. China s president, Xi Jinping, has repeatedly emphasised the brotherhood that exists between the two states. Exacerbating ethnic tensions would only risk conflict spilling over into China s own already volatile western border provinces. China has moved towards a strategy of wooing Myanmar. Although frustrated, China recognises Myanmar s transition from being a state dependent on China to an integral ally of China. But this ally will have many suitors. Beijing has repeatedly pushed the historical ties of peace and cooperation that it has shared with Myanmar, pointing to the Five Principles of Peaceful Coexistence accord it signed with Myanmar and India in Furthermore, China has acted proactively to resolve ethnic tensions in Myanmar. Arming or supporting ethnic groups is not in China s interest. But China s development projects with Myanmar, and the growing influx of Chinese nationals into Myanmar, serve as a catalyst for tension among ethnic groups along Myanmar s northern border. As such, China has made it a priority to change its image in Myanmar. Building up a positive image of China through media campaigns, and pushing for more restraint by its companies in Myanmar, are two steps toward improving its image. In order for China to succeed in this new balance of power, it must demonstrate that it can provide more benefits to Myanmar than its competitors, particularly the US. CHINA S PRESIDENT XI JINPING HAS RE- PEATEDLY EMPHA- SISED THE BROTH- ERHOOD THAT EXISTS BETWEEN THE TWO STATES With the launch of the One Belt One Road initiative, the Chinese government must decide if economic benefits are enough to win over Myanmar. A recent study conducted by the College of Business at City University of Hong Kong, the Hong Kong Myanmar Chamber of Commerce, and the World Green Orgnisation concluded that the people of Myanmar want their traditions and values to be preserved, their environment protected, and their religions and ethnic groups respected. These factors may be even more important than economic growth. So to win hearts and minds, a new business model that can take care of all these factors must be developed. Executive MBA 2016

7 10 Feature SWOT Analysis INTERNAL FACTORS STRENGTHS 2013 McKinsey report: potential US$200 Billion + GDP in Economy will quadruple by Currently only contributes 0.2% of Asia s GDP. Middle class projected to grow to 19 million from today s 2.5 million by FDI grew from US$900 million in 2010 to US$2.3 billion in Myanmar government reports 2015 FDI rose to US$8 billion. (CFR) Crossroads between Bangladesh, China, India, Laos, Thailand. These states represent 40% of the world s population. (McKinsey) 10 times the per capita water endowment of India and China. WEAKNESSES Unstable government. November 8th 2015 elections demonstrated political progress. Under 2008 constitution, 25% of parliamentary seats are reserved for the military. Defence, home affairs, and border affairs ministry are controlled by the military. (CFR) Seven major ethnic groups (Rakhine, Chin, Kachin, Karen (Kayin), Karenni (Kayah), Mon and the Shan. Officially, 135 national races. Minorities occupy 60% of Myanmar s land, primarily in the mountainous northern region bordering China and other border regions. Myanmar s people mistrust the influence of foreign states on the country. A history of conflict with surrounding neighbours such as China fuels this distrust. Sean Turnell: estimated US$2 billion annual revenue from drug trade in Myanmar. (NYT)

8 EXTERNAL FACTORS OPPORTUNITIES Myanmar is transitioning from an agrarian-based economy to a manufacturing base, and this requires large investments. However Myanmar s workforce is estimated to operate at 30% of the labour productivity of the surrounding Southeast Asian region. (McKinsey) THREATS Regional and international political interests in Myanmar create a complex operating field in which to roll out investments. Alongside the 2011 official reopening of US relations with Myanmar, the Myistone Dam, funded by China, was shut down. Myanmar has been supported by the international community, which looks forward to partnering with it. Myanmar plays an important role in the One Belt, One Road initiative because its location makes it a critical transportation hub for the Asean region. Myanmar s rich oil and natural gas resources make it of critical geopolitical interest to all powers in the region, and to a lesser extent, internationally. While One Belt, One Road can bring significant economic benefits to Myanmar, it may intrude on the values, culture, and environment of Myanmar, and thereby cause social problems. Executive MBA 2016

9 12 Feature Case study: CityU EMBA students visit Myanmar to look for business opportunities Some businesses are choosing to explore new opportunities in Asean countries rather than China. With this in mind, in 2007, the EMBA programme of City University of Hong Kong (CityU) changed the focus of its residential trip, which initially enabled students to explore businesses opportunities in the mainland. CityU EMBA has since visited Russia, Cambodia, and Singapore, among others, and the team recently went to Myanmar. To prepare for the visit to Myanmar, a team of seven, led by myself and Albert Oung, founding chairman of the Hong Kong Myanmar Chamber of Commerce, interviewed stakeholders, including business leaders, senior government administrators, university rectors, and representatives from the UN to gain an understanding of the future business environment in Myanmar. Li Chan Wing, a famous anchor and an EMBA alumnus, also joined the team to advise on videoing the interviews. First we interviewed Dr David Galipeau, the global chief of the UN Social Enterprise Facility (UNSEF). Galipeau has been working in

10 Photo: Brent Ng the Asean region for many years, and is upbeat about the development of Myanmar. He told us that those interested in investing in Myanmar should not just look at the opportunities, but also the potential opportunities. The key to success is to be the first to grasp the potential of different industries in Myanmar, he said. We also interviewed Barbara Meynert, the chair of the UN ESCAP Task Force on Digital Economy, who is familiar with the One Belt, One Road initiative. Meynert holds similar views to Galipeau on Myanmar, but noted that the standard and quality of businesses had to be higher than in the past. She also told us that although it is difficult to keep Myanmar green, it s not impossible. Myanmar must learn how to select the right corporations, she said. As a marketing professor, the first things I noticed when I landed in Myanmar were the advertisements at the airport. Most of them still focus on promoting the function of the product, rather than the value and experiences the product can provide. This shows that the Myanmese people are still more concerned about practical issues, and are not looking for intangible benefits. Executive MBA 2016

11 14 Feature When we arrived at our hotel, we noticed a group of old men gathered next to the main entrance. We thought they were playing chess, or some kind of local game, but they were actually playing electronic games on their mobile phones. If you looked at their phones close-up, you could see they were competing with each other. This phenomenon highlights the impact of the rapid development of the internet over the last five years. Instead of staying in Yangon, we went directly to the ancient city of Bagan. This is a must-see for tourists, and is considered to be as culturally valuable as Cambodia s Angkor Wat. In Bagan, we were invited to meet the chairman of the Bagan Horse Riding School. The first thing he told us was that there had been no horse racing in Bagan for 22 years. It had been banned for that long. The day we visited was the day of the first race since the ban. INSTEAD OF STAYING IN YAN- GON, WE WENT DIRECTLY TO THE ANCIENT CITY OF BAGAN. THIS IS A MUST-SEE FOR TOURISTS After that, we asked an influential lawyer who had visited Hong Kong how he would compare the horse racing in Bagan with that in Hong Kong. He said that Hong Kong was under British influence until 1997, but Myanmar became independent from Britain in So it will take Myanmar a long time to catch up with

12 Hong Kong in anything. In a sense, Myanmar people still miss the olden days of the British administration. Taking pictures at Bagan was a wonderful experience. Not only is there some impressive natural scenery, there are mothers with their babies, hawkers, and other everyday people going about their business. They were all happy to have their pictures taken. People were polite and friendly, and they welcomed foreign visitors. U Thein Tun, chairman Myanmar Banks Association We interviewed Tin Htoo Maung, chief administrator of Bagan city, who used a martial arts competition as an analogy for the relationship between Myanmar and foreign investors. He said that someone must always get hurt during the competition. But every competition is a learning opportunity which leads the competitors to better understand each other. They have to follow the rules of the game, and learning is the key to success. After returning to Yangon from Bagan, we met Dr U Thein Tun, chairman of the Myanmar Banks Association. He s a powerful business leader who is sometimes known as the Li Ka-shing of Myanmar. We were surprised by the decorations in his office. Though he s a major business leader involved in joint ventures with renowned brands from the US and Europe, his office was simple and traditional. It showed no trace of having been influenced by western culture. He told us that Myanmar is in need of almost everything. In particular, retail and packaging products are needed. Every glass bottle is currently shipped from Thailand, and there is a limited amount of packaging products in Myanmar. Of course, there are many good opportunities in retail estate development too, as it s forecast that the domestic market will grow quickly. But he also pointed out that foreign investors do not understand Myanmar s culture. He emphasised that the people want a green Myanmar, and they want their environment to be protected. They do not want to be ripped off by foreign investors. The government must set rules and regulations to protect the interests of local businesses in the future. We later met U Aye Lwin, the joint secretary of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI). Executive MBA 2016

13 16 Feature Before the interview started, the secretary had prepared a long list of Myanmar s needs, as well as the opportunities to be found in the country. He has visited different cities to learn about the One Belt, One Road initiative, and believes that it will bring economic benefits to Myanmar. But he told us honestly that he was afraid of dangerous business. U Aye Lwin, joint secretary the Union of Myanmar Federation of Chambers of Commerce and Industry A strong connection between Myanmar and neighbouring countries may jeopardise the traditional values of Myanmar, and these countries may be involved in smuggling, or other illegal activities, he said. So the most important task of the new government will be to ensure that all businesses operate legally. He also mentioned that education helps to ensure that members of the community do not get involved in illegal activities or businesses. There are 38 universities in Myanmar, but the facilities and the quality of education must be improved to bring them up to an international standard, he said. Finally, we visited the University of Yangon, formerly known as Rangoon University, the oldest and most prestigious university in Myanmar. One of the most well-known alumni of Rangoon University is Aung San, the father of Aung San Suu Kyi. We saw a graduation ceremony while we were there. The ceremony took place in a colonial-style hall. Interestingly, when the students marched into the hall, the orchestra was playing a famous Christian hymn, Come Thou Fount of Every Blessing. We felt that the atmosphere of the whole university was still influenced by the British colonial education system and British culture. The acting rector of the University of Yangon told us that Myanmar was looking forward to connecting with overseas universities. More than 100 Memoranda of Understanding (MOUs) have been signed with overseas universities, and yet none has been executed.

14 The major task is to rebuild the university and restore it to its former glory. Other interviewees said that Myanmar has a lack of skilled labour. Some believe that vocational education is much more important than university education. Even some senior government officials have mentioned that they are looking for resources to upgrade their skills. So online education or Mass Open Online Courses (MOOCs) may be a quick solution to the education challenges of the country. Even though the whole trip only lasted five days, we interviewed more than a dozen influential people in Myanmar. Our overriding impression was that Myanmar is still strongly influenced by British colonial culture. In fact, one interviewee even told us that they feel very comfortable talking to Hong Kong people as we can communicate in English. More importantly, both Myanmar and Hong Kong use common law as a legal base. The people of Myanmar generally welcome foreign investors, but they also want their environment to be protected, their culture and values preserved, and people from ethnic backgrounds and different religions to be respected. The National League for Democracy won the November 2015 election, and is due to take office in March. Everyone is very positive about the new government. They expect it to learn from the example of other countries, and thereby avoid falling into the environmental and social traps arising from economic development. To capitalise on the business opportunities, new business models which can optimise the country s financial, social, and environmental performance are urgently needed. From left to right: Li Chan Wing, John Leung, Albert Oung and David Galipeau John Leung is director of CityU EMBA programme Executive MBA 2016