Jun 8, 2013

Chinese Investment in Myanmar Falls Sharply

Chinese investment in Myanmar has fallen sharply over the past year amid strained relations, even as interest from other foreign investors in the Southeast Asian has surged.

The drop comes as China is wrapping up construction of its last large-scale investment project in Myanmar: the construction of two pipelines that this year will transport oil and natural gas from the Bay of Bengal through Myanmar into southern China.

China was Myanmar's closest political and trading partner for several decades before 2011, when Myanmar—hit by sanctions from the West because of Myanmar's authoritarian policies—began a series of political and economic overhauls.

Now, as Myanmar increasingly looks to the West, popular sentiment has been turning against China and its historically close ties with the former military junta. Influential Myanmar human-rights group 88 Generation last month called for China to renegotiate its investment contracts. The group said the contracts were made in opaque deals with the former Myanmar regime.

The objections—along with protests against Chinese projects, often for environmental reasons—are signs of growing concern in Myanmar over its neighbor's rising economic, military and political influence.

In the most significant recent blow to relations between the two countries, Myanmar President Thein Sein stopped a Chinese-backed $3.7 billion hydropower dam project in 2011 in response to local opposition. The project would have supplied electricity to China.

Protests in November led to the temporary suspension of a Chinese-backed copper-mine project. Talks on a multibillion-dollar railway linking Myanmar's west coast with Kunming in southern China also have been put on hold.

Last week, state-run China Mobile Ltd. said it had pulled out of bidding for telecommunications licenses in Myanmar in a consortium with the U.K.'s Vodafone Group, saying the opportunity didn't "meet the internal investment criteria."

Myanmar reported that Chinese companies invested $407 million in the country in the fiscal year through March 31, down from $4.35 billion and $8.27 billion in the previous two years, respectively. Chinese investors accounted for 29% of Myanmar's total foreign investment during the period.

The anti-Chinese protests and escalating violence between ethnic separatist rebels and government troops in northeastern Myanmar near the Chinese border have become a concern for Beijing, said Zhao Hong, a Chinese professor who is a visiting research fellow at the National University of Singapore.

Two Myanmar nationals working as subcontractors for China National Petroleum Corp. on the oil and gas pipelines were killed last month after rebels opened fire at a compound near the Chinese border.

"The Chinese government has warned its companies to be more cautious about investing in Myanmar. They have become more unsure about the future of the country," Mr. Hong said. Uncertainty over the political reforms and the tensions have had a chilling effect on Chinese investment in Myanmar, he said. "Only state-owned companies dare to go, and even they won't put money into big projects now."

The drop in Chinese investment caused total foreign investment in Myanmar to fall to $1.42 billion in past fiscal year from $4.64 billion and $20 billion in the two previous years, according to the government.

Most of the overall foreign investment in the country in the past year was in manufacturing, power generation, oil and gas projects, and the hotel-and-tourism sector.

Still, China remains Myanmar's largest trading partner. Myanmar imported $175 million of Chinese goods in March—mainly machinery, base metals and transportation equipment—making up nearly a third of total imports for the month.

Source: Wall Street Journal