Chinese-Funded Port Gives Myanmar a Sinking Feeling

Myanmar’s government wants to sharply reduce the scale of a Chinese-funded port project on the Bay of Bengal that officials say risks saddling the country with unsustainable debt.

Authorities in Myanmar are in talks with a Chinese consortium led by state-owned investment company Citic Group to shrink the size of what was originally envisioned as a $7.3 billion development to one costing about $1.3 billion, according people familiar with the discussions.

The negotiations show Myanmar’s reluctance to rely too deeply on Beijing and Chinese lending, even as Western investors largely steer clear of Myanmar after the military’s violent campaign against the country’s ethnic Rohingya minority.

Wary Embrace
Myanmar has pushed back against severalChinese investment projects.

“We don’t want to be in debt,” said Kyaw Aye Thein, vice chairman of the Kyaukpyu Special Economic Zone, the site of the development.

The initial plan for the project, part of Chinese President Xi Jinping’s signature Belt and Road infrastructure-building initiative, would have transformed the sleepy town of Kyaukpyu into a major deep-water port and industrial zone.

A deal for the venture was struck in 2015 between Myanmar’s previous government and China. A rail line from China would allow factories there to ship goods to Europe, India and Africa by a shorter route that avoids the Malacca Strait.

Myanmar now wants the port to be significantly smaller, arguing that it can be expanded later if needed.

Mr. Kyaw Aye Thein said he expected a deal to be finalized on the revised terms by October or November. China’s Foreign Ministry didn’t respond to a request for comment.

Citic spokeswoman Wang Fang said the company and Myanmar “have reached preliminary consensus regarding shareholder structure and fundraising plans, but the details are still under discussion.”

Myanmar’s push to reduce the port’s size comes at a time of rising concern among governments in Asia, Africa and elsewhere that China’s projects and the way they are financed risk pushing them into debts they won’t be able to repay.

Government debt in Laos, a neighbor of Myanmar, has risen to around 70% of the country’s economic output, due in part to borrowing from China for rail and hydropower projects that are part of One Belt, One Road, according to the Center for Global Development, a Washington think tank.

Since taking office in May, Malaysia’s Prime Minister Mahathir Mohamad has suspended major Chinese infrastructure projects he says have swamped his country in debt, including a high-speed rail line to Singapore. China has said Malaysia is an important partner and that relations between the countries need to be cherished by both sides.

In 2011, Myanmar suspended work on the Myitsone dam, a $3.6 billion Chinese-financed project that was to send 90% of its electricity back to China, after strong local opposition to plans to displace villagers. The government says it is reviewing options for how to proceed.

This spring, some politicians in Myanmar began sounding the alarm that the Kyaukpyu development would provide few economic benefits and could become a debt trap.

They warned that the government might be required to forfeit control of the port as happened with a Chinese-funded port in Sri Lanka last year. That port, at Hambantota, failed to draw much shipping traffic and the government, struggling to repay its debts, agreed to lease it to a Chinese company for 99 years.

In May, Soe Win, a former Deloitte consultant who had criticized terms of the loans for the port, was appointed finance minister and began pushing to shrink the project, according to people familiar with the negotiations.

Sean Turnell, an Australian academic who serves as special economic consultant to Aung San Suu Kyi, the head of Myanmar’s government, has also warned of financial risks. “The problem is it was just way overcapitalized,” Mr. Turnell said.

Under new terms Myanmar officials are seeking, the government’s contribution to the project would be land. The Myanmar government and local companies would hold a combined 30% stake, while the Citic consortium would own 70%.

Those changes “will prevent this becoming like Sri Lanka,” said Mr. Thein, the vice chairman of the Kyaukpyu Special Economic Zone.

Throughout the 1990s and 2000s, Myanmar was ruled by a military junta that relied heavily on China for diplomatic support and investment. After a civilian government took office in 2011, the West began lifting sanctions, and Myanmar’s new leaders, who remained affiliated with the military, began distancing themselves from Beijing.

“[Myanmar’s government] understands that Chinese money comes with strings attached and when things don’t go well they will have to answer for it,” said Yun Sun, a China specialist at the Stimson Center.

The military, which for years had relied on Chinese equipment, began diversifying arms imports, buying Russian fighter jets, Israeli gunboats, and Belarusian surface-to-air missiles.

But Myanmar’s attempts to reduce its reliance on China have become more difficult in the wake of violence by Myanmar’s military against the country’s Rohingya minority. Hundreds of thousands of Rohingya have fled to neighboring Bangladesh.

The U.S. and other Western governments have blamed the military for “ethnic cleansing.” Overall approved foreign investment declined by around 40% between 2015 and 2017, according to official figures.

When Myanmar’s new government “took power I thought a lot of Western investment would come in,” said Khin Shwe, who owns one of the country’s largest construction conglomerates. “In reality they didn’t come here for investment. We don’t have anything except China.”

Source: The Wall Street Journal

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