The 2021 military coup in Myanmar has left the country significantly isolated on the world stage. Politically, foreign governments have avoided recognizing the junta rulers, although quasi-official engagement is still underway. Economically, foreign investments into Myanmar have dropped by 42% from 2021 to 2022, off levels that had already massively decreased since the 2017 Rohingya expulsion. However, despite the international outcry over the new regime’s open warfare against civilians and the escalating violence in Myanmar’s multi-front civil war, both China and Japan have remained engaged in development cooperation, pursuing ambitious projects for economic corridors and special economic zones (SEZs) that were contracted under the deposed civilian government; in the case of China, even some new projects have been launched.
The main reason why Asia’s two infrastructural superpowers remain present in Myanmar is because they are locked into a competitive dynamic: both seek to shape the further development of Myanmar’s economy in line with their broader plans for regional integration centered on their respective markets, while also vying for political influence in the country. Under the period of democratization (2011-2021), Myanmar saw a significant influx of investments and development assistance from both China and Japan, setting the stage for a geoeconomic contest over its allegiance. In post-coup Myanmar, this has exposed both countries to a plethora of risk factors – most obviously those posed by the fighting itself, but also reputational risks that stem from association with Myanmar’s regime.
In this blog post, we will examine and compare the strategies that both countries have employed to pursue infrastructural agency in post-coup Myanmar. Despite the stark differences between China’s and Japan’s own political regimes, practices on the ground are shaped by similarities in their developmental approaches, realpolitik imperatives to remain engaged, and risk management requirements.
China in Myanmar: between infrastructure and illicit businesses
China has been a major infrastructural player in Myanmar for decades, focusing on megaprojects like the highly controversial Myitsone hydropower dam and the Shwe pipeline connecting offshore gas fields near Kyaukphyu to China’s Yunnan province. When Myanmar officially joined China’s Belt and Road Initiative (BRI) in 2019, these predecessors were expanded to a “China-Myanmar Economic Corridor” (CMEC) running from Kyaukphyu port on the coast to the Chinese border at Muse, with SEZs to be set up in the borderlands and major cities.
Since the military coup, the safety of its investments and citizens has been China’s main priority. Existing grievances against several of these projects, Beijing’s perceived friendliness towards the junta, and widespread anti-Chinese sentiment in Myanmar have resulted in serious threats: opposition fighters have threatened to bomb the Shwe pipeline, while the Letpadaung copper mine in Sagaing has been shut down due to fighting between junta and opposition forces. Military forces have deployed around both projects (which actually triggered the fighting in the latter case), while both junta-aligned militias and an alliance of Ethnic Armed Organizations (EAOs) have been enlisted to provide security for those in the borderlands. This cooptation extends to groups that are actively hostile to each other: in late October, the same EAO alliance launched an offensive against junta forces in northern Shan State that captured two Chinese SEZ sites, installing themselves as their new guardians and the controllers of cross-border trade.
China’s practical cooperation with several de facto authorities across Myanmar’s fragmented landscape means that political and economic ties with major combatants continue in parallel, and can be leveraged into protecting Chinese interests. Cooperation is transactional rather than based on ideological affinity, and not susceptible to the kind of normative criticism that has driven other international funders from Myanmar. This has allowed CMEC to politically survive the sudden shift in governance, although the escalating violence has stalled progress on the more exposed projects.
Another consequence of Myanmar’s post-coup fragmentation has now risen to the forefront of Chinese and local concerns: the rampant proliferation of illicit businesses in Myanmar’s frontier spaces, in which Chinese citizens are among both victims and perpetrators. Cracking down on the resulting crime is now an urgent priority for Beijing, and one increasingly shaping its support for local conflict parties. These activities are also acutely harmful for the BRI’s image: notably, the developer of the notorious Shwe Kokko casino city project tried to claim this label, triggering a denial from the Chinese embassy. In the Pang War border area, Chinese businesses are pursuing environmentally damaging rare earths mining without any regulation or oversight. Based on a recent set of interviews with respondents in Myanmar, the vagueness of the BRI label and the lack of concrete information about CMEC makes it difficult for them to draw the line between its supposed core infrastructure projects, commercial resource extraction, and outright criminal activities, with all three increasingly lumped together under “Chinese investments” and harming the country’s image.
The BRI’s status in post-coup Myanmar speaks to its competitive strengths and weaknesses: its flexibility and openness has allowed it to mobilize a vast set of actors across China and find willing partners overseas, but at the price of losing coherence and control. In fragmented, weakly-governed Myanmar, China has seen its infrastructural agency dissipate and coopted by parochial interests. As a result, an already-skeptical local audience is now perceiving Chinese investments as more extractive than developmental, while resulting profits are seen to be fuelling Myanmar’s war economy. Compared to international competitors, Chinese actors can take advantage of facing less civil society and regulatory pressure, but the backlash their activities are triggering casts doubt on CMEC’s long-term viability.
Japan in Myanmar: between salvaging infrastructure ambitions and navigating reputational risks
Japan’s infrastructural engagement in Myanmar has a long-history that spans back to Japan’s rise as a development power in the postwar period. Despite a long and complicated prewar history and limited engagement after the 1988 coup, Japan-Myanmar relations experienced a resurgence between 2012-2021.
The onset of Myanmar’s political and economic liberation from 2011 led to a new era in bilateral relations, in particular concerning infrastructure development. Japan notably cancelled Myanmar’s hefty debt of over 5 billion USD between 2012-2014 and then committed another 8 billion USD to its development in 2016. Quickly assuming the role of Myanmar’s top aid provider, Tokyo embarked on a number of large infrastructure development projects, including the upgrades of two of Yangon’s major railways and the establishment of Thilawa, the country’s most successful SEZ. Myanmar is considered an essential corridor for Japan’s connectivity plans for the broader Indo-Pacific and is hence prioritized for infrastructure development.
Since the military coup in February 2021, Japan’s role in Myanmar’s development has undergone a gradual change. Japan has since suspended yen loans to Myanmar, and a number of pre-coup projects are soon timing out without contract renewals or have experienced the cessation of aid. While some megaprojects such as the Thilawa SEZ are still in operation at reduced capacity, others such as the Yangon-Mandalay railway have been curtailed by the withdrawal of Japanese official development assistance. This is notable as the railway project, which focuses on upgrading preexisting rails in response to ageing infrastructure, was considered a symbol of solidarity and cooperation in bilateral relations since its outset in 2013. The Japanese government decided in fall 2022, nearly decade later and almost a quarter of the way into the project, that it would not provide any additional essential yen loans in light of the risk involved and the ongoing military government rule and Tokyo’s unwillingness to recognize it as legitimate.
Within the Thilawa SEZ, business is not as usual but still underway: in 2022, a reported 45 out of 113 companies were in full operation, 27 at half production, and 41 suspended or “sleeping”. Approximately one percent of Myanmar’s nationwide export volume is reported as emanating from the SEZ. Since it is comprised of foreign entities, it is exempt from the Myanmar Central Bank’s currency rules which prevent businesses from conducting trade in US dollars. As such, the SEZ has been able to financially weather some of the storm brought about by the regime shift and companies that have heavily invested in the SEZ have expressed commitment to keeping business alive even at a reduced output. This is reportedly a combined effort to provide employment for local citizens and to salvage ties to Myanmar should business conditions improve. The SEZ is an example of public-private leadership between Japan and Myanmar that facilitates both business cooperation and communications that would otherwise be challenging for Japan in the post-coup setting under the military regime.
Apart from businesses, private non-profit organizations with governmental ties, such as the Nippon Foundation, have worked to maintain presence and communication through activities related to peace and humanitarian initiatives both in Myanmar and vis-à-vis EAOs based in Thailand. Though formally defined as a non-state actor, the Foundation’s Chairman also holds a governmental role as a special representative for national reconciliation and has been influential in facilitating dialogue with the ruling junta and other entities in the name of peace and providing support for conflict-affected areas.
Conclusion
The regime change in Myanmar has not shifted infrastructural cooperation purely towards authoritarian partner states, but has influenced how outside funders engage with the country. Both China and Japan seek to remain engaged for geopolitical reasons, while trying to balance security and reputational risks resulting from this engagement. In this, they employ different strengths in their respective arsenals: China is willing to entertain semi-official ties with the new rulers and to pursue megaprojects, Japan is making use of intermediaries and private businesses as its official development aid is coming under pressure. There is no clear winner in this contest, as the escalating civil war has severely limited project progress on both sides, and the Chinese advantage in announcing new agreements is largely on paper. Success may ultimately be determined by staying power, where Japan’s inability to make new ODA arrangements with the current regime is a serious limitation. But both sides are also keeping their options open towards further shifts in Myanmar’s governance, with China enjoying more leverage over a greater array of actors. However, its presence and involvement is far more controversial beyond the elite level, and its security interests are also more exposed to the fighting and proliferation of criminal networks in the country.
Finally, the example of Sino-Japanese infrastructural competition in Myanmar also shows the limits of nation-state agency, even in two countries with powerful governments that orient development aid towards national interests. Remaining engaged in Myanmar has come at the price of cooptation by local interests and private profit-seeking, which has increased reputational risks for both. Akin to Myanmar’s conflict itself, the ways in which foreign powers navigate it is highly complex, and not just a bipolar contest over influence.
Pascal Abb
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