Beijing has tightened its grip on Myanmar by pushing more and more of infrastructural projects largely funded by Chinese loans that Myanmar was to repay in the future. The last decade of China, that is synonymous with Xi Jinping’s expansionist agenda, has only exacerbated it. China’s game plan is clear: create a circle of excessive debt and take a controlling stake with majority shares in each of the projects.
If we go by the data of the Ministry of Investment and Foreign Economic Relations, Myanmar, China’s foreign direct investment in Myanmar between 1988-89 and 2010-11 was US $9.6 billion. This was the time when the military directly ruled Myanmar. Since 2011, it has increased to US $11.9 billion. China is Myanmar’s largest business partner, sharing the maximum chunk of import and export business.
China is developing China-Myanmar Economic Corridor (CMEC) and almost all big and small infrastructure projects are funded by Chinese loans which come with very high interest rate. China under CMEC, that is part of its wider Belt and Road Initiative, has proposed 38 projects so far, but burdened by Chinese loans, Myanmar has approved only 9 projects so far.
It is widely believed that China backed the recent military coup in Myanmar. A military government in Myanmar will be totally dependent on China if it has to face UN actions and international sanctions. China may use this to force the military-run government to approve BRI projects quickly.
That would ensure that Chinese FDI in Myanmar that is already over 25 per cent will further go up with Myanmar approving more BRI projects. China’s total investment so far is already 28 per cent of the Myanmar’s GDP of US $76 billion. The massive Chinese debt trap that is currently at 40 per cent of total Myanmar debt, is expected to go up further.
Cautioning Myanmar government about Chinese loans in July 2020, Myanmar’s auditor general reminded that Chinese loans were coming with higher interest rates than loans from other agencies like the World Bank or IMF. Currently, Myanmar is repaying China US $500 million annually with 4 per cent interest rates for loans taken previously.
But we also need to see that China has lent Myanmar more in the last decade with expansion of the BRI projects and at a higher rate, at 4.5 per cent. In fact Chinese interest rate is the highest that Myanmar pays to any other lending country.
The main Chinese aim here is to take controlling stake of these strategic projects.
In fact, in one of projects to be jointly developed, the strategic deep-water port in Kyaukphyu, the CMEC backbone, China sought to take 85 per cent stake. The high project cost of US$7.5 billion and China’s demand of controlling stake invited criticism forcing the Myanmar government to revise project cost to US$1.3 billion and increase the Myanmar government’s share to 30 per cent.
China sees Myanmar as a land bridge to the Indian Ocean and intends to take controlling stake in the country as most of the oil and other commodities imported in China come through the Strait of Malacca which India and other western powers can choke in case of a conflict.
China already has a functional pipeline in Myanmar and can use Kyaukphyu port to store and transfer oil to the Chinese mainland. It has got a lease of 50 years for the port and that can be extended for another 25 years.
Kyaukphyu port is in conflict-zone Rakhine State in western Myanmar. The state is known for the ethnic conflict where Rohingya Muslims faced large-scale violence, which has heightened the security needs of the deep-water port. A debt-burdened Myanmar, if defaults on loans, may not be in a position to stop China by deploying its own military to secure the project that is strategically important.
And once it happens, it will not be limited only to the Kyaukphyu port. China may push for similar security measures on other large-scale strategic projects as well.
That will be a direct challenge to India. India and Myanmar share a 1600-Km long border and a Chinese military presence in Myanmar will open another hostile front against India in the neighborhood as the country is already facing a two-front Pakistan-China challenge.