Securing The China-Myanmar Economic Corridor: Navigating Conflicts And Public Scepticism – Analysis

On 26 December 2023, the State Administration Council (SAC) military regime in Myanmar inked with China an addendum to the concession agreement for the Kyaukphyu Special Economic Zone (SEZ) and its deep-sea port.[1] This deep-sea port, coupled with the SEZ, is a critical component of the ambitious China-Myanmar Economic Corridor (CMEC).

This corridor is strategically designed to provide quick sea access for China’s landlocked western provinces, connecting them to the Bay of Bengal. The CMEC thus presents considerable strategic and economic value to China. The date of the addendum’s signature, however, has some significance. The SAC signed this agreement with China in the aftermath of Operation 1027, a surprise offensive launched by the Three Brotherhood Alliance (3BHA) — a coalition formed since 2019 by three leading ethnic armed organisations (EAOs), namely the Arakan Army (AA), the Myanmar National Democratic Alliance Army (MNDAA), and the Ta’ang National Liberation Army (TNLA) – in northern Shan State. Operation 1027 and its aftermath shifted the conflict dynamics in Myanmar’s ongoing civil war.[2] Even before and especially after Operation 1027, the AA has been gaining more ground and functional control in Rakhine State, where the Kyaukphyu SEZ is located. The AA is for the first time since its establishment in 2009, poised to wrest control of Rakhine from the SAC’s central administrative reach.[3]

In light of these developments, China’s major infrastructure investments in Myanmar, including the Kyaukphyu SEZ and the deep-sea port, now face the daunting task of navigating the escalating conflict throughout Myanmar. This paper explores the CMEC’s future amidst the ongoing conflict in Myanmar after the 2021 coup. It provides an overview of the CMEC’s development and background since its inception in 2017, leading up to the impact of the conflict that erupted in Myanmar after the 2021 military coup and particularly Operation 1027. The paper then discusses the challenges that the CMEC has faced since 2017, and examines China’s prospective responses to the rapidly evolving on-ground realities in Myanmar.

WHAT IS THE CMEC?

The CMEC is an important part of China’s ambitious Belt and Road Initiative. Initially part of the broader Bangladesh-China-India-Myanmar Economic Corridor (BCIM), the project encountered a setback when India hesitated to start implementation amidst growing geopolitical rivalry with China.[4] However, following Chinese Foreign Minister Wang Yi’s visit to Naypyitaw in November 2017, the project was rebranded as an exclusive economic corridor between China and Myanmar.[5] The CMEC was formalised with the signing of a 15-point Memorandum of Understanding (MOU) on 9 September 2018, expanding the corridor’s scope to include collaboration in various sectors like infrastructure, construction, manufacturing, and agriculture.[6]

With this rebranding as context, the CMEC is thus not an entirely new initiative. Rather, it should be viewed as an attempt to consolidate and coordinate various China-led infrastructure projects in Myanmar that existed before the CMEC for more effective advancement of China’s broader strategic and economic goals. For instance, the Sino-Myanmar Oil and Gas pipelines, the only fully operational project under CMEC to date, predates the CMEC’s official launch, having been in full operation since 2017.[7] Remarkably, the gas pipeline segment of this oil and gas pipeline project was operational as early as July 2013, two months before President Xi Jinping introduced the Silk Road Economic Belt concept in Kazakhstan.[8] [9] The CMEC also includes the controversial Myitsone Dam project, which was suspended by the Union Solidarity and Development Party (USDP) administration in 2011 due to public pressure over environmental concerns and potential damage to the Irrawaddy River, Myanmar’s longest river and major commercial waterway and a lifeline resource for many communities in the country.[10]

The proposed CMEC also included among its core projects a transport corridor with highways and high-speed railways linking the Kyaukphyu deep-sea port in western Myanmar with China’s landlocked Yunnan province.[11] This transport corridor’s strategic significance is further augmented by the existing oil and gas terminal in Kyaukphyu, connected to Kunming by the completed Sino-Myanmar Oil and Gas pipelines.[12] The first phase of the proposed high-speed railway would connect Kunming and Mandalay, Myanmar’s second-largest city, while the second phase would expand this network by adding another high-speed railway and highway linking Mandalay with Kyaukphyu.[13] Should the transport corridor be completed, it would provide China with a reliable overland access to the Indian Ocean, easing trade flow and reducing reliance on the highly congested and strategically vulnerable Malacca Strait.

CHALLENGES PRIOR TO THE 2021 COUP

The military coup in Myanmar on 1 February 2021 affected the CMEC’s implementation. However, even before the coup, the CMEC was already facing criticism from Myanmar’s civil society concerned about the potential environmental and social impacts of China-led megaprojects on local communities. A key example is the Myitsone dam project, suspended by the military-backed USDP government in response to strong opposition from environmental and human rights groups. The USDP’s suspension of Myitsone signalled the USDP government’s intent to consider public opinion and shift towards distancing from China.[14] This change in stance toward Chinese investments extended to other Chinese-led megaprojects and businesses across Myanmar, as public sentiment increasingly voiced concerns over what many viewed as opaque and harmful business practices.[15]

After the NLD’s landslide victory in 2015 and the launch of the CMEC in 2018, the NLD government tried to address public concerns by renegotiating and reviewing several China-led megaprojects. Concurrently, the NLD government faced challenges in its relationship with China due to the military’s treatment of the Rohingya communities in Rakhine State. Communal tensions had erupted during the USDP administration, and a disproportionate military crackdown in August 2017 escalated into the largest exodus to date of Rohingya to neighbouring Bangladesh.[16] The NLD government’s perceived inaction or slowness in responding to the Rohingya crisis tarnished its international image. When The Gambia initiated legal proceedings in the International Court of Justice (ICJ) in 2019 alleging violations of the Genocide Convention (which then Burma had ratified in 1956).[17] Myanmar came increasingly under scrutiny on the international stage over the Rohingya crisis, and Aung San Suu Kyi’s decision to “defend national interest” was viewed by the international community as defending the Myanmar military’s actions, damaging her international reputation as a human rights icon.[18] This isolation, and distancing steps taken by Western allies, made Myanmar more dependent on China for diplomatic support and foreign direct investment.

Additionally, public anxiety grew amid concerns about potential debt traps resulting from massive infrastructure development loans from China. Sovereignty issues, particularly after Sri Lanka handed over the Hambantota port to China on a 99-year lease, became a major point of contention. This raised concerns about the continuation of CMEC in Myanmar, particularly regarding the Kyaukphyu deep seaport, the centrepiece of CMEC-related infrastructure projects. The debt-trap narrative has persisted, despite several analysts and researchers clarifying that the Hambantota debt crisis resulted from mismanagement, and Sri Lanka’s debt owed to Japan already exceeded that owed to China (which accounted for 3 percent of Sri Lanka’s GDP).[19] While Myanmar’s external debt-to-GDP ratio remained below 20 percent in 2018, deemed safe by international standards, unlike Sri Lanka’s 76 percent in the Hambantota case, this issue received little public or media attention.[20] Sri Lanka’s Hambantota experience seemed to influence Myanmar policy elites’ opinion. In the ISEAS – Yusof Ishak Institute’s 2020 State of Southeast Asia Survey, Myanmar respondents expressed low confidence in the BRI, though they had showed some optimism in 2019.[21]

The NLD government adopted a balancing approach, acknowledging the economic benefits of Chinese investment while remaining mindful of negative public sentiment. A key example of this approach was in November 2018 when the Myanmar government and China International Trust Investment Corporation (CITIC) renegotiated their stakes in the Kyaukphyu SEZ. Under the renegotiated terms, CITIC held a 70 percent share, and Myanmar 30 percent of which the government provided land as its 15 percent stake and a Government Designated Entity (comprising mostly private Myanmar companies) held the remaining 15 percent.[22] The Myanmar side pushed for a conditional, phased development strategy to reduce scale, costs, and government capital investment, and avoid debt obligations. This renegotiation presented a diplomatic win for the NLD and indicated Beijing’s effort to boost the Myanmar public’s confidence over the CMEC.

However, the NLD government struggled to handle long-running armed conflicts that could potentially affect CMEC projects. Aung San Suu Kyi’s popularity helped manage public opinion among the Bamar majority in urban centres and central heartlands but was insufficient to sway opinions in peripheral and/or ethnic minority areas. Tensions between the AA and the Myanmar military in Rakhine State, already escalating when NLD took office in 2016, and the intensified Kokang conflict during the NLD’s tenure, remained beyond Aung San Suu Kyi’s control.[23] This was largely due to the provisions in Myanmar’s 2008 military-drafted constitution that granted the military complete authority over security matters.[24] The conflict in Rakhine State threatened the viability of the Kyaukphyu port, while the Kokang conflict jeopardised the Kunming-Mandalay railway and the safety of the China-Myanmar Oil and Gas pipelines. These conflicts in or around the CMEC corridor areas threatened to endanger specific projects and posed a risk to the CMEC’s overall feasibility.

China responded to these challenges by facilitating peace talks with EAOs along the China-Myanmar border. By supporting these groups’ participation in government-led peace conferences, China sought to align Myanmar’s security priorities with its strategic interests, including safeguarding the CMEC projects.[25] China’s peacemaker role seemed to earn it goodwill from some EAOs, while Aung San Suu Kyi’s popularity and pragmatic diplomacy helped manage public perceptions. However, the 2021 coup and the subsequent civil war have disrupted this delicate equilibrium, presenting new challenges to and a rethink of China’s engagement with different actors.

NEW CHALLENGES AFTER THE 2021 MILITARY COUP

Following the 2021 coup, there initially appeared to be minimal changes to or no impact at all on the CMEC projects. Four months into the coup, on 7 May 2021, the SAC approved (the implementation of) 15 major projects with China in livestock, manufacturing, services, and electricity generation sectors.[26] The list of projects included the US$2.5 billion Mee Lin Gyaing power project, first inked by NLD government within the CMEC framework.[27] This project represents the largest single investment approved since the 2021 coup. The SAC’s continuation of projects initiated under the NLD regime seemed to suggest a “business as usual” approach for CMEC. However, the escalating political unrest and intensifying conflict following the coup began to affect the progress of CMEC projects.

The first indications of the coup’s negative impacts on the CMEC emerged just weeks after the coup. The Chinese embassy in Myanmar became a focal point for demonstrators to criticise China’s muted response to the coup, its engagement with the SAC regime, and Chinese state media’s portrayal of the coup as a “cabinet reshuffle”.[28] Although China supported ASEAN’s Five-Point Consensus on Myanmar, its ongoing engagement with the SAC has fuelled anti-China sentiment among pro-democracy forces/activists. During the regime’s severe crackdowns on protests in March 2021, Chinese factories in Yangon’s Hlaingthayar township were the target of attacks.[29] Despite the Chinese state media’s assurances that the 2021 coup and subsequent violence would not derail CMEC projects, China’s repeated calls for punishing the perpetrators amidst the SAC’s crackdowns have done little to shift public opinion in Myanmar.[30]

After the parallel National Unity Government (NUG)[31] announced a “People’s Defensive War” in September 2021, CMEC projects, especially the China-Myanmar Oil and Gas pipelines, faced heightened threats and compromised security due to crossfire between the SAC and resistance groups. Despite the SAC’s efforts to strengthen security around CMEC project areas, including the planting of landmines, their forces, overstretched by garrison duties and increasing resistance, were unable to ensure the safety of these projects. This vulnerability was further highlighted by the 7 January 2022 attack on the China-backed US$800 million Tagaung Taung nickel-processing plant by a local People Defence Force (PDF).[32] Following this attack, the Chinese embassy in Yangon contacted and requested the NUG to protect China’s strategic and business interests in Myanmar.[33] However, even with assurance from the NUG’s defence minister, incidents continued as the resistance coalition’s loose structure and guerrilla-style command could not provide a reliable security guarantee.[34] The limitations of both the SAC and the NUG have placed the CMEC in jeopardy.

Unable to secure a reliable security guarantee or expedite the long-delayed strategic corridor project, China took proactive measures to ensure the survival and operation of the CMEC while avoiding conflict-prone areas. Following the completion of the Chongqing-Lincang railway, China established a hybrid network that connected Chongqing and Lincang via rail and then Lincang and Mandalay via road, facilitated by the Mengding-Chinshwehaw border crossing.[35] However, when the MNDAA captured the Chinshwehaw post during Operation 1027, this route was disrupted due to heightened conflict in northern Shan State. Simultaneously, on 28 October 2022, China inaugurated a new sea route, the Guangxi-Yangon New Maritime Route, linking the Beibu Gulf port in China’s Guangxi region with Yangon port in Myanmar.[36] These alternative routes, though available, are less efficient than the original CMEC plan and remain vulnerable to conflicts, as demonstrated by disruptions in the Chongqing-Mandalay route. Consequently, securing a reliable partner has emerged as the paramount concern for ensuring the success of CMEC.

CHINA’S SEARCH FOR RELIABLE SECURITY PARTNERS

Until the onset of Operation 1027, the SAC held most of the administrative control in most areas of Myanmar. Its military strength, especially in airpower, was the strongest among all factions in Myanmar’s civil war following the 2021 coup.[37] For China, the SAC remained the primary partner for securing the CMEC despite its inability to provide reliable security. With the regime facing new rounds of Western sanctions and severe economic mismanagement, its need for Chinese investment grew, seemingly making it more amenable to cooperation than during the NLD years.[38] However, actual cooperation was limited.

The rise of cybercrime in regions along the China-Myanmar border, controlled by SAC-backed militias, significantly undermined China’s social stability.[39] The escalation of scam operations in Myanmar quickly overtook China’s concerns for the CMEC. The SAC’s inadequate response to these issues led China to seek other partners such as the EAOs along the border, to address cybersecurity concerns. While no conclusive proof exists of China’s direct involvement in Operation 1027, analysts seem to share the view that China tacitly approved that offensive in return for repatriating individuals involved in scam operations.[40] This offensive notably weakened the SAC’s administrative hold.[41] Just days before signing the addendum to the Kyaukphyu SEZ concession agreement, China facilitated peace talks between the SAC and 3BHA, pushing for a ceasefire.[42] China’s move can be considered pivotal, as it can close the strategic border crossings under EAO control at its discretion and thus leverage pressure on these groups.[43] To observers, China’s actions after Operation 1027 indicated Beijing moving from a reactive to a more assertive stance to protecting its interests in Myanmar.

This move was not lost on the NUG, which released a 10-point “Position on China” aimed at engaging China.[44] While the NUG primarily had engaged with Western nations, the situation following Operation 1027 compelled it to explore relations with China, despite the prevalent anti-China sentiment within the pro-democracy camp. The NUG included concerns about cyberscams in its 10-point statement addressing China’s national security concerns.[45] China’s proximity to Myanmar, and its potential to affect the conflict dynamics in the areas near the China-Myanmar border, also seem to have figured in the NUG’s calculations.[46] The NUG promptly guaranteed the safety and continued operation of the Tagaung Taung nickel processing plant, when PDFs loyal to the NUG captured the plant from the SAC in July 2024. Earlier in 2022, China had contacted the NUG regarding the plant’s safety.[47]

Operation 1027 and its aftermath may well mark the first instance since the 2021 coup where different actors in Myanmar’s civil war actively seek China’s favour. The AA’s longstanding support for the Kyaukphyu SEZ since 2019, combined with the SAC’s weakening hold in Rakhine State, [48] likely influenced China’s decision to sign the addendum to the Kyaukphyu SEZ concession agreement, thus advancing CMEC’s completion amid the rapidly shifting strategic landscape.[49] With various groups vying to secure China’s interests in Myanmar, China now seems to have several choices of partners to ensure the safety of its Myanmar projects.[50] Though China may still face challenges in its strategic goals in Myanmar, the security of its CMEC projects do not seem under immediate threat . However, the volatile situation, with territories changing hands frequently, still presents a risk of these projects being caught in the crossfire.

CONCLUSION

The persistent conflict in Myanmar does not seem to have deterred China’s determination to realise its CMEC priorities. Despite significant military setbacks for the Myanmar military, as seen before and during Chinese foreign minister Wang Yi’s recent visit to Naypyidaw in August 2024, China continues to urge the SAC to accelerate the implementation of key CMEC projects.[51] The competition among various factions within Myanmar’s civil war to secure China’s favour has placed China in a unique position, allowing it to advance its objectives even amid the turmoil of conflict. Notably, China has proactively opened new trade routes to circumvent conflict-prone areas, ensuring the continuity of trade flows, albeit at significantly reduced volumes, even in the face of disruptions caused by escalating hostilities. Beyond reducing reliance on the Malacca Strait, China’s plans for alternative transport routes in Myanmar show its interest to boost economic growth in underdeveloped landlocked provinces, narrowing the gap with coastal regions. The CMEC is thus important for China’s domestic objectives, outside the broader frame of the BRI. Nevertheless, the volatile and complex nature of war and conflict means that one misstep by China could jeopardise the progress of the entire CMEC project. Careful navigation and diplomacy with the different actors involved in the ongoing conflict in Myanmar thus remain an important consideration for ensuring the long-term success and stability of this ambitious venture.