Myanmar’s Coup and the Risks to the China-Myanmar Economic Corridor

On February 1, Myanmar’s military—known as the Tatmadaw—declared a one-year national emergency, claiming that the November 2020 election victory by the pro-democracy National League for Democracy (NLD) was fraudulent and supplanting the government of State Counsellor Aung San Suu Kyi. With Suu Kyi and many other opposition figures in detention, the new junta, the State Administration Council, has promised elections at the end of the national emergency in February 2022. In response, demonstrators have filled the streets in Myanmar, where Suu Kyi remains an overwhelmingly popular figure. The military has countered with oppression and violence—since the coup, the military government has killed over 810 people and detained more than 4,200. In response, the United States and the European Union have imposed additional sanctions on Burmese companies linked to the Tatmadaw; Japan, which has substantial investments in Myanmar, has resisted calls to impose sanctions to date (though it has suspended new official development assistance); and the Association of Southeast Asian Nations (ASEAN) hosted coup leader and army chief Min Aung Hlaing in Indonesia on April 24, with the meeting’s concluding statement calling for an end to the violence but with little change in the Tatmadaw’s behavior on the ground.

China, Myanmar’s largest neighbor and post-Cold War patron, has observed these developments with unease, fearful of the coup’s impact on border stability and China’s infrastructure projects in Myanmar. Beijing’s response to the junta’s takeover has been guided by a familiar playbook: declaring Beijing’s principles of noninterference in the domestic affairs of other countries and respect for territorial integrity, blocking punitive action against the junta in the United Nations (alongside Russia), speaking out against unilateral sanctions, and declaring support for diplomatic efforts to solve the crisis. This pattern of behavior echoes China’s policies under previous juntas (1988–2011)—a period during which Myanmar endured heavy sanctions from the United States and others and was, by the juntas’ own admission, over reliant on China. However, Beijing’s support for the new junta was not necessarily guaranteed, considering its cultivation of ties with Suu Kyi and the NLD over the past decade; moreover, Suu Kyi’s government shifted closer to Beijing in 2017 after she defended the Tatmadaw’s atrocities against Myanmar’s Rohingya Muslim minority. Further complicating China’s position are the many ethnic armed organizations (EAOs, so termed by the Myanmar government) that control as much as a third of Myanmar’s territory and whose fight for self-determination against the central government occupies some lands sought after for China’s infrastructure projects. While China continues to support and hold significant influence over some of these groups, the coup has further complicated the tenuous peace process between these groups and the government.

With the military takeover and the subsequent domestic and international opposition to the coup, China’s Belt and Road Initiative (BRI) projects in Myanmar are exposed to a significant amount of risk. First announced by Chinese President Xi Jinping in 2013, the BRI includes an ambitious series of infrastructure projects that stretches from East Asia to Europe by land and sea. This vast network of port development, energy pipelines, transportation networks, and special economic zones is meant to boost Asian connectivity and fill the substantial infrastructure financing shortfall in the region, while at the same time serving as an indicator of Xi’s vision for China’s bolder geopolitical and economic statecraft.

Myanmar plays a key role in this broader plan, and the nascent China-Myanmar Economic Corridor (CMEC) is the second-largest single-country scheme under the BRI with an estimated $2 billion in pledged investment (substantially behind the China-Pakistan Economic Corridor). Beijing has much riding on the continued development of BRI investments in the country, most importantly to diversify its energy sources through overland access to the Indian Ocean from Yunnan Province to avoid the congested Strait of Malacca. In a January 2020 trip to Myanmar, Chinese President Xi Jinping stressed the importance of four projects in particular as the pillars of the CMEC: the Kyaukphyu port and special economic zone in Myanmar's Rakhine State, the China-Myanmar Border Economic Cooperation Zone, the New Yangon City Development Project, and the Muse-Mandalay Railway Project. These projects, some of which predate the BRI and were rebranded in 2017, were reinvigorated after international condemnation for the Rohingya humanitarian crisis pushed Myanmar toward greater dependence on China. 

The coup puts these projects—and China’s status in the country—in a precarious position. The Tatmadaw’s reassertion of political control could open the door for the more efficient completion of Chinese projects, some of which have been derailed or even cancelled because of their environmental or societal impact. Concurrently, Beijing is concerned about instability on the Sino-Myanmar border, where tentative peace accords between the central government and some EAOs are already breaking down, potentially threatening BRI projects. Indeed, support for the Tatmadaw will alienate some of the ethnic armed groups with which China has friendly relations and opens the possibility of increased violence and instability in the very regions in which China has invested. Despite these risks, China should be expected to support the new junta, even as it represses and kills civilians, making the gamble that the Tatmadaw will not relinquish power now that it has retaken control. At the same time, Beijing will attempt to influence the fracturing peace process in Myanmar in hopes of protecting its economic interests.

CHINA’S STRATEGIC GOALS: STABILITY AND ACCESS

China has a number of strategic goals in Myanmar, broadly related to two issues: stability on the Sino-Myanmar border and China’s economic interests. First and foremost, Beijing seeks stability on its border—not an easy prospect with a variety of EAOs engaged in a prolonged multi-sided civil war. Beijing’s close relations with several of these groups are variously built on shared language and currency, common ethnicity, and military support, and offer leverage over Naypyidaw. National unity is a pillar of any government in Myanmar, and Suu Kyi in particular campaigned on a promise of peace. China is able to push these groups into peace talks, as it did in 2016, 2017, and 2018, or support their operations, as Naypyidaw suspected in 2015. Beijing also seeks to maintain its privileged position in peace talks between the central government and these groups and hopes to prevent Western influence on the proceedings.

Second, the CMEC creates a passageway linking China’s southwestern province of Yunnan to the Indian Ocean, with aspirations to boost economic growth in the landlocked province on one end and provide port and overland access to the Indian Ocean on the other. Some energy supplies are already flowing from Kyaukphyu on the Indian Ocean to Yunnan via the Myanmar-China natural gas and oil pipelines, which account for 13 percent of China’s natural gas imports and supply an oil refinery outside Kunming. Completed in 2013 and 2017, respectively, these projects do not provide an overwhelming percentage of China’s oil and natural gas needs but nonetheless serve to diversify supply routes.

These two issues interact directly through the various CMEC projects that pass through or are located in the territories controlled by EAOs, greatly complicating China’s position. Beijing has a concerted interest in pushing through infrastructure investments with limited oversight, and in practice this has meant pursuing projects without consulting local communities. This has led to protests over environmental or societal concerns that hinder progress on projects or even lead to their cancellation.

CHINA-MYANMAR ECONOMIC CORRIDOR

The CMEC extends from Myanmar’s west coast to China’s Yunnan Province, roughly following the previously built overland oil and gas pipelines. Both Beijing and Naypyidaw are heavily invested in the success of the projects—China for access and Myanmar for investment and economic growth—but thus far resistance in Myanmar has slowed progress. Successive governments have sought to push back on Chinese projects viewed as too onerous, particularly after the previous junta, the State Peace and Development Council, ceded power in 2011. In Rakhine State, the Kyaukphyu project, villainized by the West both as a debt trap for Myanmar and a potential deep-water port for Chinese naval vessels, serves as the all-important access point to forthcoming projects, allowing China to circumvent the easily blocked Strait of Malacca. Under Suu Kyi’s government in 2018, Myanmar renegotiated the port project down from $7.3 billion to $1.3 billion for fear of excessive debt and would take no loans; the original agreement included loans from China to cover a 30 percent stake.

The plan is to connect Kyaukphyu to China through a railway project, now called the Muse-Mandalay Railway Project, that has likewise encountered resistance. In 2014, the government in Naypyidaw, then under former general Thein Sein, allowed a memorandum of understanding to expire for a proposed $20 billion railway line between Kyaukphyu and Yunnan. The new $8.9 billion project has since been shortened and restarted in 2018, extending from the border city of Muse in Shan state to Mandalay in central Myanmar, a decision that was in part due to local resistance as well as existing anti-China sentiment. The shorter railway is expected to be the first piece of a China-Myanmar High Speed Railway, with extensions to Kyaukphyu and Yangon in Myanmar and Kunming in China.

The special economic zones—including one associated with the Kyaukphyu project, border trade zones in Kachin and Shan states adjacent to Yunnan, and a project for a “new city” next to the old capital of Yangon (which would cover an area twice the size of Singapore)—have made minimal progress. The Kyaukphyu zones, like the port, have only recently been approved; the border zones remain in the survey stage; and the New Yangon City project has yet to break ground.

Pushback against Chinese projects extends to those outside the CMEC scheme as well. Most prominently, the $3.6 billion Myitsone hydroelectric dam project in Kachin State, which was agreed to under the previous junta in the late 2000s and favored China, was suspended soon after the quasi-civilian transitional government took office in 2011 in response to concerns over forced relocations and environmental impact. On occasion, Chinese officials express interest in restarting the project but thus far to no avail. Local protests also forced a suspension of activities at the Letpadaung copper mine in 2013 and resulted in promises of more sustainable and ethical mining practices though a committee headed by Suu Kyi advised against cancelling the project for fear of harming the economy and relations with China; mining restarted in 2016 with little sign of improvements for locals.

RIDING OUT THE STORM

In the aftermath of the coup in Myanmar, Beijing faces a delicate balancing act with significant risks. On the one hand, a more authoritarian government offers China an opportunity to move forward with CMEC and other infrastructure projects without significant concern for local and environmental considerations and civil society. The past suspension, cancellation, or reappraisal of projects set back China’s economic efforts and serve as important sources of China's anxiety over its projects. Now, Beijing can engage directly with the Tatmadaw, with the junta dependent on China for international and economic support just as it was in the decades after the Cold War. Already, in May the junta approved 15 investment projects, including a likely Chinese-financed $2.5 billion natural gas project (as estimated by the Myanmar media)—the project was discussed during Xi’s January 2020 trip to Myanmar. Finally, the Tatmadaw has a significant stake in wide swaths of Myanmar's economy—both legitimate and illicit—and with a junta in command, opportunities to circumvent regulations and transparency requirements, as well as the prospects for corruption, will only increase.

On the other hand, China has much to lose from the coup. The popular demonstrations against the removal of Suu Kyi and her government, and the military's violent response, puts Myanmar on the edge of debilitating instability. Progress on BRI projects depends on political stability in the capital and on the Sino-Myanmar border, and the perception that China is supporting the junta has already led to anti-China sentiment and, in March, violence against Chinese factories. In early May, three security guards protecting the Chinese-financed oil and gas pipeline near Mandalay were killed by an unidentified group of assailants.

This attack highlights the vulnerability of China’s geographically expansive projects in Myanmar. Many CMEC projects are located in or pass through areas that are home to EAOs with whom Myanmar’s government (and China) has unstable relations. The reaction from these groups has been anything but uniform, but a number of EAOs have stepped up attacks in recent months, and ten groups have declared allegiance to the National Unity Government—a shadow government built from the remaining elements of the NLD and which, along with affiliates including a People’s Defense Force, were recently declared “terrorist groups” by the junta. For example, the Arakan Army in Rakhine State, home to the Kyaukphyu project, has attacked the Tatmadaw in league with some of its allies. In Kachin State and northern Shan State—in areas close to the economic border zones, Muse (at one end of the Muse-Mandalay railway), and the oil and gas pipelines—the Kachin Independence Army has escalated military operations against the Tatmadaw. China still holds a tight grip over some groups—for example, the United Wa State Army, the largest militia in Myanmar, has remained silent—but as the junta continues to repress and kill its citizens, the remaining EAOs will find defense of the government increasingly difficult. China will attempt to leverage its close relations with EAOs to maintain some semblance of stability on the Sino-Myanmar border and play an increased role in peace talks between these groups and the government, but continuing violence suggests this will fail to bring about a settlement or ceasefire, at least in the short term.

China’s weak response to the coup and its unwavering—if hypocritical—rhetorical commitment to noninterference in the internal affairs of other countries supports several developments in Myanmar: protracted violence and demonstrations by both EAOs and anti-coup elements; the Tatmadaw’s hold over a weakened central government lacking in domestic legitimacy; and strengthened EAOs, in terms of territory, relative military capacity compared with the Tatmadaw, and popular support. In encouraging these outcomes, Beijing hopes to further bolster the junta’s dependence on China for support, ensure progress on BRI projects, and maintain China’s influence over Myanmar’s peace process through stronger EAOs.

As such, Beijing will continue to pay lip service to a political settlement but protect the Tatmadaw from international censure, making the long-term (and safe) bet that the junta will not relinquish control, even if its political power is increasingly from the barrel of a gun. The reality is that protracted diplomatic efforts and domestic negotiations between the junta and the parallel National Unity Government will delay a political outcome in Myanmar and threaten progress on CMEC projects. As noted earlier, a China-backed project has already been approved by the junta and any regression toward a more pluralistic government will only hinder Xi’s geopolitical and economic ambitions.

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William Piekos is a PhD candidate in political science at the University of Pennsylvania, where his research focuses on alignment policies in Southeast Asia, U.S.-China competition, and Chinese foreign policy. Previously, he worked at the Council on Foreign Relations, the U.S.-China Economic and Security Review Commission, and the EastWest Institute, and he is a member of the Pacific Forum Young Leaders Program.