SPECIAL RELATIONSHIP THE RAINMAKER: Hideo Watanabe, 78, was the main Japanese backer of a package of aid and investment for Myanmar’s reform- minded government. REUTERS/Yuriko Nakao

How a Japanese power broker quietly wrangled an $18 billion deal that puts Tokyo in pole position in Asia’s last emerging market. Japan Inc steals a march in Myanmar

By Antoni Slodkowski

SPECIAL REPORT 1 SPECIAL RELATIONSHIP JAPAN INC STEALS A MARCH IN MYANMAR

YANGON/TOKYO, october 3, 2012 Bankrolling Myanmar apan Inc is charging into Myanmar. Countries investing $100 million or more in Myanmar as of June 30, 2012 The rush began one night last October, when Myanmar’s new president rolled J NEPAL China $14.1 billion out a map after dinner to show an aging Thailand Japanese power broker a prize that could be INDIA Tokyo’s to develop - a swathe of land nearly Hong Kong BANGLADESH CHINA as big as Macau. South Korea Thein Sein, 67, a former general, had been U.K. president of Myanmar’s civilian government MYANMAR Singapore for just six months. He had won cautious Naypyitaw praise for reconciling with democracy icon Malaysia Aung San Suu Kyi and opening Myanmar’s France The Thilawa deal THAILAND would bring economy after five decades of brutal junta Yangon U.S.A. rule. Now he was seeking investors to de- $18 billion Indonesia in funding and velop Asia’s second-poorest country. debt forgiveness Netherlands After a Chinese-style banquet at the Site of Thilawa Japan presidential residence in the capital of special economic Naypyitaw, Thein Sein turned to Hideo zone India Watanabe, 78, a Japanese politician with Philippines 200 km an enduring interest in Myanmar. The new 0369121518 president offered a deal: Japan could de- 200 miles Note: U.K. figures include British Virgin Islands, Bermuda Islands and Cayman Islands. velop a special economic zone at Thilawa, a Source: Myanmar Central Statistical Organization. spot near both Myanmar’s largest city and a port on the Indian Ocean - if it came up with the money. “I told him I would figure something aid from the United States in 2011 and 2012 and the European Union, which have been out,” recalled Watanabe, a former cabinet and a two-year package of $200 million the more cautious in unwinding trade and in- minister and top aide to ex-Japanese Prime European Union has pledged. vestment restrictions put in place in the Minister Yasuhiro Nakasone. In reconstructing how Japanese gov- 1990s. One likely result is a big leg up for Watanabe was as good as his word. A fast- ernment and business leaders moved from Japanese trading houses, banks, contractors track deal negotiated in less than a year has cautious re-engagement with Myanmar to and engineering firms. paved the way for Japan to provide at least $18 a gold-rush embrace over the past year, Re- “We are lucky because the U.S. was kind billion in aid, investment and debt forgiveness uters spoke to more than 50 officials, execu- enough to introduce economic sanctions - from government and private sources. tives and politicians involved in the effort that’s why Western financial firms have so In addition to this deal, Reuters has on both sides. They described how a small far no presence in Myanmar,” said Shigeto learned that Japan will provide up to $3.2 group of well-connected Japanese pushed Inami, who manages Myanmar operations billion in new lending to build another spe- Tokyo’s bureaucracy and aid agencies to for Daiwa Institute of Research. The think cial economic zone and deep-sea port in fast-track key decisions, even while Myan- tank runs Myanmar’s tiny stock exchange Dawei, in southern Myanmar, which would mar’s laws on investments were still being and has plans to transform it into a thriving be developed into Southeast Asia’s largest debated in its nascent parliament. bourse by 2015. industrial complex. At stake is influence in Asia’s last fron- U.S. and European diplomats said they The deals have made Japan a major player tier market. The Japanese pounced as don’t necessarily see the Japanese win as overnight in the opening of Myanmar. The Myanmar’s leaders were looking for allies disadvantageous to Western multination- part of the Thilawa package that includes to blunt China’s enormous influence in als. Washington has been urging allies, debt forgiveness and refinancing adds up to Myanmar. Japan’s push back into Myanmar including Tokyo, to enter Myanmar to nearly $5 billion, dwarfing the $76 million in has vaulted it ahead of the United States buttress the economy and thereby the re-

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formist wing of the military-backed gov- ernment, a senior State Department official told Reuters. A handful of U.S. giants – including GE and Coca-Cola - already have returned. In Thilawa, Western power firms such as GE and Siemens and construction giants such as Bechtel and Balfour Beatty could win subcontracts from the Japanese, business analysts say. “Many of our competitors have been in that market for many years, so we’re already late to the game,” said John Goyer, senior director of Southeast Asia for the U.S. Chamber of Commerce. But “there’s clear interest and desire on Myanmar’s part to have U.S. companies there.” REASSURANCE: Japan’s Foreign Minister Koichiro Gemba met Aung San Suu Kyi during a visit to Myanmar last December. His trip helped bolster confidence in the Thilawa project.REUTERS/So e Zeya Tun THE MYANMAR LOBBY Japan’s rush carries risks. The deals call for Japanese companies to do business with a ty- We are lucky because Myanmar was the first Southeast Asian coon blacklisted by the United States, expos- the U.S. were kind enough to country to settle reparation claims against ing them to potential reputational damage. introduce economic sanctions Japan after the war. Independence leader And Japan has pledged to develop the – that’s why Western financial Aung San (Suu Kyi’s father) and former 2,400-hectare (5,930-acre) special eco- firms have so far no presence in dictator Ne Win were members of the nomic zone in Thilawa before ownership Myanmar. “Thirty Comrades” movement against Brit- questions surrounding the land have been ish rule, which was educated and trained by resolved. So far, Thilawa is most notable Shigeto Inami Japanese army officers. Myanmar has es- for its emptiness. Rice paddies fill land ear- Manager of Myanmar operations for chewed the sort of sharp attacks on Tokyo marked for factories. Workers collect clay Daiwa Institute of Research over the past that are routine in China and in baskets as trucks haul gravel to drop into the Koreas, endearing it to many conserva- the soggy ground. of the world’s population in India, China, tive Japanese politicians. “Welcome to our new El Dorado,” said Bangladesh and Thailand. Its ports on the Unlike the West, Japan never imposed Myint U, a former government official who Indian Ocean and Andaman Sea sit just trade and financial sanctions against now connects foreign investors to Burmese north of the Malacca Strait, one of the Myanmar. As a result, Japan Inc already ministries, as he drove a visitor through the world’s busiest shipping lanes. has a significant presence in the coun- emerald plain. China remains Myanmar’s biggest pa- try. Major banks such as Mitsubishi UFJ, Japanese executives believe the risks are tron. Led by investments in energy, China Sumitomo Mitsui Financial and Mizuho big and the upside even bigger. “If I started and its companies pledged more than $14 Financial Group have branches in the com- writing down a list of problems, I could write billion for Myanmar in the fiscal year end- mercial hub of Yangon. The time has come a checklist with 50 or 60 lines,” said Yasuhiro ed March 2011, nearly 70 percent of total to “monetize” strong Japan-Myanmar rela- Morimoto, manager of strategy in Asia and foreign investment. Japanese companies tions, a top bank executive told Reuters. Oceania at project investor Marubeni Corp. invested just $212 million in Myanmar be- Watanabe’s emergence as Tokyo’s man on Still, he added, the potential benefits out- tween 1988 and 2011. Myanmar represents a second act in a career weigh the perils for the trading house. Yet Tokyo has an ace up its sleeve: Japan’s marked by an ability to cultivate influential Myanmar has long been seen as a prize. ties with Myanmar have been unusually friends across the political spectrum. A land mass as large as Britain and France warm, despite the brutal Japanese occupa- Watanabe was 11 when World War Two combined, it shares borders with 40 percent tion of the country during World War Two. ended. His older brother was one of the last

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“kamikaze” pilots to die in the battle for the first meeting between the two nations’ Okinawa, a memory he sometimes shares top diplomats in 16 years. Gemba pledged in public speeches. new investment from Japan - provided that He embarked on a long career as a con- Myanmar show “substantial progress” in servative politician and in the 1990s was democratic reforms. head of Japan’s Posts and Telecommunica- That same night, Watanabe was poring tions Ministry. His first involvement with over a map in Myanmar’s capital with Pres- Myanmar came in 1987, when he hosted ident Thein Sein. But the senior Japanese junta generals in Tokyo as deputy chief power broker sent a very different signal cabinet secretary to Nakasone. Even af- about the pace of rapprochement. ter the generals cracked down on student The new president told Watanabe an at- Tokyo bets on Burma protesters and put Aung San Suu Kyi un- tempt to build the Dawei economic zone der house arrest two years later, Nakasone with Thailand was floundering. Thein Sein The centrepiece of Japan’s investment in urged Watanabe to develop and deepen Ja- had also just stopped a Chinese-funded hy- Myanmar is a 2,400-hectare (5,900-acre) pan’s unofficial ties to Myanmar. droelectric project, after protests by people special economic zone in Thilawa, strategically Watanabe’s support for the junta never in the area whose livelihoods it threatened. located on the edge of the commercial capital, wavered, though the crackdown had made That opened the door for Japan. Yangon, and the Indian Ocean coast. the regime a pariah. “Myanmar had no “Thein Sein said, ‘Watanabe-san, I have Japan would provide an estimated $12.6 billion choice but to introduce a military regime something for you.’ He sent his secretary out in aid to build infrastructure around Thilawa, three to preserve internal law and order,” he to come back with the documents. And that’s officials with direct knowledge told Reuters. wrote this year on the website of the Japan- how we came to Thilawa,” said Watanabe. Mitsubishi Corp, Marubeni Corp and Myanmar Association, a group he launched The Myanmar embassy in Tokyo and Sumitomo Corp. will form the Japanese to rally support for the wave of investment. the president’s office in Naypyitaw did not side of the joint venture in Thilawa with a He met Thein Sein in 1996 during a trip respond to requests for Thein Sein’s account 49 percent share. They would work with a to carry medical equipment to Myanmar in of the meeting with Watanabe. consortium of Myanmar businessmen who Shan State, where the Burmese general was When he returned to Tokyo after the are expected to include longtime cronies of regional military commander. Afterward, the October 2011 meeting, Watanabe said, he the military-backed government. general invited him to play a round of golf. got in touch with Foreign Minister Gemba. The plan is to build the first 450 hectares (1,111 “That was the only fun we had,” Wata- “I told Gemba: ‘You have to go to Myan- acres) of the industrial park by 2015 and start nabe recalled in an interview with Reuters. mar on an official visit before year-end to luring Japanese and global manufacturers. “He was pretty good at golf. And back in tell them we are looking into the Thilawa Myanmar’s parliament is working on a new the day, with the army uniform on, he was deal closely.’ If he didn’t do that, it wouldn’t foreign investment law, and is revising legislation awe-inspiring.” have become an official government initia- governing economic zones. It’s not the usual description of Thein tive, right?” said Watanabe. A key part of the plan would address Sein, who was born to humble rice farmers To pressure Gemba to act, Watanabe Myanmar’s dire shortage of electricity. Only and held mostly bureaucratic jobs in a four- says he persuaded Japan’s trade minister, a quarter of the population has access to decade military career that culminated in his Yukio Edano, together with Yoshito Sen- power. Around $900 million is planned for a 2007 appointment as interim prime minis- goku, an influential politician in the ruling 500-megawatt power plant that would supply ter. The bookish-looking general became the Democratic Party of Japan, to go to Myan- electricity to Thilawa and Yangon, the crumbling first civilian president in 49 years, after over- mar as soon as possible. city of six million a half-hour’s drive from the seeing a new constitution in 2010 that guar- “Then I went back to the foreign min- industrial park, Marubeni says. antees the military a place in government. istry and told them about Edano’s promise Japan is also investing in an economic zone Watanabe’s personal diplomacy has to visit Myanmar,” Watanabe said. “If the in Dawei on the southern peninsula, where the sometimes left Japan’s foreign ministry trade minister went to Myanmar before the largest industrial complex in Southeast Asia is scrambling to keep up. foreign minister, Gemba would lose face. on the drawing board. Last Oct. 21, Japanese Foreign Minister That’s why he went there in December.” Koichiro Gemba hosted a dinner in To- The Japanese foreign ministry and the Reporting by Antoni Slodkowski; kyo for Myanmar’s foreign minister. It was Ministry of Economy, Trade and Industry editing by Bill Tarrant

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BRIDGE TO FUTURE: Japan’s $18 billion investment in Thilawa will transform a rural area outside the commercial capital of Yangon into a huge industrial zone. REUTERS/ Soe Zeya Tun

declined to comment on Watanabe’s ac- full waiver but was told that was impossible Officials at the International Monetary count of the meetings. because of resistance from the Paris Club of Fund “were very surprised at the speed of Ja- In March, Watanabe launched the creditor nations. pan’s waiver,” said a Japanese government of- Japan-Myanmar Association. Founding People involved in arranging the pack- ficial directly involved in the talks. “They said members included Nakasone and former age say Tokyo has agreed to waive $3.7 bil- they’ve never seen anything like that before.” Prime Minister Taro Aso, known for his lion of debt and is putting together a $900 Japan has since struggled to persuade forceful line toward China. The association million bridge loan to cover Myanmar’s other donors that its approach on a debt also includes retired government bureau- arrears to the World Bank and the Asia waiver is the best way to encourage reforms crats and executives from trading houses Development Bank, through a consortium in Myanmar, and has invited other parties Marubeni and Mitsubishi Corp. It pro- of Japanese banks led by Bank of Tokyo- to discuss the issue next week in Tokyo, the vided the impetus for a government study Mitsubishi UFJ. official said. group to coordinate an aid package that In March, Tokyo politicians also got a would take shape over the summer. first-hand look at one of Japan Inc’s new Watanabe also went to work lobbying business partners in Myanmar: Win Aung, a for debt forgiveness, using connections in businessman blacklisted by the United States. the Ministry of Finance. On April 21, six $5 billion The Burmese tycoon visited Japan to speak months after his dinner in Naypyitaw, the The amount of money Japan has at the opening of Watanabe’s Japan-Myan- finance ministry announced a deal to waive committed in debt forgiveness mar Association, where he rubbed shoulders more than 60 percent of Myanmar’s debt to with Edano, Sengoku and Nakasone. Japan. Watanabe said he had pushed for a and refinancing. “Industrialization is essential for the de-

SPECIAL REPORT 5 SPECIAL RELATIONSHIP JAPAN INC STEALS A MARCH IN MYANMAR

NEW FRONTIER: The Thilawu special economic zone now is mainly occupied by fishermen and farmers. But soon Japanese industry will be moving in. REUTERS/Soe Zeya Tun

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velopment of Myanmar,” Win Aung said in his speech. “That’s why I’m extremely happy that Minister Edano has shown his support” for Thilawa. Win Aung runs construction firm Dagon International Ltd and heads Myan- mar’s chamber of commerce. His firm was one of eight that won contracts to build the new capital of Naypyitaw. He allegedly exported timber to China from protected areas after winning contracts because of his military ties, according to confidential U.S. diplomatic cables published by Wikileaks. Win Aung did not respond to an email seeking comment. He remains on the U.S. Treasury’s “blocked persons” list, meaning JAPANOPHILE: Zaw Zaw, a businessman with close ties to the former junta, got his start importing Americans are prohibited from doing busi- used Japanese cars. He is expected to be one of Japan’s partners in the Thilawa project. ness with him. REUTERS/Soe Zeya Tun It is Win Aung who will determine who forms the Myanmar side of the consortium to develop Thilawa. understand that the new administration ed from a request from the government of According to one person involved in the has peaceful intentions. Myanmar’s conflict Myanmar, and the two governments are talks, the roster is expected to include Zaw zones did not take part in the 2010 elections. considering it,” ministry spokeswoman Zaw, an industrialist with close ties to the The broad agreement between the two Asagi Sakai said. “No concrete decisions regime whose businesses range from tim- countries was signed in August. The Myan- have been reached on the shape of Japan- ber to rubber plantations and construction. mar side is now working on the details of the Myanmar cooperation in Thilawa.” He, too, is on the U.S. Treasury blacklist. industrial consortium to be led by Win Aung, Back in his Tokyo office, Watanabe Zaw Zaw built his fortune exporting used while Japan is drafting infrastructure plans. shrugged when asked about the risks of be- cars from Japan to Myanmar, and his Max Suu Kyi’s National League for Democ- ing an early investor in Myanmar. “If there Myanmar-brand trucks and banners are al- racy said it isn’t concerned about whether are any companies that are worried about ready visible in Thilawa. the proposed investment would pay politi- such things, they might as well stay in Ja- Among those who aided Watanabe in cal dividends for the military-backed gov- pan,” he said. “It’s their choice.” the Myanmar opening is Yohei Sasakawa, ernment. Suu Kyi has thrown her support who runs the Nippon Foundation, a major behind a bill on foreign investment now Additional reporting by Jason Szep and Aung Hla philanthropic organization. The foundation before parliament and is calling on the Tun in Yangon, Sebastian Moffet in Brussels, Andrew was founded by Sasakawa’s wealthy father, West to further ease sanctions. Quinn in Washington, Martin Petty in Bangkok a powerful figure in postwar Japan who “We are not worried about it at all,” said Editing by Bill Tarrant and Michael Williams championed far-right political causes. Han Tha Myint, a member of the party’s Sasakawa, who also has a longtime in- central executive committee. “What matters terest in Myanmar, joined Watanabe and most for us is whether these investments and FOR MORE INFORMATION Sengoku during another round of negotia- aids are beneficial for the people or not.” Antoni Slodkowski tions on Thilawa with Thein Sein in July in The Japanese trade ministry wouldn’t [email protected] Naypyitaw. There, Sasakawa offered to con- comment on the reputational risk Japanese Bill Tarrant, Enterprise Editor duct charitable activities in ethnic-minority companies may face in partnering with for- [email protected] areas that had long been in conflict with the mer junta cronies in the Thilawa project. Michael Williams, Global Enterprise Editor junta. He said it is essential the minorities “The Thilawa development project start- [email protected]

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