On the Road to Kyaukphyu Issues and Debates around a Myanmar Special Economic Zone October 2018 Felix Sternagel About the Author Felix Sternagel is an MA student of Political Science at the Freie Universität Berlin (Germany). During a study period in China and extensive research on Chinese influence in Africa, he worked on China’s engagement in developing countries. In particular, he focused on extractive industries in Zambia and Zimbabwe. At the Heinrich Böll Stiftung’s Myanmar office, he used this experience to research on the role of China’s Belt and Road Initiative (BRI) in Myanmar and focused especially on the Special Economic Zone in Kyaukphyu. The author can be reached at: [email protected]. © Heinrich Böll Stiftung Myanmar 2018 Heinrich Böll Stiftung Myanmar No 45/A, Hlaing Myint Moh Lane 3 Kan Road, Kamayut Township Yangon, Myanmar Email: [email protected] Published in October 2018 Summary As part of its Belt and Road Initiative (BRI), China has planned to create the China-Myanmar Econom- ic Corridor (CMEC). Through Myanmar’s small town of Kyaukphyu (Rakhine State), China intends to gain direct access to the Indian Ocean which would significantly reduce its dependence on the Strait of Malacca. Already, an oil and a gas pipeline have been constructed and lead from Kyaukphyu to China. Alongside these pipelines, a railway is planned. In Kyaukphyu, China and Myanmar have agreed to construct a special economic zone (SEZ) which is planned to consist of an industrial park and a deep-sea port. With regard to these projects, this report addresses the following questions. 1. On a local level, what do residents think about the project and which demands do they voice? 2. On a national level, how could the projects be implemented so that they benefit Myanmar as a whole and without incurring too much debt? 3. On a geostrategic level, which interests do China and Myanmar respectively have and how do these interests shape the implementation of the projects? 1. Local Level Kyaukphyu is situated in one of Myanmar’s poorest regions. As it provides only few jobs to young people, many of them leave the town to find their luck elsewhere. In conversations with locals, we found that many urban Kyaukphyu residents welcome the SEZ because they hope for more jobs. Ru- ral residents, however, fear that their land will be taken away and that they are under-qualified for the jobs that will be created in the SEZ. Everyone demands proper trainings and compensation which will secure livelihoods. These demands are supported by evidence from Myanmar’s Thilawa SEZ. Here, monetary compensation was provided but displaced people could not find a job in the SEZ or elsewhere, leading to loss of livelihood issues and debt problems. Above all, the planning process in Kyaukphyu crucially needs more transparency and local participation. 2. National Level Establishment of a port and an industrial zone requires the Myanmar government to contribute sub- stantial finance. This has led to fears that similar to the Hambantota port in Sri Lanka, Myanmar may in the end have to cede authority over the port to China, if it became unable to repay the debts. While, in the meantime, the overall amount of required financial commitment has been reduced, research on SEZs worldwide shows that the most important factor for an SEZ to be successful is its integration into the national economy. In Myanmar, this firstly requires a significant upgrade of the transport infrastructure. Secondly, industries like a garment sector could be attracted to the SEZ. However, this is connected to many social and environmental risks and will also take time as there are no concrete plans yet. 3. Geostrategic Level In the context of rising alienation between Myanmar and the West over the Rohingya / Rakhine cri- sis, China emerges again as one of Myanmar’s few remaining political allies. It is likely to use this le- verage to realize its aim to secure unhindered access to the Indian Ocean through Myanmar. While China may have little immediate economic interest in establishing an industrial park in Kyaukphyu, it will thus strongly push for the construction of the port and the railway line. Myanmar could use this attention on Kyaukphyu to spur local development in Kyaukphyu. To create sustainable and socially inclusive growth, planning has to include the local population. Contents 1. Introduction .................................................................................................................................... 1 2. The Belt and Road Initiative in Myanmar ....................................................................................... 3 2.1. What Is The Belt and Road Initiative? ..................................................................................... 3 2.2. China’s Role in Myanmar ........................................................................................................ 4 2.3. Myanmar and China: Diverging Interests in BRI Projects ....................................................... 5 3. Local Level: Hopes and Concerns .................................................................................................... 7 3.1. Local Demands for a Successful SEZ ........................................................................................ 7 3.2. Preparatory Work and Previous Projects near Kyaukphyu ..................................................... 9 4. National Level: A Chinese Debt Trap? ........................................................................................... 11 4.1. Financing Kyaukphyu ............................................................................................................ 11 4.2. Comparing Kyaukphyu and Hambantota .............................................................................. 12 4.3. It’s Not Only About Money: Why Hambantota Failed .......................................................... 13 4.4. Conclusion: Which Lessons Does Hambantota Bear for Kyaukphyu? .................................. 14 5. What makes a Successful SEZ?...................................................................................................... 15 6. Making Kyaukphyu Work .............................................................................................................. 16 6.1. Legal Framework ................................................................................................................... 16 6.2. Local Integration ................................................................................................................... 17 6.2.1. Transport ....................................................................................................................... 18 6.2.2. Possible Manufacturing in the SEZ: The Textile and Garment Sector .......................... 23 7. Anti-Chinese Bias in Myanmar ...................................................................................................... 25 8. Conclusion: Kyaukphyu’s Way Forward ........................................................................................ 26 8.1. Quietly Abandoning the Industrial Park? .............................................................................. 27 8.2. Using the Increased Attention on Kyaukphyu ...................................................................... 28 1. Introduction Just as the ancient Silk Road can be seen as one of the first instances of globalization,1 the latest push for globalization also comes from China. With claims to win-win relationships and large mutual benefits, China’s 21st Century Silk Road or Belt and Road Initiative (BRI) tries to garner support among its neighbors and across the world. However, as China has its eye on the big picture, local consequences for smaller states such as Myanmar are only slowly becoming apparent. In Myanmar, China’s engagement mainly centers on the Kyaukphyu Special Economic Zone (SEZ) and on connect- ing it to China through the China-Myanmar Economic Corridor (CMEC). This report provides an over- view about current planning and debates and explores possible paths for the Kyaukphyu SEZ, hig- hlighting risks and benefits for Myanmar in the process. In Myanmar’s Rakhine State, China has committed to upgrading the Kyaukphyu port, constructing an industrial park near the port and establishing a railway and highway connecting China and Kyauk- phyu. While most of these projects are in very preliminary stages, the oil and gas pipelines from Kyaukphyu to China have already been completed. Although there is a great opportunity in China’s proposed investments for Myanmar, there is also a danger that China sees Myanmar only as one building block of the whole picture but not as independent state with interests of its own. This has become apparent already before China announced the BRI. In 2011, the Myitsone Dam hydropower project was suspended due to public pressure.2 Protests against the Letpadaung Copper Mine did not result in a stop of mining activities but showed that the public did not approve of the way that mining took place.3 The Chinese-planned railway connecting Kyaukphyu and Kunming in China was stopped due to public pressure.4 Problems in these projects were not merely rooted in financial dis- agreements but, even more important, in cultural conflicts that ensued as locals did not feel that Chinese investors paid sufficient attention to their grievances. However, Myanmar is in desperate need of infrastructure investments, whether this comes from China or other countries. The Global