By Rui Deng

House on Inle Lake, located in the Nyaungshwe Township, Taunggyi District of Shan State, Myanmar. Rui Deng argues that China and other international investors should reflect on the Chinese investment experience in Myanmar. Source: Photo by Rui Deng, all rights reserved.

In April 2013 China’s newly appointed ambassador to Myanmar Yang Houlan officially encouraged increased corporate investment from Chinese corporations into Myanmar, which he feels will yield mutual benefit. However, the reality is that China has cut its investment in Myanmar since the $3.6 billion Myitsone dam project was halted last September because of domestic opposition. Very little new investment has occurred since then, although investment stock from mainland China is still the largest in Myanmar, with 34 projects totaling $14.14 billion as of June 30, 2012.

Why is this happening? A significant number of ongoing deals are still progressing – albeit on a rocky road—for instance, protests against the Sino-Myanmar Monywa copper mining operation over land acquisition and pollution have slowed progress on that project. More Chinese companies are adopting a “wait and see” attitude because of potential risks such as ethnic conflicts, political instability, and a deficient legal system.

Even so, if China can clean its own house, many problems may be readily resolved. To start with, the Chinese government should clarify its investment strategies. China’s “go global” strategy, even in neighbors like Myanmar, should not only emphasize achieving mutual benefits, but also be honest about its purposes such as securing supplies of resources and bolstering bilateral relationships.

While the guiding principle for China to engage countries like Myanmar is strategic economic diplomacy, China should alter its strategy of conducting business mainly at the government level. First, by relying on the government-to-government approach, China ignores the risk of irresponsible actions by its counterpart. The stalled copper mine project is a good example. The compensation for land acquisition and environmental pollution was unknowingly filtered through the local government; the small portion of the money that trickled to the villagers angered local residents. Second, China has been too comfortable with the logic of an omnipotent government, failing to consider the needs and concerns of stakeholders such as local communities and unions. China National Petroleum Corporation (CNPC) set a good example in the Sino-Myanmar oil pipeline project by actively performing household surveys, tackling environmental damages, and initiating public welfare establishments like hospitals and schools. CNPC also insisted on putting the compensation in the hands of the residents. Chinese investment should not be dominated by a simple economic calculation that easily turns the transaction into a one-off deal; it should take responsibility for building up competitiveness in the recipient country by generating employment and transferring skills and technologies so as to build sustainable long-term relationships.

The opening-up of Myanmar, as well as the robust growth and the deepening integration of the ASEAN countries present a favorable environment for Chinese investment. As Myanmar resumes its trade and investment connections with others, there are tremendous opportunities to be seized, especially in tourism, agriculture, manufacturing, and the financial sector. For instance, China can benefit from Myanmar’s transformation to mechanized farming by capitalizing on the need for production technologies on yields and harvesting, becoming actively involved in improving rice exports, and bringing energy to the dormant “early harvest plan” under the China-ASEAN free trade agreement.

Currently, several key industries in Myanmar have their own bottlenecks to break through. China is in a unique position to understand Myanmar’s industrial upgrading challenges and needs. Building industrial zones in Myanmar would be a mutually beneficial arrangement. For China, it can start by transferring certain labor-intensive industries, enjoying the low cost of labor, land, materials, and utilities. For Myanmar, through doing business with Chinese firms it will learn to raise productivity, train more skillful workers, reap technologies and managerial skills, and improve its industrial supply chains. Such Chinese investment should integrate local capacity building and the requirements of sustainable development into its profit-seeking business behaviors.

As Myanmar pushes forward its economic reform agenda, a shortage of electricity and energy casts a shadow over potential growth, despite its large oil and proven natural gas reserves. The shortage is primarily due to sanctions, the lack of technologies, limited production and refining capacity, and insufficient investment. The secondary reason lies in provisions of the contracts that the military junta reached with energy companies, which say that most of the output from projects is to be exported to China and Thailand—75 percent of Myanmar’s natural gas output is exported to Thailand. China has embarked on revising contract terms in favor of Myanmar’s domestic energy consumption. The CNPC pipeline contract entitles Myanmar to 2 million tons of the transported crude oil, and China will assist with the construction of an oil refinery in Mandalay. Chinese energy firms should approach energy cooperation with caution and responsibility.

If Chinese investors endeavor to be “good citizens” in Myanmar, as the New York Times put it, and defuse negative sentiments with positive actions in investment and capacity building, they will likely find Myanmar a more friendly and receptive investment environment.

Rui Deng is a researcher with the Hills Program on Governance at CSIS.