Kyaukphyu: Asia’s Next Commercial Hub to Rival Singapore and Hong Kong

In a 13-minute project promotion video China International Trust and Investment Company (CITIC) celebrates the wonder of Asia’s rapid development with portraits of the pre-industrial ports of Singapore, Hong Kong and Taiwan’s Daxi fade into their modern incarnations of high-rise glass and steel marvels.

The final image, however, is particularly jarring: a container ship approaches an imagined modern port in Kyaukpyu, a now rural township in Myanmar’s impoverished Rakhine state that CITIC envisions as the world’s next great commercial hub.

The planned reinvention of Kyaukpyu from backwater to thriving port is a small but integral corner of China’s One Belt One Road (Obor) initiative, a series of economic corridors and infrastructure mega-projects intended to put Beijing at the center of future global trade.

The envisioned sprawling network of planned roads, pipelines, rails and ports, estimated by Beijing at over US$1 trillion, will if completed connect 60 countries and 65% of the world’s population, reorienting trade routes and international ties across Eurasia in a surge of soft power-driven development.

China’s grand plans have already left an imprint on Myanmar, where the rural coastal township of Kyaukpyu is slated for two Chinese-operated deep sea ports and a sprawling special economic zone (SEZ). It is already the site of two pipelines that have started to transport oil and natural gas across Myanmar to China’s landlocked southwestern Yunnan province.

Mired by delays under Myanmar’s previous quasi-civilian government, Kyaukpyu’s development has resumed with vigor following the 2016 handover to the elected National League for Democracy (NLD) government, which appears keen to restart and expand strong commercial relations with China.

In April, Myanmar President Htin Kyaw signed a long-awaited agreement with China on a US$1.5 billion, 770-kilometer crude oil pipeline, which if developed to full capacity could in future supply as much as 6% of China’s crude oil imports.

The pipeline will crucially bypass pirate-infested waters in the narrow Malacca Straits and rising territorial tensions in the South China Sea, rerouting fuel shipments from the Middle East through Madei island in Rakhine state to China’s Yunnan province. It will also mitigate the risk of a US naval blockade of China’s fuel shipments at Malacca in a potential conflict.

On May 3, over a decade after the pipeline was first proposed, crude oil began flowing from Kyaukpyu to the new China National Petroleum Corporation-operated refinery in Yunnan. The pipeline also runs alongside a US$2 billion 2,800-kilometer natural gas pipeline, which began operations in 2014 and extends even further inland to China’s Guizhou and Guangxi provinces.

Some analysts see China’s extensive scheme at Kyaukpyu as a type of consolation prize in quid pro quo exchange for the cancellation of more controversial Chinese development initiatives, namely the postponed US$3.6 billion Myitsone dam project in northern Kachin state.

Last month, Beijing signaled for the first time that it may withdrawal from the long-stalled hydro-electric scheme. The massive project, one of seven Chinese hydropower projects planned for Myanmar’s main Irrawaddy River, would have exported 90% of the energy generated from the dam’s 6000-megawatt power station to China.

The project was indefinitely suspended in 2011 in the face of widespread opposition and lingering questions about the parity of the deal, given Myanmar’s own severe energy deficits. Opponents claimed the dam project would severely thwart the flow of the Irrawaddy River, the country’s lifeline to rice-growing lowland areas.

Soe Myint Aung, an analyst at the Yangon-based Tagaung Institute, a think tank, said the quid pro quo trade-off is an open secret in Myanmar. “Strategically, it is no doubt that this Kyaukpyu pipeline and access to the Kyaukpyu seaport is more important [to China] than the Myitsone project,” he said. “The Chinese are in a position to use this as a bargaining chip.”

China could hold Myanmar over a barrel for the estimated US$1.2 billion it has already invested in the dam project. Yun Sun, an analyst at the Stimson Center in Washington DC, told local media that penalty costs for the project’s postponement have already accrued to nearly US$800 million.

Pursuing those losses in full through confrontational legal means, however, would potentially jeopardize China’s existing commercial interests in the country, including at Kyaukpyu. A Chinese consortium led by CITIC was awarded rights to develop twin deep sea ports at Kyaukpyu in late 2015.

Recent news reports indicate that CITIC rejected an initial 50/50 ownership split proposed by Myanmar in late 2016, demanding instead as much as an 85% stake in the mega-project – an indication of its high strategic value to China’s interests.

In addition to the pipelines’ shipping advantages, a pair of deep sea ports, along with similar projects in Chittagong in Bangladesh, Colombo in Sri Lanka and Gwadar in Pakistan are referred to by strategic analysts as an emerging “string of pearls” aimed at fortifying China’s position in the Indian Ocean.

While China’s investments in Indian Ocean ports have so far been built for strictly commercial purposes, analysts suggest they could eventually be used to also host Chinese naval vessels to protect their strategic shipments from piracy and other threats.

For Kyaukpyu’s residents, however, the pipelines have already come at a cost. Analysts and legal experts say that China’s Kyaukpyu agenda not only lacks transparency but has also shown indifference to displacing residents and imperiling the environment.

“The Chinese company has had the perception that they did not need to respect the basic rights of the affected people and have behaved as if they have the right to implement the [pipelines] at any cost,” Myanmar-China Pipeline Watch Committee (MCPWC), a local civil society organization, said in a report.

The report described widespread failure to inform and consult locals, while some farmers who signed documents did not understand that their landholdings were being “permanently confiscated” until they received compensation.

According to a February 2017 report from the International Commission of Jurists, a legal rights group, some Kyaukpyu residents were pressured into accepting compensation that left them unable to sustain their livelihoods, mostly farming and fishing.

“There’s been no public participation in decision-making processes,” claims Sean Bain, a legal consultant with ICJ and the lead writer on the February report. Local resistance is rising: in January, a group of local farmers refused a final lump payment, reportedly worth 1.75 million kyat (US$1,280), and have threatened to sue CNPC for the destruction of their farmland.

Some 67% of farmers interviewed by MCPWC were dissatisfied with the level of compensation paid, which allegedly was calculated only to replace crop yields, not generational land ownership. Nor has there been any indication that locals will receive preferential consideration for project construction jobs.

Those concerns have been exacerbated by the looming prospect of yet another China-backed mega-project. In December 2015, a CITIC-led consortium was awarded a 4,289-acre concession to develop a special economic zone (SEZ) at Kyaukpyu.

The project envisions a sprawling economic hub, which by its scheduled completion in 2038, could rival the economic trading hubs of Singapore and Hong Kong, according to CITIC’s ambitious promotional materials. Myanmar’s SEZ Law (2014), which includes investment enticements like tax and customs benefits, and 50-year land leases, establishes special governing bodies to oversee and manage projects.

But the managing committees are comprised of ministry officials as well as private sector representatives, creating the potential for conflicts of interest, critics say. This is compounded by a lack of clarity in terms of the committee’s responsibilities to protect locals from abuse and accountability if rights protections are not upheld, they say.

Between 70 and 80 families are expected to be relocated under the SEZ’s first phase. ICJ estimates that another 20,000 residents, about 12% of the township’s population, according to the country’s 2014 census, and area covering 35 existing villages, will be forcibly relocated if the full project goes ahead.

“All states have the right in certain instances to acquire land for public purposes,” Bain said, referring to so-called “eminent domain” provisions. “Our concern is that the displacement of these 20,000 people under the current conditions will result in 20,000 human rights violations.”

In 2016, Myanmar’s de-facto leader Aung San Suu Kyi publicly reiterated the government’s commitment to the Kyaukpyu SEZ. As an emerging democracy with significant infrastructure gaps and little in the way of technical expertise, Myanmar has extraordinary development needs.

Suu Kyi’s government has so far failed to live up to expectations of a job-creating, foreign investment-led economic boom. Rakhine state is in dire need of economic stimulus; by some metrics it is the poorest and least developed area in Myanmar. A Beijing-backed SEZ could provide thousands of low-wage jobs, primarily in garment manufacturing, but also in food processing, petrochemicals and machine assembly plants.

The oil pipeline, meanwhile, will help generate state revenues estimated provisionally at US$13.8 million in annual operating fees and a US$1 transit fee per ton of transmitted crude oil. The pipeline is designed to transmit 22 million tons per year. Myanmar will earn another US$30 billion from the natural gas pipeline over an initial 30-year period.

ICJ’s Bain acknowledges it is hard to find people “against development” in Rakhine state. But, he says, that “in order to ensure that human rights are protected and respected, and that Myanmar people can benefit from these projects, the government that says it’s committed to rule of law has to follow its own laws – and that means slowing things down.”

ICJ has recommended Myanmar amend its legal framework, especially the SEZ Law, to more comprehensively account for land use and environmental protection, and to establish formal monitoring and legal mechanisms for grievances.

Suu Kyi, who campaigned in 2015 on a “clean government” platform, will be wary of being branded as unduly sympathetic to Beijing’s economic and strategic interests at the expense of local residents – the same complaints that postponed Myitsone under the previous military-backed, quasi-civilian regime.

But her government doesn’t have many options, wrote Nay Yan Oo, an analyst at the CSIS Pacific Forum, a think tank. “If the NLD wants to cancel the Myitsone project, it needs to give something back to China.”

But as with Myitsone, local opposition is growing. On May 22, nearly 500 local fishermen staged a protest against the pipelines and planned ports by blocking shipping lanes used by oil tankers that they claimed have already blocked them from their fishing waters.

“If history is any guide, current and future [Myanmar] leaderships will be extremely reluctant to be seen concluding and advertising a development project that is almost fully controlled by, and beneficial to, neighboring China,” said Renaud Egreteau, an independent researcher.

“There is still in Myanmar today a widely shared suspicion of Chinese ambitions in the region.”

 

Source: Asia Times

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