Myanmar and the increased tensions over connectivity

21 October 2017
Myanmar and the increased tensions over connectivity
The first Chinese cargo train, to be used following Iran-China joint efforts to revive the Silk Road, arrives in Tehran, Iran, 15 February 2016. Photo: EPA

Andre Wheeler is CEO of Asia Pacific Connex, with more than 25 years’ experience in international business. He is currently working towards his doctorate on the Impact of China's Belt and Road initiative on infrastructure and logistics in the ASEAN region. In the following commentary, he examines the latest developments for the One Belt One Road and Myanmar’s expected role in this project:
My recent trip to attend a summit and meetings on the One Belt One Road (OBOR) brought to mind the importance and role that Myanmar has to play. These thoughts were confirmed when the Chief Executive of Hong Kong travelled to Yangon immediately following the summit. Although many of the delegates and presenters could not pronounce or spell Kyauk Phyu, the location was referred to on many occasions.  
Whilst Myanmar is seen to have strategic geopolitical importance, this will only be realised once its regional infrastructure is put in place. However there are two competing initiatives to win favour in Myanmar. There are increasing tensions between the India/Japan “Freedom Corridor” infrastructure strategy and OBOR.  Both are focussed on building and locating infrastructure in the region, thus providing alternative logistics arrangements. However duplicate infrastructure projects become commercial risks. These come to a head with the increasing focus on Myanmar in general and its Kyauk Phyu region in particular. Both initiatives see this region as important to gain access to markets in Iran, Africa, Sri Lanka and SE Asia. Some have gone onto say that Myanmar is where ASEAN / OBOR and the Freedom Corridor converge.
Whilst it was agreed that the OBOR is an important catalyst to improve logistics connectivity in the trade dynamic between West and East, there also appears to be cracks emerging within the “people to people” objectives. A common theme was the lack of local involvement where major infrastructure has been built. There has been a lack of local employment opportunities and participation on Chinese projects as they have used Chinese contractors in the past. This was acknowledged by the China delegations and they claim that they are working on addressing built up resentment at the ground level, particularly in Kyauk Phyu in Myanmar.
Whilst finance will undoubtedly play a role as to which initiative will gain the advantage, however the “people to people “ / community engagement process is taking an increasingly important part in determining who will be given the green light.  An indicator of this is recent moves by the Japanese consortium in the Thilawa SEZ making advances to secure participation in the Kyauk Phyu SEZ. The basis of the Japanese moves has been their ability to get successful community engagement in Thilawa, which is deemed as giving them a greater advantage than a purely financial investment.
Other observations include:
There is mixed messaging regarding the role of Shanghai and Hong Kong as the maritime and professional services centre for the OBOR. Whilst some discussion was held around Singapore’s role, most conversation highlighted the diminishing role Singapore as well as the perceived decline in legal standards,   with a number of law firms previously based in the island State relocating to Hong Kong or back to Europe. Hong Kong is seen as having the network into China to resolve legal disputes that emerge along OBOR, particularly the use of arbitration and contract execution.
When extrapolating the string of pearls as a subset of the maritime Silk Road, we already see that Singapore’s redundancy has been achieved with port facilities in Malaysia, Indonesia and Sri Lanka that allows Singapore to be bypassed. The next step is whether the Thai Canal is now pursued that would further enhance Hong Kong’s potential to become the maritime hub.
The major disruptor to shipping will be the role played by rail, but there are a number of issues that need addressing for this to take full effect. One is the level of subsidy granted to State owned rail operators that enable freight rates to be $4500 per 40ft container as well as bottlenecks in Europe dry ports to deal with a build-up of container traffic. Kyauk Phyu plays an important role in providing, not just the west coast access for China, but consolidates sea/rail/road logistics in one site that brings about trade and energy security for China.
Rail’s disruptor impact will be felt with a need for smaller ports rather than the current trends towards larger ones. Smaller ports are seen to be addressing business needs for more frequent deliveries so as to cut down on inventory holding costs
China’s GPS tracking systems are excellent, but what is required is a more dynamic RFID method for supply chain visibility. It would appear that this could be draw back as the country clamps down on VPN access – an important tool used independent contractors to do business. Furthermore the revolution of block chain technology will be constrained without better and more open internet such that doing business along OBOR is contractually / financially and administratively cumbersome. This would be a major distractor for doing business using the enhanced infrastructure..
So what does this mean for Myanmar? Whilst China has many financial advantages, it can only secure its vision by placing greater emphasis on soft power. More action needs to be taken with regards local employment to ease tensions on large projects but this requires work on the people to people initiatives. Whilst shipping will be disrupted by rail, the speed at which it does depends on the speed of infrastructure development as well as dealing with the soft issues in the region. These soft issues need to be more than contributions to the peace process but must include lifting locals out of poverty.