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OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0102/01 0550936
ZNY CCCCC ZZH
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FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9868
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 2502
RUEHBY/AMEMBASSY CANBERRA 2443
RUEHNE/AMEMBASSY NEW DELHI 5938
RUEHUL/AMEMBASSY SEOUL 9501
RUEHKO/AMEMBASSY TOKYO 7128
RUEHCHI/AMCONSUL CHIANG MAI 2445
RHEHNSC/NSC WASHDC
RHHMUNA/CDR USPACOM HONOLULU HI
RUCNDT/USMISSION USUN NEW YORK 2867
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC

C O N F I D E N T I A L SECTION 01 OF 05 RANGOON 000102 
 
SIPDIS 
 
DEPT FOR EAP/MLS, EAP/EP, EAP/RSP, EAP/CM 
PACOM FOR FPA 
 
E.O. 12958: DECL: 02/24/2020 
TAGS: ECON PGOV PHUM PINR PREL BM CH
SUBJECT: CROUCHING TIGER, HIDDEN ECONOMY: 
BURMA-CHINAECONOMIC RELATIONS 
 
REF: A. A. STATE 8941 (TASKING CABLE) 
     ¶B. B. 09 RANGOON 20 
     ¶C. C. 08 RANGOON 815 
     ¶D. D. 10 RANGOON 30 
     ¶E. E. 08 RANGOON 609 
     ¶F. F. 09 RANGOON 644 
     ¶G. G. 10 RANGOON 57 
 
RANGOON 00000102  001.2 OF 005 
 
 
Classified By: Political/Economic Officer Brian Andrews for Reasons 
1.4 (b) & (d) 
 
Summary 
------- 
¶1. (C)  China's economic presence in Burma has increased 
dramatically over the last 10 years.  The impact can be 
observed at all levels of Burma's economy: significant 
Chinese foreign direct investment (FDI), large PRC 
state-owned enterprises engaged in infrastructure and 
resource extraction projects, and an increase in Chinese 
national and ethnic Sino-Burmese owned small and medium 
enterprises (SMEs).  While it is difficult to gain a full 
picture of the official economic relationship given limited 
reporting from both the Burmese and Chinese governments, 
China's presence in Burma's economy is readily apparent, 
particularly as one approaches the border areas, where the 
PRC renminbi, rather than the Burmese kyat, is the currency 
of choice.  The GOB has been a ready recipient of Chinese FDI 
and the benefits of trade, but some senior generals are 
reportedly concerned about Chinese penetration of almost 
every economic sector and China's significant investment in 
Burma.  In fact, many observers here believe the GOB is 
interested in better relations with the USG to buffer Chinese 
dominance.  That may be true, at least in part.  However, 
from Post's perspective, while China is clearly a 
preponderant economic player here, with the closest and most 
active regime relations, even Beijing's influence is limited 
on issues that strike at the senior generals' core political 
and personal interests.  End summary. 
 
Chinese Investment in Burma 
--------------------------- 
¶2. (C)  With limited options due to Western economic 
sanctions -- and with China's rapid growth -- the GOB has 
increasingly looked to China as its best source for FDI. 
During GOB Prime Minister Thein Sein's April 2009 visit to 
China, he encouraged additional Chinese investment in Burma. 
GOB statistics indicate that as of November 2009, China had 
invested USD 1.3 billion in Burma.  China's Ministry of 
Commerce reports only USD 500 million FDI stock in Burma at 
the end of 2008.  Both sources likely underreport China's 
investment; an International Crisis Group estimate places PRC 
FDI over USD 2 billion since 2003.  Mining, electrical power, 
and oil and gas seem to be the leading sectors for Chinese 
FDI, with the GOB reporting PRC investments of USD 866 
million, USD 281 million, and USD 124 million, respectively. 
(Note:  Oil and gas investment will likely increase 
substantially with the construction of dual pipelines across 
Burma, as described below.)  According to Winston Set Aung, a 
Burmese economist with access to GOB officials, Chinese firms 
import most of their labor for projects in Burma.  While the 
percentage of Chinese labor varies depending on the industry 
and project, Chinese employees are almost always used for 
skilled labor, and often for manual labor. 
 
Mining 
------ 
¶3. (C)  According to Glenn Ford, General Manager of Myanmar 
Ivanhoe Copper Co,. Ltd (MICCL), China is the only country 
increasing its presence in the mining sector.  In 2008, 
China's state-owned China Nonferrous Metal Mining Group Co. 
Ltd. reportedly purchased a 50 percent stake in the Tagaung 
Taung nickel project in Mandalay for USD 800 million.  Ford 
stated that a subsidiary of China North Industries (NORINCO) 
also recently inked an agreement for a nickel mine in Chin 
State for an unknown price.  There are reports that Chinese 
state-owned firms are involved in small mining projects for 
 
RANGOON 00000102  002.2 OF 005 
 
 
copper, lead, zinc, coal, and uranium.  There appear to be 
limits, however, to Burma's willingness to agree to Chinese 
business terms.  Since 2007, three Chinese firms have been 
engaged with MICCL and the GOB to purchase Ivanhoe's shares 
in the project, insisting on what Ford described as 
aggressive terms (Ref B).  In May 2009, the GOB unilaterally 
ceased negotiations and announced plans to purchase Ivanhoe's 
shares itself, according to Ford. 
 
Hydropower 
---------- 
¶4. (C)  Burma suffers from acute energy shortages that affect 
daily life and national economic prospects.  The GOB looks to 
foreign investors for investment in hydropower to address 
this need.  According to the Ministry of Electric Power-1 
(MEP-1), more than 15 Chinese companies have signed 
hydropower contracts with the GOB since 2005.  The GOB is 
currently constructing 19 dams throughout the country in 
partnership with both local and foreign companies, and has 
signed MOUs for 20 additional projects.  Although the Burmese 
government claims that all of the electricity generated by 
these dams will be used domestically, there is evidence the 
joint venture contracts signed with foreign companies, 
primarily from China and Thailand, include provisions to 
export the majority of electricity produced as compensation 
for investment.  According to Embassy sources, Burma 
traditionally receives no more than 25 percent of power 
generated by new joint venture plants (Ref C). 
¶5. (C)  At least one new PRC hydropower project -- the joint 
Burma-China Myitsone Dam project in Kachin State -- has 
sparked local opposition, unusual in Burma's tightly 
controlled political environment.  The dam, expected to 
displace 15,000 people, has faced local opposition on 
economic, environmental, and cultural grounds.  Local 
grassroots groups enlisted the support of 50 pastors to 
collect the signatures of over 4,100 local residents who 
oppose the project.  The petition was forwarded to the 
Chinese government, but was not submitted to the GOB (Ref D). 
 
 
Oil and Gas 
----------- 
¶6. (C)  China's oil and gas presence in Burma also appears on 
the rise.  Nicolas Terraz, General Manager for TOTAL E&P 
Myanmar Yangon Branch, notes a significant increase in 
China's offshore oil and gas presence in the last several 
years, now constituting 30 to 40 percent of the total Burmese 
exploration work.  According to Terraz, the Chinese firms 
utilize the latest technology and methods, and they are 
reclusive and do not interact with the other oil and gas firm 
employees operating in country.  In Burma's opaque 
environment, it's difficult to determine whether Chinese 
firms secure exploration rights on competitive grounds, or 
the degree to which political favoritism and corruption play 
a role.  Many presume politics and personal interest 
inevitably play a role in the GOB's selection process, 
however.  In one case dating back to 2008, executives from 
Korean-owned Daewoo privately informed Post that the GOB 
pressured it to finalize a contract with China National 
Petroleum Corporation (CNPC), even though CNPC's gas price 
was lower than Daewoo wanted and what India offered to pay 
for the natural gas (Ref E). 
¶7. (C)  China's highest profile energy project in Burma is 
the planned construction of dual pipelines to transmit oil 
and gas from the Bay of Bengal to China's Yunnan Province. 
One of the pipelines will transmit natural gas drilled 
offshore in Burmese waters, while the other will deliver oil 
offloaded from tankers (e.g. from the Middle East). 
Discussions of the project -- reportedly costing over USD 2 
billion USD -- are believed to have figured prominently in 
PRC Vice President Xi Jinping's December 2009 visit to Burma. 
 From Beijing's perspective, the project has the benefits of 
bringing energy directly into landlocked and underdeveloped 
Yunnan Province and avoiding the current oil transport route 
through the Strait of Malacca, which poses a potential choke 
point.  Although there have been delays -- one rumor is that 
 
RANGOON 00000102  003.2 OF 005 
 
 
local Burmese military commanders insist that they dictate 
the pipeline's route through their territory, ostensibly to 
profit by having the pipeline transit land they own -- 
construction reportedly has broken ground. 
 
Short End of the Stick? 
----------------------- 
¶8. (C)  In deals stemming from Chinese FDI, particularly in 
the energy sector, it seems China receives a greater benefit 
than Burma, in terms of production output as well as 
employment of nationals.  Economist Winston Set Aung 
speculated to us that the GOB is content to receive a 
marginal benefit since it is better than nothing and allows 
the generals to further consolidate their economic power. 
Further, the GOB may prefer to deal with the PRC because it 
is a reliable choice: offering some agreeable contract terms 
and unlikely to be influenced by human rights concerns. 
 
Burma-China Trade Increasing 
---------------------------- 
¶9. (SBU)  Burma-China bilateral trade has been increasing 
steadily since the 1988 legalization of cross-border trade 
and the imposition of international sanctions on Burma for 
its human rights abuses.  According to available GOB 
statistics, China is currently Burma's third largest trading 
partner after Thailand and Singapore.  As with FDI figures, 
trade statistics vary depending on the source.  Per the GOB's 
economic data, bilateral trade was USD 1.6 billion in 2008, 
up 7.8 percent from 2007.  According to Chinese official 
statistics, however, bilateral trade was USD 2.6 billion in 
2008, up 26.4 percent from 2007.  China's exports to Burma in 
2008 were USD 1.0 billion according to the GOB versus USD 2.0 
billion according to China.  Both GOB and China reported 
Burma's 2008 exports to China as USD 0.6 billion. 
¶10. (C)  The GOB mandates that imports not exceed exports, 
which may contribute to underreporting of imports from China. 
 There is also considerable "unofficial trade" between Burma 
and China that is not reflected in any official statistics. 
Winston Set Aung told us "unofficial trade" may be 10 to 20 
times the official trade value, and involve legal and illegal 
goods.  He noted that poor-quality Chinese consumer products 
are "the only choice" for many poor Burmese because of their 
lower price.  For these reasons China may be Burma's largest 
trading partner, regardless of what the GOB reports. 
¶11. (C)  Local economists surmise that the ASEAN-China FTA is 
unlikely to have a significant impact on Burma-China trade. 
For example, Dr. Maung Maung Lay, Secretary General of the 
Union of Myanmar Federation of Chambers of Commerce and 
Industry (UMFCCI), noted there is not much overlap between 
products Burma produces and China exports, so Burmese 
products are unlikely to be affected.  He noted that Chinese 
consumer goods could become less expensive, benefitting the 
Burmese people.  He expects the ASEAN FTA, scheduled to come 
into effect for Burma in 2015, will have a more significant 
economic impact on the country as Burmese products will have 
to compete with similar imports from Burma's ASEAN neighbors. 
 
China's Currency Policy and the Chiang Mai Initiative 
--------------------------------------------- -------- 
¶12. (SBU)  It is unclear to what extent, if any, China's 
currency policy impacts Burma's economy.  Chinese consumer 
goods may be less expensive due to an undervalued renminbi, 
but in many areas Burmese consumer have few other choices. 
Some local economies on the PRC border utilize the renminbi 
and large business transactions with China are likely 
conducted in dollars or renminbi.  The Chiang Mai Initiative 
will likely have limited impact on Burma, as domestic 
restrictions on foreigners using Burmese currency and 
international financial sanctions discourage speculation in 
the kyat.  Burma pledged a surprisingly large USD 60 million 
to the foreign exchange reserve, although the GOB has a 
tendency of falling short on pledged financial commitments. 
 
Growing Number of Chinese Businesses in Burma 
--------------------------------------------- 
¶13. (C)  Dr. Maung Maung Lay told us there is a substantial 
 
RANGOON 00000102  004.2 OF 005 
 
 
increase in the number of Chinese-owned SMEs in Burma, 
despite laws against foreign business ownership.  Embassy 
sources report that Chinese business people partner with 
Burmese or acquire fraudulent Burmese identification 
documents.  According to our Drug Enforcement AttachQ, 
Burma's leadership is aware of this phenomenon, but has not 
taken any action against it.  Reportedly Burmese are facing 
economic displacement in Mandalay as wealthy Chinese purchase 
property in the city.  Dr. Maung Maung Lay stated many 
Burmese in Mandalay have begun to learn Chinese in order to 
be successful in business. 
 
Growing Concern in Nay Pyi Taw 
------------------------------ 
¶14. (C)  Thant Myint-U, a Burmese historian with some access 
to Burmese leadership, told us that the GOB previously viewed 
the ethnic border areas as serving as a buffer between Burma 
and the PRC, but with Chinese influence increasing in the 
border regions, as well as central areas such as Mandalay, 
this is no longer the case.  Separately, a well-connected 
Burmese businessman informally conveyed to the Charge that 
the GOB is strongly interested in better relations with the 
USG mainly to buffer Chinese dominance (Ref F). 
 
Public Perception that Chinese Hold Wealth in Burma 
--------------------------------------------- ------ 
¶15. (C)  The Burmese public generally believes most of the 
wealthy in Burma are Chinese, tending not to distinguish 
between Chinese nationals, Singaporeans, and ethnic Chinese 
Burmese citizens.  It is often assumed that Chinese bring 
money into Burma through familial connections in Mainland 
China.  However, we have not detected widespread anger 
towards Chinese, unlike past periods in Burma when broad 
resentment contributed to violent anti-Chinese riots in the 
late 1960s and 1970s.  Winston Set Aung attributed the 
absence of economic resentment to a lack of education and 
information among the Burmese public -- most Burmese, he 
averred, simply aren't aware of the scale of Chinese economic 
penetration.  He referenced a recent public opinion poll that 
found Burmese had a favorable view of the economic impact of 
China and Thailand. 
 
One Country, Two Policies 
------------------------- 
¶16. (C)  Those here who follow Chinese activity believe the 
central government in Beijing and the leadership in Yunnan 
Province play separate, at times conflicting roles.  At 
times, it appears the two parties have different priorities 
and operate relatively autonomously of each other.  Beijing's 
concerns are geopolitical and economic - prioritizing 
stability on the border, national economic growth, and access 
to the Bay of Bengal.  Beijing's primary interlocutor in 
Burma is the military regime in Nay Pyi Taw. 
¶17. (C)  Yunnan Province leadership reportedly prioritizes 
economic growth for the province as well as wealth generation 
for Yunnan Chinese operating and residing in Burma. 
Observers report Yunnan Province leadership's primary 
interlocutors are local governments and organized ethnic 
groups along the border.  The United Wa State Army, for 
instance, claims China provides it with financial and 
military support, although it is unclear whether the support 
is from the central government, provincial government, or 
private sources (Ref G). 
¶18. (C)  According to Winston Set Aung, who maintains 
contacts with China's government-affiliated Center for 
Contemporary and International Relations (CICIR), CICIR's 
president phoned him in outrage following the August 2009 GOB 
attack on the Kokang border group which sent as many as 
37,000 refugees into China.  After the incident, per Winston 
Set Aung, Beijing declared that Burma would not be obligated 
to pay reparations for any damages to Chinese interests from 
the attack, but the Yunnan Provincial government petitioned 
Nay Pyi Taw for compensation for Chinese businesses in the 
Burma border region anyway. 
 
The Quiet Embassy 
 
RANGOON 00000102  005.2 OF 005 
 
 
----------------- 
¶19. (C)  The opaque nature of China's economic involvement in 
Burma is compounded by the reclusive nature of the PRC 
diplomatic presence here.  The Chinese Embassy regularly 
rebuffs requests for meetings and information from the 
Rangoon-based diplomatic community.  During the Kokang crisis 
the PRC Embassy refused to meet with the UN Resident 
Coordinator or WFP country director, who had staff in the 
conflict area, or other Missions.  The Chinese Embassy also 
has yet to respond to requests to brief the diplomatic corp 
on PRC Vice President Xi Jinping's December 19-20, 2009, 
visit to Burma.  Pakistan's Ambassador to Burma commented to 
us that his country's "all-weather" friendship with China 
apparently ends at the Burmese border, stating the Chinese 
Ambassador regularly does not return his phone calls.  He 
noted the stand-off policy may be personality driven, as he 
had a good relationship with the previous PRC Ambassador. 
 
Comment:  A Complex Relationship 
---------------------------------- 
¶20. (C)  Though exact facts and figures remain elusive, 
China's economic role in Burma clearly is large and 
expanding.  Reportedly some of Burma's senior generals are 
concerned about Burma's increasing dependence on China, which 
could explain in part recent GOB overtures to improve 
relations with the U.S.  Burma's leaders have nonetheless 
benefitted economically and politically by partnering with 
the Chinese, gaining investment, trade, and a key ally on the 
UN Security Council in exchange for granting PRC access to 
the country's markets and natural resources.  We don't see 
the economic or political relationship changing markedly so 
long as the current crop of Burmese generals continues to 
rule.  Even the political opposition, including Aung San Suu 
Kyi and the NLD Uncles, has made clear to us that they 
realize their immense Chinese neighbor is a geo-political 
reality that must be managed and can not just be rebuffed or 
ignored. 
¶21. (C)  Still, China does face some risks.  Beijing's 
influence over the regime has limits and is, in our view, not 
as great as outsiders sometimes suppose, particularly on 
issues affecting the senior generals' perceived core 
political and personal interests.  The GOB's relations with 
ethnic minorities is a case in point:  the regime wants to 
bring these groups to heel -- and has been willing in one 
case to use force to achieve that end -- while China has 
demonstrated a competing interest in stability and the 
protection of ethnic Chinese welfare.  Further conflict in 
Burma's ethnic areas would create friction in the regime's 
relations with Beijing, and would also be bad for Chinese 
business.  It's noteworthy in that regard that the Bay of 
Bengal-Yunan Province pipelines must transit several ethnic 
areas.  A political transition in Burma -- even if falling 
short of the West's democratic ideal -- could also complicate 
China's pursuit of its interests here.  The bilateral 
political relationships might change, and it is an open 
question whether a different Burmese government would honor 
current PRC pipeline and other agreements that could be seen 
as obsolete sweetheart deals. 
¶22. (SBU)  This cable has been coordinated with Embassy 
Beijing. 
 
DINGER