Beijing influence can be tempered

9 February 2012

First published in the Australian Financial Review on 9th Feb, 2012

Are authoritarian countries like China better at using economic policy to achieve strategic interests abroad? Many people think so, including US Secretary of State Hillary Clinton who in a speech last October urged her diplomats to improve their use of economic statecraft to enhance diplomatic leverage. When it comes to basket-case economies, the argument is that Beijing can ruthlessly and efficiently deploy all the tools of its state-dominated economy to achieve its strategic ends. In contrast, the private sector driven Western economies have limited options. But recent and unexpected developments in Burma suggest that Beijing's statecraft may not be all that it is lauded to be.

Burma remains the most ostracized country in Asia outside North Korea. The United States and the European Union have imposed an increasingly robust economic sanctions regime against Burma since the junta's brutal crackdown of protesters in 1988. Having to also rebuff international condemnation over the ruthless repression of demonstrators following the 1989 Tiananmen protests, China emerged as Burma's most dependable ally from the 1990s onwards.

Rangoon's preparedness to take shelter under Beijing's embrace is evident from the fact that China is behind two-thirds of all foreign investment in Burma and itssecond largest trading partner (after Thailand). China is the primary supplier of military equipment to the Tatmadaw (Myanmar Armed Forces) and provides diplomatic and political cover for the regime. Without Chinese economic and technical assistance, the stuttering Burmese economy would have completely collapsed, endangering the continued rule of the junta. It is no wonder that Burma is sometimes dismissed as a Chinese 'economic colony', and even the unofficial 23rd province of China.

When President Thein Sein took office last March, few expected much change from the emergence of a so-called 'civilian' government. But the last few months have taken the region and America by surprise.

The president suspended the US$3.6 billion Chinese funded Myitsone Dam project on the northern mouth of the Irawaddy River which was to send 90% of the hydroelectricity power generated to Yunnan Province in China for the next 50 years. In an unexpected move, Rangoon has welcomed several American senior officials over the past few months. These include Secretary of State Hillary Clinton, former presidential candidate John McCain, former vice-presidential candidate Joe Lieberman, and Senate Minority Leader Mitch McConnell. All have return expressing cautious optimism about the prospect of political reform in Burma.

Significantly, Clinton was granted an audience with Nobel Peace Prize Winner Aung San Suu Kyi who is considered by the West to be the legitimate leader of Burma on account of her election victory in 1990. Rangoon has approved meetings between Suu Kyi and Thai Prime Minister Yingluck Shinawatra, British Foreign Secretary William Hague, and Foreign Minister Kevin Rudd. Released from house arrest in 2010, she was recently cleared to run for Parliamentary elections in April 2012.

China's courting of Burma is understandable. Burma is of strategic importance because it is superbly positioned above the Andaman Sea which leads into the shipping chokepoint of the Malacca Straits. Potential transport routes through Burma also offer southern Chinese provinces an alternative to relying solely on American patrolled maritime routes through Southeast Asia.

But like in African countries such as Zimbabwe, Sudan, Algeria and Nigeria, China is also interested in the resources of its southern neighbor: oil, gas, minerals, timber and hydropower generation. Almost all Chinese investment is in these sectors, and by state-owned-enterprises. And as is often the case with Chinese SOE activity in poor countries ruled by authoritarian, corrupt and incompetent regimes, the implied pact between Beijing and political elites running these regimes - both under less pressure to address the concerns of its citizens than in genuine democracies - offer little by way of economic, employment or social return to local populations. Beijing puts no pressure on its SOEs to limit the environmental impact of commercial activities in foreign lands (for example, the Myitsone Dam project or Chinese mining activity throughout Burma.) The fact that locals in the northeast economic regions close to China have long complained that commerce is dominated by Chinese entrepreneurs and businesses means that resentment is only deepening.

As in parts of Africa, Burma's leaders are discovering that Chinese authoritarian largesse has a price. China negotiates with weak authoritarian countries from a position of strength. 'No strings attached' economic aid, investment and political cover are an explicit extension of Chinese foreign policy, and Beijing expects considerable strategic and economic returns. In contrast the activities of Western firms and those from countries such as Japan in foreign markets are watched by their government, concerned groups and the media. Even stringent' conditions-based aid preferred by democratic countries is beginning to appear more attractive.

As Beijing can attest, even authoritarian regimes must eventually respond to demands of its citizens. China will remain Burma's primary economic partner. But Rangoon is reaching out to democratic states - and promising gradual political reform in the future - in order to find alternative developmental pathways to that of it becoming a de facto 'Chinese colony'. The timely announcement yesterday that America will no longer oppose the assessment of aid to Burma by international institutions means that the IMF and World Bank could come back into play.

This does not necessarily mean that genuinely free and fair elections will soon be held. But it should help cast doubt on the self-defeating argument making the rounds in democratic capitals, including Canberra, that authoritarian powers like China are far more efficient and successful at statecraft than their democratic rivals.

Dr John Lee is the Michael Hintze Fellow for Energy Security and an Adjunct Associate Professor at the Centre for International Security Studies, Sydney University, and a non-resident senior scholar at the Hudson Institute in Washington DC.

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