The coup and the country’s chaotic state touch every aspect of Sino-Myanmar relations. Critically, and predictably, a decade-long Chinese cultivation of elected leaders has — at best — been undermined. Then there is the mounting, unanticipated threats: an explosion of COVID-19 along the border; the risk that a multitude of new and resurgent conflicts could upend prospective projects; rising anti-Chinese sentiment among a majority of the population; and a surge in criminal activity aimed at China or organized by Chinese criminal networks.

Any of these developments would pose a challenge to Chinese investment in the country. Together they virtually wipe out prospects for effective implementation of the two countries’ overarching, grand project, the China-Myanmar Economic Corridor (CMEC). The plan, which would bind the Myanmar and Chinese economies more closely with projects involving transportation, industry, finance and communication, was developed with the deposed, elected government.

Should Beijing proceed with these designs in partnership with the junta, it will be risking precious resources on almost certainly futile attempts to build infrastructure in a war zone.

Conflict Engulfs the Chinese Economic Corridor, Undermines Yunnan Development Plans

Armed ethnic minority groups along the India, China and Thai borders have largely opposed the coup, leading to a resumption of warfare with the Tatmadaw, as the military is known, in Karen, Kayah, Shan, Chin and Kachin States.

These conflicts pose a serious security threat to projects associated with CMEC, which crosses into Myanmar through Northern Shan and Kachin States where fighting is particularly intense. Combat in the area has played a significant part in decimating cross-border trade, causing a 30 percent drop in recent months from a year ago.

There is no reason to think the surge of violence will be short-lived; the ethnic armed groups that signed the Nationwide Ceasefire Agreement with the military several years ago have suspended the accord. Adding to the instability, some of the ethnic armed groups are sheltering anti-coup protesters and providing the military training that they need to form armed self-defense forces. The newly minted militants already have attacked police, military and administrative facilities in their local communities. The country’s long-running civil war, in the past confined mostly to the ethnic minority areas on the periphery, has now spread to urban and rural communities in central Myanmar.

Most critically for China, the renewed conflict in Shan and Kachin States has shattered a precarious stability that its border province of Yunnan relies on to foster economic development. Yunnan, a poor province, attracts capital because of its strategic location as a gateway to Southeast Asia. Recent fighting south of the border has already made investors skittish as prospects dim for a vibrant corridor through Myanmar to the Indian Ocean and could cause shutdowns of operating plants. Such an economic blow would almost certainly plunge an untold number of Chinese nationals back into poverty.

Thus, the coup may have delivered an unexpected setback to Xi Jinping’s vision of eradicating poverty in Yunnan.

Anti-Chinese Sentiment in Myanmar Turns Violent

Not long before the February 1 coup, the Chinese State Councilor Wang Yi and Russian Defense Minister Sergei Shoigu paid calls on the Tatmadaw’s Commander-in-Chief Min Aung Hlaing. They were treated to a long diatribe by the top general on the supposed election fraud responsible for the governing party’s landslide victory in November. Shortly after the coup, the Civil Disobedience Movement (CDM) resisting the military takeover became convinced the foreign officials knew about the generals’ plans and offered at least tacit approval.

Anti-Chinese sentiment spread quickly through the movement, and large demonstrations were mounted against the Chinese embassy in Yangon and other Chinese facilities. Before long, anti-Chinese sentiment turned violent with arson attacks on Chinese factories and threats against Chinese workers in Myanmar’s urban areas. Many Chinese businesses closed and Chinese citizens returned to China for safety.

On May 5, an attack was mounted against an off-take station on the China-Myanmar oil and gas pipeline near Mandalay by an autonomous self-defense force. Three security guards died in the assault. An earlier incident against the pipeline in February had prompted the Chinese government to demand that Myanmar dramatically enhance pipeline security and accept deployment of Chinese security experts. Running the 770-kilometer length of the country, the pipeline is a prime target for opposition groups aware of its high strategic value. The primary source of natural gas for townships across four of China’s southwestern provinces, the pipeline fuels industry contributing to well over 10 percent of Yunnan’s annual GDP. A single well-executed attack could inflict major economic damage on southwest China and cripple the Anning Refinery outside of Kunming, Yunnan — a project that alone accounts for 8 percent of Yunnan’s GDP.

Any new infrastructure projects China decides to undertake with the junta regime could face a similar prospect of violent attack from opposition forces as that threatening the pipeline.

Post-Coup Myanmar as a COVID-19 Incubator

Health workers’ broad opposition to the coup has caused Myanmar’s public health system to collapse along with measures the elected government took to contain the spread of COVID-19. This caused an outbreak and political chaos in Yunnan in April after provincial officials held the leadership of the key border city of Ruili responsible for failure to secure the border area. Officials in China’s Yunnan Province, which borders Myanmar, fear the breakdowns will spur rampant spread of the Indian variant into China. They have fortified fencing, established new monitoring stations and deployed more patrols along the border. Their fears have been intensified by inadequate vaccine coverage in China and doubts about the efficacy of Chinese vaccines against the new variants.   

With COVID raging in Myanmar, it would be very risky to send the large number of Chinese workers and technicians needed to oversee and implement complex projects.

Organized Crime Gets Back into Action

The coup leaders’ moves to dismantle legal and economic infrastructure, as well as the impact of violent conflict on local administration, has opened the way for a resurgence of criminal activity that includes illegal gambling, money laundering, and trafficking in drugs, weapons and persons. This has occurred across the country, but especially in areas along the Thai and Chinese borders.

Behind the rising crime is the return — in force — of Chinese criminal networks partnering with militias that operate under military authority. The elected government had been investigating these arrangements and activities and begun curbing them before the coup. Afterwards, the crime groups began ramping up their investments in Karen State on the Thai border and the Wa and Kokang autonomous areas of Shan State along the Chinese border.

Although the main target is the lucrative Chinese online gambling market, the range of illicit schemes is extensive. Authorities in Thailand are reporting a major increase in seizures of Yaba pills since the coup. Meanwhile, Chinese language media in Yangon has reported an increase in illegal logging, noting also that the junta plans to auction off all the illegal timber confiscated by the elected National League for Democracy (NLD) government. Across southwestern China, townships have taken the extreme step of severely restricting all travel to northern Myanmar in what appears to be a futile attempt to stop cross-border illicit activity.

The crime surge will undermine any legitimate business relations between the countries and taint China’s international standing as a development partner.

Long-Term Risks to Economic Corridor Investments

So far, China has downplayed the coup’s impact on its financial interests in Myanmar. As an advisor to a key industry association told USIP, “Projects were on hold anyway because of COVID until later this year, so there is time for things to stabilize.”

Such views fail to recognize the long-term nature of the risks created by the coup.

Under the NLD, the government developed policies and plans to ensure economic corridor projects would first and foremost serve the development needs of Myanmar, not China. The Myanmar Sustainable Development Plan and its Project Bank — a list of plans with detailed specifications for potential investors — set out numerous requirements for approval. They included environmental and social-impact assessments; business plans that showed financial viability; involvement of local stakeholders; and guarantees that projects would not require Myanmar to assume sovereign debt. Many plans were already well along in the process, and several had been approved.

Then came the coup.

The military quickly arrested the government’s entire senior economic policy team, except one former military career official. It proceeded to ignore entirely the Project Bank process — a published list of approved projects with detailed specifications and requirements — approving multibillion-dollar projects without the legally mandated assessments. The regime has also overhauled a key committee established by the NLD government for managing CMEC projects. The revamped committee omitted from its decision structure the need for involvement of local stakeholders in project development, signaling further its intention to move forward swiftly with major Chinese infrastructure projects.

It remains to be seen whether the junta will be willing to assume the sovereign debt that Chinese state-owned enterprises will undoubtedly need. Alternative sources of funding are unlikely to appear.

Meanwhile, foreign investors should be aware that in addition to dramatically deteriorating business environment, the National Unity Government formed by the opposition has announced that it will not honor any debt taken on by the junta government should it regain power, introducing a new level of political risk.

If Chinese investors decide to move ahead with economic corridor projects under the current conditions of conflict, chaos, pandemic, anti-Chinese sentiment and administrative and political breakdown, their investments will face serious and continuing risks. The threat will only grow as long as the military refuses to restore democratically elected governance and democratic rights.