When Chinese firm CPI initiated plans for a project on Burma’s Irrawaddy River a few months ago, few predicted the public backlash that would ensue. Burma’s abrupt halt of a $3.6 billion Chinese-backed hydro project on September 30th was jarring to Chinese leaders and investors, who perceived Burma as a fairly welcoming investment destination.
As explained in a Washington Post slideshow on the dam debacle, many in Burma are concerned not only about the social and environmental impact of China’s projects, but also about the nature of their country’s broader relations with China. There is significant concern that Burma is becoming “China’s vassal state,” according to former military commander and veteran democracy activist Tin Oo. China is thought to be unfairly exploiting Burma’s natural resources, as evidenced in this China Daily Forum. One post in particular sums up popular sentiment: “Our Country! Our River! Our People! Our Blood! Our Treasure!”
In Burma and elsewhere, China’s state-owned energy and extractive firms often engage in direct negotiations with top leaders for energy and mining-related contracts. Some will hire legal counsel or well-known financial consulting firms to advise them or negotiate transactions, but many insist on operating independently, even if doing so means operating without sufficient planning or information.
This has certainly been the case in much of Latin America, where certain Chinese firms prefer “behind closed door” negotiations with national leaders (Chavez, Correa, and Morales, for example) to lengthy arbitration or complex bidding processes. These firms are seeking quick, no-hassle deals, void of regulatory complications. As a result of this preference, however, many end up “stepping on a few toes,” especially in cases where the interests of a country’s leaders aren’t well-aligned with those of its population.
Chinese scholars and officials are increasingly aware of perils of government-to-government (or Chinese SOE to foreign government) interaction. Following Khadafi-related chaos and Burma blues, China is increasingly cognizant of the fact that it should not rely solely upon agreements with standing governments when making large overseas investments. As one Chinese scholar mentioned to me in a recent conversation, “we can no longer go into places like Myanmar without understanding the population, popular sentiment, or the country’s history.”
Will China refrain from involving itself in high-risk political environments as a result of these setbacks? Probably not. The PRC is committed to securing the resources it needs to support its expanding population and to further promote domestic growth. But in the wake of – and even prior to – FDI setbacks in Burma and Libya, China has been developing a greater capacity for risk assessment. SOE’s own “regional studies desks” are profiling leaders and reporting on environmental issues, cultural considerations, and historic tendencies in countries of interest. The China Development Bank is working closely with state-run think tanks to develop country profiles for various investment destinations.
The Burma hydro-spat is yet another valuable lesson for Chinese extractive industry, energy sector, and political leaders. China is unlikely to withdraw its investments from potentially problematic countries like Venezuela, but these countries’ political, economic, and social dynamics are being considered much more carefully.