Kyaukpyu Port: A confluence of China’s geopolitical and economic ambitions

As geopolitical dynamics shift, and China gains influence in Myanmar, the resumption of the Kyaukpyu Port project takes center stage, symbolizing a convergence of strategic, economic, and military interests.

In the westernmost state of Rakhine in Myanmar, the attention is centred on the small fishing village of Kyaukphyu, where a substantial US$7.3 billion deep-water port development is underway, spearheaded by Chinese state-owned entities. This ambitious project is complemented by a US$2.7 billion special economic zone.

The strategic rationale behind Beijing’s commitment to constructing the Kyaukphyu Port becomes evident when considering its role as a land route for trade, providing an alternative to navigating through pirate-infested waters and potential chokepoints along the Strait of Malacca. Additionally, the port safeguards crucial oil and gas pipelines, valued at US$1.5 billion, running from Kyaukphyu to Yunnan.

However, this development has raised concerns among some observers regarding the potential influence China could exert over Myanmar. The worry stems from China’s majority ownership of a regional port that holds dual-use potential—serving both civilian and military purposes. The prospect of Beijing’s increased sway over Myanmar, especially in the geopolitical and economic spheres, has become a focal point of apprehension among those monitoring the Kyaukphyu Port project.

GEOPOLITICS IN THE REGION

Despite its initial proposal in 2007, the Kyaukpyu Port project has encountered persistent challenges in gaining traction. The hurdles extend beyond Myanmar authorities’ scepticism, with another impediment being the unclear economic rationale underlying the venture. Before the coup, the region already hosted competing facilities, notably the Japan-financed Thilawa Port situated just south of Yangon. Thilawa Port, capable of handling vessels up to 20 thousand deadweight tons and 200 meters in length, experienced positive effects from the nearby Yangon Port’s limitations due to the trade boom over the past decade. Japan, a significant external supporter, invested extensively in expanding Thilawa Port and a nearby industrial park.

However, post-coup, trade volumes dwindled, leading major players like Adani Ports to divest or risk running afoul of Western sanctions. Critics argue that Kyaukpyu’s development, connected to Myanmar’s pre-existing infrastructure networks linked to Yangon, would not holistically enhance the country’s economy. Instead, they contend that the project appears more geared toward creating a new economic conduit, primarily owned by China, connecting Yunnan province to the Indian Ocean. In essence, the prevailing rationale behind the Kyaukpyu Port project has been geopolitical rather than primarily economic.

Negotiations for the Kyaukpyu Port, initiated in 2015 with China’s ChinaGroup, encountered controversy due to the hefty $7.3 billion price tag, notably higher than comparable projects like Hambantota and Gwadar. The allocation of this significant amount remained unclear, and questions arose about Myanmar’s ability to repay given its modest GDP. Initially, CITIC aimed for a controlling stake of 70-85%.

Following the 2015 election, the Suu Kyi government renegotiated the deal, resulting in a substantial reduction in the project’s scale and Myanmar’s fiscal burden. The revised terms required Myanmar to borrow/pay around $1.3 billion for a 30% stake, up from the original 15%.

Despite these adjustments, the project faced regulatory challenges pre-2021, with CITIC submitting studies in 2019, disrupted by the economic impact of COVID-19. The dynamics shifted after the 2021 coup. Myanmar, under sanctions and amid internal conflict, lost leverage, while China, keen to engage and alleviate its international isolation, gained influence. Consequently, China is actively advocating for the swift resumption of the Kyaukpyu Port project under the Military Council.