US embassy cable - 04RANGOON675

C O N F I D E N T I A L SECTION 01 OF 05 RANGOON 000675 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EAP/CM, INR 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA JEFF NEIL 
USPACOM FOR FPA 
 
E.O. 12958: DECL: 05/20/2014 
TAGS: PREL, ECON, PGOV, MARR, BM, CM 
SUBJECT: BURMA AND CHINA:  TRUE FRIENDSHIP OR MARRIAGE OF 
CONVENIENCE? 
 
REF: A. STATE 90967 
     B. RANGOON 647 
     C. RANGOON 528 
     D. RANGOON 501 
     E. RANGOON 417 
     F. RANGOON 165 
     G. RANGOON 125 
     H. 03 RANGOON 1604 
     I. 03 RANGOON 1598 
     J. 03 RANGOON 1568 
     K. 03 RANGOON 1232 
     L. 03 RANGOON 116 
     M. 02 RANGOON 1585 
     N. 01 RANGOON 1906 
     O. USDAO RANGOON IIR 6 812 0110 04 
 
Classified By: COM Carmen Martinez for Reasons 1.4 (B,D) 
 
1. (C) Summary:  Burma's ruling SPDC views China as its key 
bilateral partner and seeks to use the relationship as 
evidence of its legitimacy and to offset pressure by the 
international community, particularly the United States, for 
concrete movement toward national reconciliation and 
democracy.  The Burmese regime's engagement with China has 
resulted in significant political gains in this regard.  The 
PRC has been particularly effective in accessing Burma's 
government elites.  China's ability to influence regime 
leadership, however, seems to be more limited.  The PRC is 
the dominant economic force in Burma and is a regular 
provider of tied aid via grants and low interest loans. 
Large-scale and freewheeling border trade lends a lifeline to 
Burmese consumers and businesspeople suffering from GOB trade 
policies.  It also provides an important outlet and source of 
foreign exchange to the Burmese government, blocked by U.S. 
sanctions from using the international banking system for 
U.S. dollar-based international commerce. 
 
2. (C) It is the Burmese military, particularly those 
officers with direct experience confronting the PRC-supported 
Burmese Communist insurgency, which remains the most wary of 
China's motives.  Nonetheless, senior-level contacts between 
the two governments and Chinese economic largesse will 
continue.  However, the GOB will seek to balance China's 
increased influence by expanding its bilateral cooperation 
with India in an effort to maximize its "bennies" from both 
neighbors.  End Summary. 
 
Political: 
 
3. (C) Burma, specifically the ruling State Peace and 
Development Council (SPDC), views China as its key bilateral 
partner.  In addition to regarding China as a reliable 
provider of grants, training, and low interest loans, the 
regime seeks to use the deepening, supportive relationship as 
evidence of its legitimacy and to offset political pressure 
by the international community, particularly the United 
States and the European Union (EU), for concrete movement 
toward national reconciliation and democracy.  While we 
assess that the Burmese military harbors a lingering wariness 
about Chinese motives and influence, we can note no criticism 
of China by regime officials, either in private or in the 
press.  Although the GOB remains reluctant to provide 
concessions on issues of past import to China, such as 
development of the Irrawaddy River transport route to the sea 
(ref L), our interlocutors on both sides focus on the 
positive mutual benefits of the current relationship.  In 
addition, we have no evidence that the regime considers China 
either a regional "hegemon" or a potential neighborhood 
bully. 
 
4. (C) Economic assistance aside, the most obvious indication 
of the emphasis the Burmese regime places on the relationship 
is the well-publicized access Chinese central government and 
provincial officials, especially those from Yunnan province, 
routinely have to Burma's three top leaders, SPDC Chairman 
Senior General Than Shwe, SPDC Vice Chairman Vice Senior 
General Maung Aye, and Prime Minister General Khin Nyunt. 
Beginning with Chinese President Jiang Zemin's trip to Burma 
in December 2001 and culminating most recently with the March 
visit of Vice Premier Wu Yi (ref D), there has been a steady 
stream of high-level visits back and forth, most of which 
have an economic/business focus.  Besides Wu Yi's trip, 
highlights in 2004 include a visit by the Deputy Minister of 
the PRC Ministry of Economy and Commerce in January and the 
Vice-Chairman of the Chinese People's Consultative Conference 
(CPPCC) in late February (he met with Than Shwe).  Vice 
Senior General Maung Aye went to China in August 2003.  These 
visits, as well as those by local Yunnanese economic 
officials and representatives of Chinese state-owned 
enterprises, and businessmen, garner extensive coverage in 
Burma's government-controlled newspaper as well as GOB press 
releases/information sheets.  Even the Chinese Ambassador's 
April 21 call on Khin Nyunt, who ws identified on the 
occasion as General rather than Prime Minister, merited a 
front-page article in the government-controlled newspaper. 
(Note:  PM Khin Nyunt is the Chairman of the Leading 
Committee for implementation of agreements on economic 
cooperation between Burma and China. End Note.) 
 
5. (C) As a result of its policy of engagement with China, 
the Burmese regime has achieved public political gains on an 
issue of primary concern to the Burmese regime -- 
international legitimacy.  China has not publicly criticized 
Burma and has given the regime key public support on issues 
such as U.S. sanctions and Burma's human rights situation. 
In this regard, we note public statements by Chinese State 
Councilor Tang Jiaxuan in August 2003, immediately after the 
United States imposed more stringent sanctions, in which he 
said he opposed any moves to isolate the Burmese regime. 
Another more recent public relations success for Burma was a 
comment by the Chinese ambassador to Geneva during debate on 
a U.N. Commission on Human Rights resolution critical of 
Burma's human rights record, in which he said Beijing 
regretted that the resolution did not fully and accurately 
reflect the human rights situation in Burma.  Locally, we 
point to consistent efforts by the Chinese ambassador to urge 
the United States and other like-minded nations to reduce 
pressure on the regime and, in the specific case of the 
United States, to withdraw sanctions.  This despite 
assurances from the Ambassador to us in several meetings that 
transition to democracy is inevitable, necessary, and must 
include the primary opposition group, the National League for 
Democracy (NLD).  However, we assess that the overall 
Sino-Burmese relationship has not been tested to any degree 
in recent years.  In addition, this public posture of lauding 
relations between the two countries belies at least some 
wariness on the part of military and economic elites who 
remember the Chinese-sponsored Burmese Communist insurgency 
and fear a potential impact on local businesses (see para 8), 
respectively. 
 
6. (C) Though the PRC has been particularly effective in 
accessing government elites, its ability to influence regime 
leadership seems to be more limited.  Nonetheless, the 
continued outpouring of soft loans and debt forgiveness and 
willingness to participate in Burmese-hosted and reciprocal 
high-level visits, such as the delegation to China led by 
Maung Aye, suggest China takes the relationship equally 
seriously, albeit for different reasons.  Looking at China's 
motivations from a local perspective, China's key objectives 
are tied to its concern with potential political and economic 
instability in a bordering country; a belief that economic 
development is key to and a necessary prerequisite for 
political development; an interest in reducing the spread of 
drugs from Burma to China's Yunnan province and beyond; and 
growing demand for consistent, and nearby, sources of natural 
resources.  While our Chinese interlocutors are always 
"on-message" in their acknowledgment of progress in all areas 
of cooperation, we judge that Sino-Burmese counternarcotics 
efforts have had limited success; that Chinese efforts to 
secure access to needed natural resources, such as timber, 
are becoming more successful (though often through informal 
means); and that there is growing frustration with the 
Burmese regime's perceived inability to develop and follow 
sound economic policies.  On the question of stability, we 
view the Chinese as being pragmatic -- for as long as the 
current regime maintains power, the PRC will focus its 
efforts on deepening relationships with current political and 
economic elites.  Should Burma's domestic political situation 
change, the PRC will respond by building relationships with 
the new elites.  We do not expect the Chinese Embassy to 
develop ties with political opposition leaders at this time, 
as they consider doing so would compromise current 
influence/access for no apparent gain.  In fact, the Chinese 
ambassador has made this point explicitly in all our meetings 
with him. 
 
Economics: 
 
7. (C) The PRC is the dominant economic force in Burma. 
Large-scale and freewheeling border trade lends a lifeline to 
Burmese consumers and businesspeople suffering under bizarre 
GOB trade policies.  It also provides an important outlet and 
source of foreign exchange to the Burmese government blocked 
by U.S. sanctions from using the banking system for U.S. 
dollar-based international commerce.  China's small investors 
and traders are omnipresent in Burma's large cities and in 
the mines and forests of Kachin and Shan States.  Finally, 
the PRC government provides an almost endless stream of soft 
loans and grants for Burma's "economic development" and to 
promote exports of Chinese (usually Yunnanese and Sichuan) 
products and services.  Chinese companies are the primary 
foreign participants in most, if not all, of Burma's largest 
public works projects: roads, bridges, and power plants. 
Burma's ethnic Chinese, sometimes with far closer ties to 
China than Rangoon, are among the most powerful "domestic" 
businesspeople in Burma. 
 
8. (C) Though there is a long history of a Chinese merchant 
class in Burma, economic ties between the two countries were 
sour until the mid-1990s due to the PRC's support until 1989 
of the Burmese Communist Party, a once powerful insurgent 
group.  In a capital-starved nation, consumers and some 
businesses welcome the current influx of Chinese money (both 
from the PRC and from ethnic Chinese) and products.  However, 
many cash-poor ethnic Burman, Kachin, and other 
businesspeople criticize the "invasion" for crowding them 
out.  The Burmese garment sector also fears that it will not 
be able to compete with China in exporting to Europe and 
other nations once textile quotas are removed in 2005. 
However, the poor state of the industry - due to the GOB's 
economic policies and a U.S. import ban - is eroding its 
competitiveness even before the deadline. 
 
9. (C) Alongside continued PRC tied aid comes forgiveness or 
rescheduling of unpaid debt.  During a January 2003 visit to 
China by Than Shwe the PRC agreed to forgive $80 million (ref 
L), and in a March 2004 visit to Burma by Vice Premier Wu Yi, 
the PRC rescheduled $120 million in overdue debt from $560 
million worth of tied aid (ref E).  Though the PRC seems 
willing now to be flexible on debt repayment, we are 
concerned with potential future consequences of Burma's 
massive build-up of Chinese debt.  Depending on how the 
political winds blow, this debt service will either cement a 
colonial bond or become a huge burden for a democratic regime 
that may favor the West. 
 
10. (C) For China, it appears the closer economic ties and 
millions of dollars of state money invested (with little 
likely to be repaid) are aimed at propping up regional 
exporters and developing preferential access to Burma's vast 
natural resources.  The Chinese ambassador here recently told 
us his government was keen to "reduce China's trade surplus" 
with Burma (ref D).  An agreement signed during the Wu Yi 
visit more explicitly spelled out China's interest in getting 
preference for investments in Burma's natural gas and oil, 
and in named copper and nickel deposits (ref C).  Discussions 
with MOFA's China hand also revealed a PRC interest in 
getting unfettered access to the sea via Burma's Irrawaddy 
River. 
11. (C) According to official Chinese media sources, 
bilateral trade in 2003 was $1 billion, up from about $860 
million in 2002.  During the Wu Yi visit, the two sides inked 
a bilateral agreement that, among other things, pledged to 
expand trade volume to $1.5 billion by 2005 (ref C). 
According to Xinhua-cited data, $900 million of the current 
trade volume is Chinese exports while $170 million is Burmese 
exports.  Media-cited PRC data asserts that $490 million of 
the trade volume is between Yunnan and Burma (border trade). 
None of these figures presumably include the significant 
smuggling in both directions.  To China go timber, gems 
(mostly jade from Kachin State), and drugs (opium, heroin, 
and methamphetamines).  To Burma come all variety of consumer 
goods, which GOB import restrictions categorically forbid. 
The majority of legal exports from Burma are agricultural 
products, while the largest Chinese exports are machinery, 
raw materials for Burma's piecework textile factories, and 
metals. 
 
12. (C) Border regions, especially in Shan State where roads 
are better than in Kachin State, look to China more than 
Rangoon for investment and economic growth.  Often 
transportation links are better between peripheral cities and 
the Chinese and Thai borders than between the cities and 
Rangoon.  Opium poppy substitution projects in northern Shan 
State hinge on developing reliable export markets in China 
for the new rubber, fruit, and grain being grown.  To this 
end the PRC promise to reduce tariffs for the poorest ASEAN 
members is a boon.  The RMB is freely used in Burmese border 
towns for trade transactions and is also the currency of 
choice for local consumers and shopkeepers in these areas 
(ref F and I).  Chinese (Mandarin) is also the language of 
choice in local schools and for the growing local commercial 
class. 
 
13. (C) Chinese investment: according to notoriously 
unreliable GOB statistics, as of the end of FY 2002-03 
(April-March) the PRC ranked only 15th in the level of 
"approved" FDI with 13 projects worth $64.15 million.  Hong 
Kong was 10th with 29 approved projects worth $162.72 
million.  (Note: The GOB only counts historically approved 
FDI, not actual or remaining foreign investment.)  This 
official number is clearly absurd.  Xinhua cites Yunnanese 
officials who claim investment in Burma for their province 
alone is between $200 million and $400 million.  GOB 
statistics seem not to take into account the innumerable 
small investments by Chinese merchants in Rangoon, Mandalay, 
and north and east of Mandalay to the Chinese border.  The 
numbers also don't account for illegal Chinese investments in 
gold and jade mining projects in the rivers and hills of 
Kachin State.  These latter investments in particular are 
made by PRC Chinese through a local cut out, by PRC Chinese 
who buy phony Burmese ID papers, or by ethnic Chinese Burmese 
citizens -- many of whom have amassed significant capital in 
the drug trade (ref M). 
 
Military: 
 
14. (C)  It is the military, particularly those officers with 
direct experience confronting the PRC-supported Burmese 
Communist insurgency, that remains the most wary of China's 
motivations.  Nonetheless, this wariness has not impeded the 
strengthening of this aspect of the Sino-Burmese relationship 
nor led to efforts to decrease reliance on Chinese-supplied 
armaments.  The Chinese military attach (milatt) appears to 
have the same kind of access on the military side that the 
Ambassador has on the political side; the newly arrived 
milatt, who has had multiple tours in Burma, was received by 
Vice-Senior General Maung Aye in late April, soon after his 
arrival. (See ref O, "Burmese Military Intelligence Officer 
Comments on PLA Efforts to Expand Military Influence in 
Burma.") 
 
Comment: 
 
15. (C) We anticipate continued senior level contacts between 
the two governments and continued Chinese economic largesse, 
albeit tied to specific companies and heavily oriented toward 
Yunnan Province, as China further consolidates its position 
as Burma's key partner.  For its part, we expect the GOB will 
continue to pander to China, at least on the surface, 
allowing consistent access to the "top three," accepting tied 
aid, and continuing the ongoing positive public relations 
campaign in the local press.  However, the GOB also will seek 
to balance China's increased influence by expanding its 
bilateral cooperation with India in an effort to maximize its 
"bennies" from both neighbors.  End Comment. 
Martinez