BURMA AND CHINA: TRUE FRIENDSHIP OR MARRIAGE OF

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