04 Jun 2019

China has intensified diplomatic efforts and bilateral cooperation with Naypyidaw, Myanmar recently. Despite skepticism from political analysts, Myanmar plays an important role in Beijing’s foreign and security policies.

Energy and trade. How Malacca is shaping Beijing's policies

Escalating power rivalries in the South China Sea point to growing concerns on Beijing’s energy security.

China has been relying heavily on its sea lines of communications (SLOCs).

82% of China's oil imports transit through the Malacca Strait and the South China Sea.

China's reliance on oil will only increase with its rising economic and industrial growth.

As highlighted by the International Energy Agency in its 2018 report, China's oil import dependency rate will reach 80% by 2040.

If SLOCs were to suffer a closure due to conflict escalation in the Western Pacific, China would face an existential threat.

It would likely experience a major energy crisis. China’s domestic oil production is insufficient to meet its current demand.

Similarly, Beijing's exposure to Malacca is also driven by its dependence on trade. 60% of China's trade is transported via maritime routes, with the South China Sea being a key channel for all shipment to Europe and Africa. Safeguarding trade in this area is therefore vital.

As analysed by the Center for Strategic and International Studies, rerouting all traffic away from the South China Sea would cost $2,820 million per month. Therefore, a closure of vital maritime routes would also disrupt the global supply chain. Companies would likely move operations away from the affected area.

The issue is widely acknowledged among Chinese political leaders and is recognised as the "Malacca Dilemma". Rising tensions in the South China Sea signal the strategic importance of the area, not only for China's supremacy in Asia, but for China's existence.

Myanmar, the Golden Land as a pathway to the Indian Ocean

Frequently portrayed as a country in eternal transition, Myanmar has been crippled by the world's longest civil war and a difficult path to a fully-fledged democracy.

But, Myanmar is set to become a main player in China's foreign policy due to its fortunate geographical position in the Indian Ocean Region.

The region’s geographical structure does not allow for land routes which are crucial for trade. The Himalayan range, stretching from Nanga Parbat to Namjagbarwa, plays a major role in hindering trade.

However, Myanmar offers a solution. The country’s geographical characteristics enables Beijing to reach the Bay-of-Bengal, bypassing the Strait of Malacca and the South China Sea entirely. The Burma Road, developed by US troops to supply goods to China during World War II, presents historical evidence for such a corridor that would stretch from Kunming to Kyaukpyu, in conflict-torn Rakhine State.

Rakhine State, from battleground to logistic hub

China is developing its main BRI-related projects in the Rakhine State: the Kyaukpyu-Kunming oil and gas pipelines and the Kyaukpyu deep-sea port.

The gas and oil pipeline became operational in 2013 and 2017 respectively. At full capacity, the gas and oil pipeline delivers 12 billion cubic meters of natural gas and 400,000 bpd of oil annually. This contributes to approximately 6% of China's yearly total import and 6% of Beijing’s daily import.

The Kyaukpyu Deep-Sea port is now entering the first stage of development.

If the project is successfully completed, its planned container capacity would top 8 million twenty-foot equivalent unit (TEU), similar to the 7 million TEU of the Valencia port (second largest in the Mediterranean Sea).

Moreover, the port could also serve a dual-use purpose.

In a whitepaper on military, published in 2015, China's Ministry of National Defense stated that "the country's armed forces will continue to carry out escort missions in the Gulf of Aden and other sea areas as required. This will enhance exchanges and cooperation with naval task forces of other countries, and jointly secure international SLOCs".

For these kind of operations, which all fall within the classic nomenclature of military operations other than war, China's navy requires widespread logistic support in the Indian Ocean. The Kyaukpyu port, located in the middle of the Bay of Bengal and connected to mainland China, could serve that purpose, by granting access and support to China's fleets.

Myanmar, a decisive solution to the Malacca dilemma?

As stated, Myanmar’s oil and gas pipeline account for 6% of China's total import of oil and gas. As 80% of energy is imported through the Strait of Malacca, these projects allow China to only reduce its dependence on the chokepoint to 72.5%.

This volume is not sufficient to prevent a crisis if SLOCs passing through the Straits of Malacca, Sunda and Lombok would suffer a prolonged closure.

Similarly, the Kyaukpyu deep-sea port presents some limitations. Its projected annual capacity pales in comparison to Shanghai and Singapore which has an annual capacity of 40 and 33.7 million TEU respectively. A fully developed deep-sea port would fail to deliver a solution to China's Malacca Dilemma.

Thus, Myanmar's participation in the BRI should not be considered as a decisive one-off solution, but as part of a broader strategy aimed at reducing China's dependence on Malacca.

From Beijing's perspective, the BRI's extension into Myanmar offers key benefits with low political risks.

Additionally, it enables the development of potential dual-use facilities for PLA Navy's logistic support. While the port of Kyaukpyu will retain its commercial nature, it would allow Chinas to alleviate the burden of naval operations in the Indian Ocean. Connected by land to mainland China, it could become a prime military outpost for China's Navy logistic operations.

If Myanmar successfully exploits its strategic position and embraces China's vision, it could potentially rise as a critical logistic hub in Southeast Asia, serving as potential channel for trade and energy flows from Europe and the Arab Peninsula to the Southern landlocked regions of China.

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