China Proposes Increased Stake in Myanmar’s Strategic Kyaukphyu Port

On May 8, accord­ing to a Reuters report, a con­sor­tium of Chi­nese com­pa­nies made a pro­posal to the Myan­mar gov­ern­ment for an increased stake of 70% to 85% in the country’s $7.3 bil­lion Kyauk­phyu deep-sea port, located on the Bay of Ben­gal.  The pro­posal comes in response to Myanmar’s offer last year for this project to be a 50/50 joint ven­ture, which the con­sor­tium report­edly rejected.

There are a num­ber of dimen­sions to Kyauk­phyu that imbue it with strate­gic impor­tance for China, includ­ing the dual oil and nat­u­ral gas pipeli­nes that run from the port to China’s Yun­nan province that opened in 2015 and 2013 (an impor­tant – although insuf­fi­cient – hedge for China to import energy via a route that cir­cum­vents the vul­ner­a­ble Malacca Strait).

In addi­tion, China’s efforts to build a Spe­cial Eco­nomic Zone (SEZ) around the port (a report­edly $10 to $12 bil­lion project) are intended to trans­form it into a regional hub for logis­tics and min­eral pro­cess­ing.   The asso­ci­ated deep-sea port has been pegged as a poten­tial dual-use con­cern by mil­i­tary ana­lysts, who view it as poten­tially facil­i­tat­ing Chi­nese power pro­jec­tion, not only into the Indian Ocean, but also inland along new high­way and rail­way lines being dis­cussed along the pipeline route to China.  Access and con­trol of Kyaukphyu’s deep-sea port pro­vides impor­tant posi­tion­ing along the Bay of Ben­gal, which could trans­late into increased Chi­nese naval influ­ence in the region.

Sev­eral sources iden­ti­fied by Reuters indi­cated that China may be lever­ag­ing its par­tic­i­pa­tion in the con­tro­ver­sial Myit­sone Dam (by, in effect, agree­ing to aban­don it) in return for this higher stake in Kyauk­phyu.  Reuters sources also indi­cated their expec­ta­tion that Myan­mar would agree to these pro­posed terms, tak­ing a “back­seat” – in part due to finan­cial con­straints – in the devel­op­ment and oper­a­tional con­trol of the project and yield­ing to the bet­ter-funded Chi­nese state-owned enter­prises.