Containing China? Japan ramps up investment, influence in SE Asia

The rice farmers in Thanlyin township didn’t have much choice when the Myanmar government ordered them off their land last year to make way for a new special economic zone called Thilawa. So local resident Mya Hlaing and two others carried their complaints to an unlikely destination – Tokyo.

That’s because Thilawa has become the beachhead for Japan’s new move into Myanmar.

Some 72 years after its imperial forces poured over the Thai border and temporarily occupied British-ruled Burma during its march across Asia, Japan is emerging as an important investor in everything here from banking to telecoms.

Three years into Myanmar's tenuous transition from military rule, Japan is also playing partner to the new quasi-civilian government as it searches for economic success after the junta. So far that success has been elusive.

Moreover, Japanese Prime Minister Shinzo Abe and President Barack Obama – who both arrive in Myanmar Wednesday for a regional summit – share an interest in diluting the influence of China. Beijing has been Myanmar’s patron for two decades of Western sanctions in this strategic stretch of Southeast Asia, and while its influence is waning, it still has clout.  

From Thilawa to Tokyo

Japan’s government and Japanese firms own 49 percent of the Thilawa project, which is located 16 miles south of Yangon, the former capital city. Myanmar’s government and firms have the other 51 percent. Tokyo is the key driver, fronting the money for a 50-megawatt power plant, access roads and modern transmission lines designed to attract Japanese and other companies that are still wary of building factories in this long-isolated country.

That makes Japan a big beneficiary if the project succeeds. But it also means Tokyo will inherit some of the unresolved problems of Myanmar’s legacy of military rule, such as land rights disputes and a weak regulatory system.

“We asked for a chance [to discuss the resettlement], but the Myanmar government didn’t do it, so we left for Japan,” Mr. Mya Hlaing said last week through a translator. Mya Hlaing acted as a spokesman for the other aggrieved local farmers who sat on the floor of his tin-roofed wooden house. The walls are festooned with photos of the planned economic zone and a flat screen television.

With help from Mekong Watch, a Japan-based organization that advocates greater consultation with local communities in Japanese aid projects, three farmers flew to Tokyo. There they told officials that local farmers had been pressured into signing away land at far less than market value, and that their new houses are inadequate.

Now, they’re waiting for action – and for any sign that the tens of thousands of construction and factory jobs promised by Japan here will pan out.

Competing interests

The outcome of Japan’s involvement in Myanmar may also matter for the US. While President Obama and former Secretary of State Hillary Clinton count Myanmar’s transition ­as a major foreign policy legacy, the reality is that US involvement here remains minimal, hobbled by remaining sanctions and congressional wariness.

Instead, it's Asian countries like Japan, South Korea, and Singapore that are the key investors here right now. Japanese manufacturers, in particular, see Myanmar as an alternative site in case a natural disaster strikes or tensions with Beijing force them out of China.

Indeed, Chinese officials appear to view Japan’s push – Prime Minister Abe pledged nearly $600 billion in aid last year – as part of a US containment strategy, notes David Steinberg, a Myanmar specialist and former professor at Georgetown University. Mr. Steinberg and other specialists call it cooperation. James Schoff of the Carnegie Endowment for International Peace wrote in September that Japan and the US should work more closely together in Myanmar.

Other investments are proceeding without controversy, as Japanese officials draw on good relations they built after World War II in Myanmar. Japanese companies do enjoy a better reputation than Chinese firms – many of which are in retreat in Myanmar, resented for what are called heavy-handed practices.

But as the Thilawa project shows, Tokyo is finding it has to step carefully as it works with a government still mistrusted by the people.

It’s just one of the challenges facing Takashi Yanai, the Japanese chief executive at Myanmar Japan Thilawa Development Ltd.

Currently, Thilawa is still a huge plot of dirt bordering a forested Buddhist monastery and dotted with bulldozers and drainage ditches. But about 20 companies have agreed to invest here.

If all goes according to plan, Mr. Takashi says, the area will be a hub of industrial activity with factories making everything from Coca-Cola cans to car parts, and employing tens of thousands of local people. He points to the tall bamboo poles placed around the site to protect Myanmar construction workers from monsoon-season lightning and says, “Everybody knows the infrastructure is poor and the regulations are not established yet. But you can see the potential.” Smiling, he adds, “I have many people pressuring me.”

A new era

There’s reason for optimism. Memories of Japan’s World War II occupation do not rankle heavily here among the majority. The Japanese were first greeted as liberators in 1942 by Burma’s independence fighters, including Aung San, the slain father of current opposition leader Aung San Suu Kyi.

Mr. Aung San and his comrades grew disillusioned with Japanese rule and switched sides before the war ended. Still, Tokyo became Burma’s most important benefactor, to the tune of $2.2 billion in aid and reparations by 1988, according to Steinberg. Japanese leaders claim a kinship with the country where many of their soldiers died and they stress shared Buddhist traditions between two states. 

When pro-democracy protests led to a military crackdown in 1988, the US pressured Japan to help isolate Burma, notes Ichiro Maruyama, deputy chief of mission at the Japanese embassy in Yangon. And while the Japanese International Cooperation Agency (JICA) provided aid, the money coming from corporate Japan – whose fortunes declined after the 1980s boom – got scaled back.

China, meanwhile, spent more than $14 billion in the intervening years on resource projects. As of Sept. 30, Japan is only the 12th biggest investor in Myanmar since 1988, at $359 million.

Yet when Myanmar’s generals moved toward democracy, Japan was ready.

In September, Myanmar awarded three of nine foreign banking licenses to Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group and Mizuho Financial Group. It chose KDDI and Sumitomo to overhaul the state-owned wireless company. Japan is also overseeing the creation of the Yangon Stock Exchange.

Abe’s government, meanwhile, has written off nearly $3 billion in Myanmar debts.

“'Japan Inc.' is investing,” notes Vikram Kumar, the Myanmar-based representative for the World Bank’s International Finance Corporation. “It’s a strategic market for them, and they’re being supported very strongly by JICA.”

'Still a learning process'

Still, members of the ethnic Karen minority complain that JICA is working too closely with the government on infrastructure plans in southeastern Myanmar.

“This is Japan trying to be there before anybody else,” says Paul Sein Twa of the Thailand-based Karen Environmental and Social Action Network Group.

At Thilawa, Japan has stepped into a series of land disputes that date back to the 1980s.

When Mya Hlaing and his comrades returned to their village still wary of JICA, but hoping that Japan would get the Myanmar government to agree to a better resettlement package.

Kyaw Win, a local farmer who has refused to leave his land, says that due to Japanese influence, the Myanmar government hasn’t yet followed through on legal action against him.

Mr. Maruyama and Masahiko Tanaka, JICA’s chief representative in Myanmar, note that this is the first time Myanmar has resettled people in accordance with international standards. “It is still a learning process,” says Maruyama.

Beyond Thilawa, Japanese officials say that their involvement can help sustain Myanmar’s political reforms.

“Of course, Myanmar cannot ignore the relationship with China,” says Maruyama. “But if Myanmar can be a real democracy, then we – Japan and the US – can keep good relations with Myanmar.”