August 1, 2014 12:19 pm

Road to Mandalay: the trade route vital to Asia’s future

The ancient trade route from Myanmar to China has been upgraded. Shawn Donnan reports on why it will play a vital role in the globalised future of Asia
The scene in Muse at the towering faux pagoda that serves as a border post with China©Charlie Bibby

The scene in Muse at the towering faux pagoda that serves as a border post with China

It is just after 8am on a sunny Saturday morning and the Muse border post is buzzing. The line of Burmese waiting for permits to cross under the towering faux pagoda and into China for work is already dozens deep. Guards in olive green uniforms check the paperwork of a woman pushing a cart stacked high with boxes in the other direction. A long-haired Burmese hipster in a leather jacket passes through unmolested on a shiny new red Honda with low-rider handlebars. Then a pretty young Chinese woman, upright on a pink electric scooter with a blue parasol, glides through straight on to the ragged verge, narrowly avoiding the oncoming trucks which, stacked high with boxes of Chinese-made TVs and washing machines, kick up swirls of dust as they buck down the thoroughfare.

Watching it all is a clutch of Chinese tourists, eagerly taking pictures of the wild western frontier before them. And watching me watch them is Zaw Min Latt, a 42-year-old driver waiting for Chinese traders willing to pay for the $100 ride in his Toyota to Mandalay. Almost six feet tall and turned out in a cashmere sweater, Zaw Min Latt is an elegant man. He is also wary of those who give him most of his business. He nudges his head towards the Chinese group and mutters that they often sneak across without proper documentation and that Myanmar’s government doesn’t do enough to control the flow. The relationship is “not equal”, Zaw Min Latt complains. “It feels like we are losing. The Chinese hold the upper hand because they helped the old military government.” He pauses for a few seconds and adds: “They always hold the upper hand in business.”

There are busier borders in the world. But there are very few that in the great game of globalisation stand to undergo more profound change in the years to come. Scrappy Muse (pronounced Mew-say) and Ruili, its neon-lit Chinese neighbour, make up China’s busiest border with Myanmar. They are also a crucial link in an ancient trade route that is now being reborn in a way few of its past travellers could have imagined.

Driver Zaw Min Latt waits for trade in Muse©FT

Driver Zaw Min Latt waits for trade in Muse

Muse is China’s long sought-after gateway to the Bay of Bengal: a geostrategic pin on a map. Last October, a new pipeline that crosses the border nearby began pumping natural gas from the Bay of Bengal into China, feeding power plants and industry in the western province of Yunnan. Another pipeline alongside is due to start pumping oil brought from the Middle East, eventually carrying as much as 20 per cent of China’s oil imports into the country. The road to Mandalay is being upgraded. Another road, the Chinese hope, will within a few years provide the overland route into India. There is even a plan for a $20bn high-speed rail line to rattle through, delivering Chinese goods to vast ports and container terminals that will ship them all the way to Europe.

If it all goes according to Beijing’s plans then, within the next decade, Muse will be the funnel into a crucial corridor between the world’s biggest trading nation and consumers in Europe and India, that other rising Asian giant. The result would mean the birth of an alternative to the southern Chinese ports that have dominated China’s trade with the outside world since the East India Company first came calling more than 300 years ago.

But if Beijing’s plans come to fruition they could also be a key part of efforts to transform Myanmar from a junta-governed economic pariah into a crucial link in the global economy. Myanmar is going through a political transition that could, if it holds, arguably see the world’s most famous living dissident, Aung San Suu Kyi, in government within the next year or so. To visit Muse is to imagine the economic future that may well accompany that political transition and the inevitable role China is likely to play in it.

The market in Muse, where most of the goods are Chinese©FT

The market in Muse, where most of the goods are Chinese

Do it in one long dash and it takes 13 hours to reach Muse from Mandalay. The road east from Mandalay is a two-lane affair, not much bigger in parts than an English country lane. It goes up through the hill stations to which George Orwell and other British colonial officers once retreated for their holidays and winds into the Shan Hills, which have through the centuries posed a formidable natural obstacle to invaders and traders.

What was once called the “Burma Road” is steeped in history. The 1885 British conquest of Upper Burma was driven in part by a desire to secure a trading route into western China, a plan advocated by British explorer and journalist Archibald Colquhoun and adopted by Randolph Churchill, father of Winston and then secretary of state for India, as justification for the war that ousted the last king of Burma. “The wealth of Upper Burma and also the resources of western China and the Shan States are incalculable,” Colquhoun wrote in his 1898 book China in Transformation, “but they lie fallow at present for want of connections, both internal and with the outer world.”

location map of Mandalay, Myanmar

The railway that runs nearby as far as Lashio, a scrappy outpost five hours from the border, was born out of that colonial desire and abandoned when its backers realised China’s west was still wilder than anticipated. In the 1930s the route was reborn and expanded as a conduit for British and US supplies to bolster Chiang Kai-shek and his Chinese nationalists as they tried to fight off Japanese invaders from their base in the western city of Chongqing. Cutting that supply route was in part why the Japanese invaded Burma in 1942. Regaining it was largely why the US and British pushed back from India, making it to Muse and the border in 1945.

The area also has a more recent history. Until last year foreigners – and certainly western journalists – could only make the journey past Lashio with a special permit. For decades the Burmese regime has fought ethnic militias and drug lords in the Shan Hills. These form the western edge of the golden triangle, the borderland regions of Myanmar, Thailand and Laos that are second only to Afghanistan in providing the world’s heroin. Just to the south and east of Muse lies the semi-autonomous territory of the United Wa State Army, a separatist militia of 30,000 fighters that since the late 1980s has run a thriving trade in drugs and casinos catering to Chinese businessmen and bureaucrats.

Today, the toll road between Lashio and Muse is operated by Asia World, the business empire of the Lo Hsing Han, once known as the “Godfather of Heroin”, who died last year and was the subject of US sanctions for his ties to the Burmese regime. The company, Myanmar’s biggest conglomerate, is now operated by one of his US-educated sons, Steven Law, who has also been accused of drug trafficking and remains the subject of US sanctions.

But these days there is also plenty of legitimate trade rumbling through the Shan Hills and either heading to or coming from China. Numerous tea houses and restaurants clad in whisky ads come fitted with elaborate arrangements of hoses that the drivers of overburdened trucks use to spray water on overheated brakes before tackling the next pass. It is a trade actively encouraged by both the Chinese and Burmese governments, but it also sits in the context of a difficult relationship.

When, in a move that has become one of the biggest symbols of the shifting political winds in Myanmar, President Thein Sein suspended a $3.6bn Chinese-funded mega dam project in September 2011, he was bowing to the demands of locals and defying Beijing. The move was driven in part by the fears of Myanmar’s leaders that they were too dependent on China economically. But it was also a response to what many saw as the all too often servile position Myanmar’s junta had adopted towards China, for a long time its lone reliable ally.

The Chinese hold the upper hand because they helped the old military government. They always hold the upper hand in business

- Zaw Min Latt, driver

The shift since has been remarkable. Western sanctions have eased and Myanmar’s relationship with the US and UK has improved dramatically. Behind the high walls of the Chinese embassy in Yangon you find downbeat diplomats clearly perplexed by the way the ground has shifted under them. The past few years had been “difficult”, Gao Mingbo, then head of the political and information section, grumbled when I visited last year.

It is easy still to find signs of the resentment many Burmese feel towards China. In January a brawl between Burmese and Chinese workers laying the oil pipeline due to go into operation later this year led to two buildings being burned down and the arrest of almost two dozen Burmese. Announcing just last month that he wanted to cancel plans for the high-speed rail link through Muse, a Myanmar rail official cited “social and environmental concerns”. “China has a huge image problem here,” is how Than Myint-U, the Burmese historian and author, puts it.

But the reality is also that, three years into Myanmar’s awakening, western investors remain a rarity. Diplomats complain that investors still seem intimidated by the political uncertainty surrounding elections next year and by Yangon office rental prices that can be more expensive than Singapore. And while investments have stalled as Chinese investors have digested the decisions to suspend the dam project, trade between the two countries has been hitting new records. Last year, China exported $7.5bn in goods to Myanmar, equivalent to 40 per cent of Myanmar’s imports. This was up 52 per cent on 2011, when the relationship ostensibly turned sour.

Gao Mingbo and his colleagues were buoyed by that data when I visited them. But they were also working hard to regain lost ground. The next day Gao, who has a master’s from the London School of Economics and boasted that China’s Yangon embassy was the only one in the world with a Facebook page, was due to fly to the northern city of Myitkyina. He had organised for the investors in the idled mega dam project nearby to use power from the already completed auxiliary power plant to light up the town for a peace conference between the government and separatist militias. His hope was that by illustrating the potential benefits of the dam he could score some diplomatic points.

Gao, who was coming to the end of his posting, was mindful also of the public diplomacy war he was fighting. Myanmar, he told me, “is very important” strategically. “It would be dishonest to [deny] that. Everyone sees the strategic imperative. That is why everyone is rushing back.” He frowned. “But for China, Myanmar is not the only option. We have other options. Such as Bangladesh. Such as Pakistan and even India. We have very good relations with India. Myanmar is just one of the options.”

The road from Muse to Mandalay – a 13-hour trip along a thoroughfare not much wider in parts than an English country lane©Charlie Bibby

The road from Muse to Mandalay – a 13-hour trip along a thoroughfare not much wider in parts than an English country lane

We live in a world where it is increasingly hard to escape Chinese products. But in Muse escape is nigh on impossible. Walk into the market in the centre of town and the imbalance in the trading relationship hits you quickly. (China imported just $2.8bn in goods from Myanmar last year; $1.2bn of that was in jade, rubies and other gemstones.) Everything bar the vegetables and the people comes from China. The deathly quiet electric scooters that sneak up behind you are made in China. So too are the bicycles, the “hot pots”, pans, cooktops, mobile phones, DVD players, children’s toys, “Italian-style” dressing tables, flip-flops and puffy winter jackets that bulge into the aisles. Even the traditional-looking Burmese longyi, or sarongs, are made in China.

The fruit and vegetable stands are the exception. For the most part. At the stall where I stop and ask one young shopkeeper, she shyly answers, “everything is made in Burma”, nodding again and again as I point to the apples, bananas, mangosteens and melons. “Except for those,” she adds, pointing at a basket of tiny mandarins. “They are from China.”

Muse’s people are also increasingly shaped by the behemoth next door. If Muse is a scrappy, dusty spectacle of a border town, the neighbouring Chinese city of Ruili is a wonderland full of high-rise hotels and shopping malls.

When she isn’t working at the family emporium, which sells everything from plumbing fixtures to chewing gum, Poe Ei Phyu’s entire life is oriented towards China. The Mandarin-speaking 33-year-old spends her days off shopping in Ruili or meeting friends there. Her nights off are spent watching The Voice of China, the talent competition that is China’s most popular TV show. She is oblivious to the political transformation so many of her peers in Yangon are obsessed with. “There might have been changes in Yangon, but there haven’t been many here,” she says. “Nothing much has changed economically.”

Poe Ei Phyu at her family's emporium in Muse©FT

Poe Ei Phyu at her family's emporium in Muse

From the house overlooking China in which he was born and now lives with his wife and two young sons, Sai Myat Aung has a different take. Everything has changed, he says. It’s just that it has happened in the distance, across the barren plain at the foot of the hill on which he lives. “When I was very young there wasn’t much there,” he tells me as we gaze out at the cranes and high-rises going up across the river in Ruili. “There were just a few buildings. There wasn’t much difference [with Myanmar].” But over more than three decades, everything has changed. “When you look at other countries that are developed and your country is not, you really envy that development,” he says.

Everyone sees the strategic imperative. That is why everyone is rushing back to Myanmar

- Gao Mingbo, Chinese diplomat

The central question for Myanmar is how it copes with that envy. In his 2011 book Where China Meets India: Burma and the New Crossroads of Asia, Thant Myint-U, the historian, argues that, handled correctly, Myanmar’s economic future ought to be bright. “Draw a circle around Mandalay with a radius of a little more than 700 miles. That circle reaches west over Bangladesh and across the hill states of India to Assam, West Bengal, Orissa and Bihar; north and east to China’s Yunnan and Sichuan provinces and parts of Tibet and southward to cover most of Laos and Thailand,” he writes. “Within that circle are the homes of no fewer than 600m people, nearly one in 10 of all the people on the planet.”

Just a few years on from writing that passage, Thant Myint-U is slightly less effusive. Myanmar is in the middle of an awkward transition, he tells me. It is unclear what the economic policies are likely to be should, as is expected by most, Aung San Suu Kyi’s National League for Democracy lead the next government after elections next year.

He frets about the rising nationalism he sees. But China’s road to the sea, the trade corridor through Muse, is now “almost inevitable”. Whatever happens, “the broad trajectory of things is for this country to be the crossroads”.

Shawn Donnan is the FT’s world trade editor

Photographs: Charlie Bibby

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