From infrastructure to consumer goods, Chinese and Thai companies have expanded in Myanmar as their countries maintain relations with the Western-sanctioned military-led government.

Than Swe, Myanmar’s military-appointed deputy prime minister and foreign minister, met with China’s ambassador to Myanmar, Chen Hai, on Aug. 30 in the capital, Naypyitaw. The two diplomats discussed strengthening bilateral relations and accelerating joint projects, a state-owned newspaper reports.

The meeting — which occurred ahead of this month’s Association of Southeast Asian Nations summit, an event Myanmar did not attend despite being a member — underscored Myanmar’s tilt toward China.

Myanmar approved $5.4 billion in foreign direct investment between February 2021, when the military took over the government, and March of this year, according to the Institute for Strategy and Policy-Myanmar, a private think tank. China, including Hong Kong, accounted for 55%, or $3 billion.

Officials from both countries envision building the China-Myanmar Economic Corridor, a series of projects connecting mainland China to the Indian Ocean through Myanmar. Chinese companies are taking the lead on rail and port construction.

China’s Union Resources & Engineering and Yunnan Energy Investment are building a $2.5 billion power plant in the Ayeyarwady region in southern Myanmar. It will run on liquefied natural gas and generate around 1.4 gigawatts of electricity. The plant is to begin commercial operations in 2027.

While China has reined in its infrastructure-building Belt and Road Initiative, in part due to the effects of the COVID-19 pandemic, Chinese money talks with a bigger voice in Myanmar amid a decline in other foreign investment.

The larger Chinese presence can be seen in Myanmar’s garment industry. Some Chinese-owned clothing factories shut down in the chaos immediately following the military takeover after a spate of arson and looting. But since then, the number of Chinese garment factories has surpassed pre-takeover levels.

The more than 300 Chinese clothing factories in Myanmar, according to the Myanmar Garment Manufacturers Association’s tally, account for more than half all garment factories operating in the country.

Thai companies are also filling the void. Thai Beverage-owned Fraser and Neave, a Singapore-based brewer, said in July it would spend 19.2 million Singapore dollars ($14.1 million) to acquire alcohol licenses and land-use rights in Myanmar. F&N will build a brewery through a joint venture with a local company.

This move represents an expansion for F&N. Since 2019, the company has produced and sold ThaiBev’s signature Chang beer in Myanmar through a separate joint venture.

Consumer spending in Myanmar is recovering. Two and a half years since the military takeover, restaurants and shopping centers have reopened in big cities.

The country’s manufacturing purchasing managers’ index published by S&P Global topped the boom-bust line of 50 for seven straight months through August.

“Thai companies are worried about rising wages at home, so they’re turning their attention to Myanmar’s low labor costs,” said Shinsuke Goto, who runs a consultancy serving businesses expanding into Myanmar.

Energy companies from Thailand are entering Myanmar as well. Last year, Northern Gulf Petroleum acquired rights to the Yetagun undersea gas project after Japan’s Eneos Holdings and Malaysia’s Petronas withdrew from the project.

Thailand’s state-owned oil and gas group PTT Exploration and Production took over TotalEnergies’ lead operator role when the French energy major exited Yadana, Myanmar’s biggest undersea gas field.

While critics say buying gas from Myanmar funds the military, the country plays an important energy security role in the region. Myanmar supplies roughly 15% of the natural gas consumed by Thailand.

Thailand’s government under former Prime Minister Prayuth Chan-ocha, who himself came to power in a 2014 military coup, showed understanding toward Myanmar’s military-led government. The coalition government formed this week by new Thai Prime Minister Srettha Thavisin includes an energy minister from a military-linked party, suggesting continuity in Thailand’s energy policy toward its neighbor.

European multinationals have withdrawn from Myanmar’s telecom and energy sectors, which have close ties to the military. They also are shrinking their presence in the garment industry, a major economic driver.

Sweden’s H&M said in August that it would gradually phase out orders for Myanmar-made apparel. The fast-fashion company had suspended new orders from Myanmar in the turmoil after the military takeover, but resumed them around May 2021.

H&M’s announcement followed a report by the London-based nongovernmental organization Business & Human Rights Resource Centre alleging unfair wages and dismissals at garment factories in Myanmar. The report included 20 allegations involving H&M. It also alleged collusion between garment factories and military authorities.

The report said that “brands continuing to source from Myanmar must take further measures to assess whether they can ensure the absence of employer-military collusion, that worker-driven stakeholder engagement takes place and that livelihood needs are met,” adding that “evidence increasingly indicates that the current operating environment makes such heightened due diligence efforts nearly impossible.”

Spain’s Inditex, operator of the Zara fast-fashion chain, also announced a gradual exit from Myanmar in June, triggered by an incident in which labor union members who had demanded wage increases at a client factory were dismissed and arrested by security authorities.

After the military takeover, H&M and Inditex continued to procure clothing from the country, arguing that halting orders would lead to unemployment and worsen the situation for local workers, but criticism from human rights groups and others continued to mount.

Though Japanese beverage company Kirin Holdings and Eneos have withdrawn from Myanmar, most of the roughly 400 Japanese businesses that operate in the country are biding their time. Japan and Myanmar historically have a friendly relationship, and the market holds the promise of growth if the political situation stabilizes.

Construction remains suspended at Yoma Central, a large-scale real estate development in Yangon in which trading house Mitsubishi Corp. and Mitsubishi Estate are participating.

Toyota Motor started operations at a directly managed plant in September 2022 that was completed just before the takeover. Output totaled one to two vehicles daily at first, but now is up to four to five, according to a source. The original plans were for about double that daily production.

For companies that have put down capital, leaving poses a difficult choice. Offshoring will remain in Myanmar in industries like manufacturing and systems development where low wages provide an advantage, said a Japanese accountant based in the country.