Via The Economist, an interesting look at how the opening of Myanmar may benefit the rest of Asia:

Putting the Irrawaddy to work

ON THE NORTHERN outskirts of Yangon lie the sprawling industrial estates that used to provide Myanmar’s economic muscle, such as it was. Now, after decades of sanctions and economic mismanagement, many of the factories have been demolished and the ones left standing are mostly derelict. But amid the rubble are signs of new life, not only for Myanmar but for the rest of Asia. Near the gates of the Mingaladon Industrial Park two new Japanese-owned factories have sprung up out of the debris. One of them, Famoso Clothing, offers a glimpse of a better future for Myanmar—and for Asia.

Owned by Daiei Ready Made Clothes Corporation, based in Japan’s Nagoya, Famoso was set up in Yangon in 2002 as a small operation to make men’s suits exclusively for the Japanese market. The parent company did most of its business in China, where it employed thousands of local workers in three factories. But three years ago two of the factories in China were closed and the plant in Yangon was rebuilt at a cost of $7m to become the company’s new Asia hub, explains Famoso’s managing director, Kazuto Yamazaki. The company’s last Chinese factory will close within a year and the Yangon operation will triple its output, from 170,000 suits a year to half a million.

The reason for the switch is simple, says Mr Kazuto: the high cost of labour in present-day China. In Myanmar he pays workers around $100 a month, a quarter of the going rate in China. Moreover, Famoso is well placed to take advantage of the most important economic consequence of Myanmar’s political reforms: the ending of Western sanctions, and in particular the ban on imports from Myanmar. Famoso is making its first suits for Britain’s Marks & Spencer, ready for shipping in July. Famoso has even applied for a licence to sell its suits in Myanmar itself for the first time. Mr Kazuto says there is growing demand for Western clothes from politicians in Naypyidaw.

Famoso has the full backing of the Japanese government. The new prime minister, Shinzo Abe, has identified South-East Asia, and in particular Myanmar, as places where goods can be assembled cheaply but also as new markets to help revive the Japanese economy. Japan has written off billions of dollars-worth of Myanmar’s debts to it and is now investing heavily in the country. Among other things it is building a large new river port, part of the Thilawa Special Economic Zone just south of Yangon, to replace the former capital’s old, silted-up facility. This will cost about ¥20 billion ($200m) in the first instance, which will come out of its overseas aid budget. And if that sounds very Chinese, Japan is spending another ¥14 billion to help fix the dodgy electricity supply in Yangon and a further ¥20 billion on other infrastructure projects throughout the country. The mix of low wages, a plentiful supply of labour and access to American and European markets should mean that many more Famosos will be set up in Myanmar.

Japan’s move to take swift advantage of a reforming Myanmar does not come as a surprise. Its relations with the country had been much better than Europe’s and America’s, though it had maintained some sanctions. Other Asian countries had simply continued to invest there and are now reaping the benefits. Up and down littoral Myanmar all of Asia’s big economies are opening up new trade routes to reach neglected parts of the Asian land mass. The results could transform large swathes of the continent. Myanmar’s geographical position, hugging the Bay of Bengal between the two Asian superpowers, India and China, has become its prime asset.

Geography is destiny

Thailand, for instance, the second biggest investor in Myanmar after China, is forging ahead with a bigger version of Thilawa at Dawei, on Myanmar’s Tenasserim coast. The deep-water port, associated industrial zone and roads connecting them with Bangkok 300km away will cost about $8.5 billion. Thai rulers had for centuries been toying with the idea of building a canal across the Kra Isthmus, linking the Gulf of Thailand directly to the Andaman Sea and the Indian Ocean to avoid the journey round peninsular Malaysia through the Strait of Malacca (see map). Dawei will at last give Thailand that link.

Grand plans to improve roads all the way from Bangkok to Cambodia and Vietnam are also in hand to spare those countries the tedious rounding of Malaysia and allow them to ship their goods from Dawei directly to Europe. This could profoundly alter the economic geography of South-East Asia, much reducing the importance of Singapore’s and Malaysia’s container terminals as trans-shipment points. Thilawa will also provide companies like Famoso with more direct access to European markets.

To the west, the Indian government also has big plans that will advance its long-standing “look east” policy. It is well into a $100m upgrade of the old port at Sittwe, at the mouth of the Kaladan river in Rakhine state. Big container ships will dock here and offload their cargoes onto smaller barges which will then travel 225km up the Kaladan before transferring onto trucks and into India. The Indians hope that this project will help open up the seven states of their landlocked north-east that are home to about 40m people. They are among the poorest regions in India, partly because of restricted access to the main body of the country through the narrow corridor between Bangladesh and Bhutan known as “the chicken’s neck”. The improvements will make it much easier to ship goods on the new Kaladan route from Kolkata to Mizoram than it was to travel overland through India around the top of Bangladesh.

The Indian government is also working on the road link through Manipur to Myanmar, opening up new overland connections to China and Thailand. The Thai part of this is an ambitious project called the “Trilateral Highway”, which will take traffic from Imphal down to Thailand’s Mae Sot border crossing and to Dawei. The Indians are planning to upgrade the present old and inadequate customs post on Manipur’s border with Myanmar, Moreh, to a new “Gateway to South-East Asia”. The Indians themselves have already rebuilt 148km of road inside Myanmar as part of this project and are set to do more. D.S. Poonia, chief secretary to the state government of Manipur in parched, dirt-poor Imphal, looks forward to the investment and jobs that might flow along these new commercial arteries. Neighbouring Bangladesh is also eyeing up the possibilities of Sittwe’s port. Its consul in Sittwe, Mahbubur Rahman, says Bangladeshi companies want to take advantage of cheap labour and land to set up textile and pharmaceutical factories.

China, long the biggest investor in Myanmar, has been toiling away at its own grands projets. The most important of these are the new oil and gas pipelines that crisscross the country, starting from a new terminus at Kyaukphyu, just below Sittwe, up to Mandalay and on to the Chinese border town of Ruili and then Kunming, the capital of Yunnan province (see map above). This will save China having to funnel oil from Africa and the Middle East through the bottleneck around Singapore.

The Chinese have also been using Myanmar to open up their own Yunnan province. The booming border town of Ruili has become a mecca for Chinese buyers of Myanmar jade, considered to be the best in the world (and highly auspicious). Thousands of shops sell the luminescent deep green gemstone, fashioned into lucky charms and jewellery of all sizes and shapes. Most of the jade mines in Kachin state are owned by the Burmese generals and their crony companies, who sell large quantities of the stone to the Chinese. The badly paid Kachin workers at the mines feel left out.

China wants to turn Yunnan into the country’s biggest domestic tourist destination and has built a big airport at Kunming. Many Chinese tourists do not want to go to Myanmar because they consider it dangerous and dirty, but they can safely visit a surreal plastic recreation of the country’s principal sights on the Ruili side of the border.

Some worry that so many big powers rushing into a relatively small and underdeveloped country could spell trouble. Think-tankers in Beijing fret about America’s ambitions in Myanmar and the inroads that Japan is making into the country. Strategists in Delhi wonder whether the new Chinese facilities on the Myanmar coast might lead to India’s encirclement. India is already blaming China for arming and sheltering some of the dozens of insurgent groups that have been fighting for decades for autonomy in India’s north-east. These conflicts have contributed to the region’s poverty and marginalisation and might yet frustrate attempts to open it up. General John Mukherjee, a former chief-of-staff to India’s Eastern Command, says openly that the many Indian divisions stationed in the north-east are “devoted primarily to watching China and training for operations against China”.

Let’s be friends

On the ground, however, these worries look overblown. Indeed, many of the projects now taking shape across Myanmar have been gestating for years in rather obscure pan-Asian networks of joint Indian and Chinese provenance. BCIM (short for Bangladesh, China, India and Myanmar), for instance, a group set up mainly on China’s initiative in 1999, organises seminars and conferences and has been pushing the idea of an integrated economic zone spanning Yunnan, the Indian north-east, Myanmar and Bangladesh. Now that Myanmar has emerged from its isolation, such ideas no longer look far-fetched. Earlier this year BCIM organised a 3,000km car rally from Kolkata to Kunming, passing through Dhaka, Imphal and Myanmar along the way in an effort to stimulate interest in a new trans-Asian highway.

All told, the opening of Myanmar is just as likely to bring Asia’s great powers together as it is to divide them. Myanmar’s government, for its part, will be glad to co-operate with as many countries as possible in order to spread its risks and end its over-reliance on China.