Myanmar’s 2010 elections present challenges and opportunities for China’s relationship with its south-western neigh­bour. Despite widespread international opinion that elections will be neither free nor fair, China is likely to accept any poll result that does not involve major instability. Beijing was caught off-guard by the Myanmar military’s offensive into Kokang in August 2009 that sent more than 30,000 refugees into Yunnan province. Since then it has used pressure and mediation to push Naypyidaw and the ethnic groups that live close to China’s border to the negotiating table. Beyond border stability, Beijing feels its interests in Myanmar are being challenged by a changing bilateral balance of power due to the Obama administration’s engagement policy and China’s increasing energy stakes in the country. Beijing is seeking to consolidate political and economic ties by stepping up visits from top leaders, investment, loans and trade. But China faces limits to its influence, including growing popular opposition to the exploitation of Myan­­mar’s natural resources by Chinese firms, and divergent interests and policy implementation between Beijing and local governments in Yunnan.

The Kokang conflict and the rise in tensions along the border have prompted Beijing to increasingly view Myan­mar’s ethnic groups as a liability rather than strategic leverage. Naypyidaw’s unsuccessful attempt to convert the main ceasefire groups into border guard forces under central military command raised worries for Beijing that the two sides would enter into conflict. China’s Myanmar diplomacy has concentrated on pressing both the main border groups and Naypyidaw to negotiate. While most ethnic groups appreciate Beijing’s role in pressuring the Myanmar government not to launch military offensives, some also believe that China’s support is provisional and driven by its own economic and security interests.

The upcoming 7 November elections are Naypyidaw’s foremost priority. With the aim to institutionalise the army’s political role, the regime launched the seven-step roadmap to “disciplined democracy” in August 2003. The elections for national and regional parliaments are the fifth step in this plan. China sees neither the roadmap nor the national elections as a challenge to its interests. Rather, Beijing hopes they will serve its strategic and economic interests by producing a government perceived both domestically and internationally as more legitimate.

Two other factors impact Beijing’s calculations. China sees Myanmar as having an increasingly important role in its energy security. China is building major oil and gas pipelines to tap Myanmar’s rich gas reserves and shorten the transport time of its crude imports from the Middle East and Africa. Chinese companies are expanding rapidly into Myanmar’s hydropower sector to meet Chinese demand. Another factor impacting Beijing’s strategy towards Myanmar is the U.S. administration’s engagement policy, which Beijing sees as a potential challenge to its influence in Myanmar and part of U.S. strategic encirclement of China.

Beijing is increasing its political and economic presence to solidify its position in Myanmar. Three members of the Politburo Standing Committee have visited Myanmar since March 2009 – in contrast to the absence of any such visits the previous eight years – boosting commercial ties by signing major hydropower, mining and construction deals. In practice China is already Myanmar’s top provider of foreign direct investment and through recent economic agreements is seeking to extend its lead.

Yet China faces dual hurdles in achieving its political and economic goals in Myanmar. Internally Beijing and local Yunnan governments have differing perceptions of and approaches to border management and the ethnic groups. Beijing prioritises border stability and is willing to sacrifice certain local commercial interests, while Yunnan values border trade and profits from its special relationships with ethnic groups. In Myanmar, some Chinese companies’ resource extraction activities are fostering strong popular resentment because of their lack of transparency and unequal benefit distribution, as well as environmental damage and forced displacement of communities. Many believe such resentment was behind the April 2010 bombing of the Myitsone hydropower project. Activists see some large-scale investment projects in ceasefire areas as China playing into Naypyidaw’s strategy to gain control over ethnic group territories, especially in resource-rich Kachin State.

This briefing is based on interviews conducted on both sides of the China-Myanmar border, including Yunnan province, Kachin State and Shan State, as well as in Beijing, Kunming, Yangon, Chiang Mai, Bangkok, New York and Washington DC. Crisis Group spoke to a wide range of individuals, including: Chinese experts and officials, ethnic group representatives, members of Burmese civil society, and local and international NGOs. Most interviewees asked to remain anonymous, due to the sensitive nature of the subject.

Beijing/Jakarta/Brussels, 21 September 2010