Many Chinese people tend to think that Southeast Asia is too small and not worth paying much attention to. Since the mid-1990s, I’ve been studying and exploring Southeast Asia, with my travels focusing most heavily on Myanmar, Cambodia, Laos, Thailand, and Malaysia. I’ve visited Vietnam and Singapore relatively less often. The case studies I’ll discuss here center on the investment relationship between China and Myanmar; however, the issues encountered in this context are ones that China will largely—and frequently—run into when investing in other countries as well.

The investors I’ll mention below include both industry players and government-affiliated institutions. China’s investments in Myanmar have encountered numerous challenges, with two cases drawing the most attention from the Chinese side. One is the large-scale hydropower project on the Irrawaddy River in Myanmar, and the other is the massive copper mining project at Letpadaung.

A Brief Overview of Two Investment Dispute Cases: Lessons I Learned in Myanmar

In Myanmar, the Irrawaddy River is the great river—the “mother river” of the Burmese people. In northern Myanmar, it has two tributaries: the Myitkyina River and the Manly River. These two rivers flow southward through the delta region and eventually empty into the Indian Ocean. For the local residents along its banks, especially the Kachin ethnic group, the Irrawaddy River holds significant cultural and traditional value, including profound religious significance.

China’s construction of dams and hydropower stations on the Irrawaddy River offers the benefits of providing renewable hydropower resources and regulating water flow rates, thereby achieving a balance between peak and off-peak seasons.

The first phase of the project, which broke ground in 2010, is a dam located on the China-Myanmar border. Within Myanmar itself, criticism of this project focuses on three main aspects:

The first issue involves migration. The first phase of the Irrawaddy River project is estimated to displace at least 12,000 residents, yet local villagers are reluctant to leave. This situation is further complicated by decades of conflict between the Kachin people and the federal government and its military—the central authority system of their country. A widely circulated conspiracy theory claims that building the dam is a key part of the Burmese central government’s plan to completely destroy the foundations of the Kachin nation. For decades, the two sides have been locked in armed conflict, and despite the federal government and military not having achieved complete victory, they’ve resorted to large-scale migration as a way to dismantle the Kachin people’s homeland. Once the project is completed, the area submerged by the reservoir will cover nearly 300 square miles.

Second, the issue involves ecological and safety concerns. Myanmar shares similar geological conditions with China’s Yunnan-Guizhou Plateau. Critics argue that constructing such a massive hydropower plant in this region could trigger more unpredictable events, posing significant safety risks. The proposed dam, standing at an impressive 152 meters high, is located upstream in the host country. Should an earthquake occur and cause the dam to breach, the downstream areas would suffer catastrophic consequences—floodwaters would rush uncontrollably downstream. Moreover, local residential buildings and other structures are both low-rise and structurally fragile, utterly ill-equipped to withstand the impact of such massive floods.

Third is the distribution of benefits. Now that this dam has been built and electricity is available, who exactly stands to gain? At the end of World War II, Myanmar boasted the best economic and social development indicators among all Southeast Asian nations. When I visited in the mid-1990s, Myanmar’s backwardness had already far exceeded my wildest imagination.

At that time, Myanmar was severely lacking in electricity. The country’s two largest cities were Yangon and Mandalay. After sunset, these two major cities plunged into complete darkness—unless large-scale businesses or important institutions had their own generators. Even most parts of the capital city were without power, which really struck me. Local overseas Chinese joked with me: “Myanmar truly lives up to its name—no electricity at all.”

This situation did not improve significantly until 2009, that is, before the aforementioned hydropower project began construction.

As the opponents point out, although this hydropower station will generate a substantial amount of electricity once completed, why is 90% of that power being sent to China? Why not keep most of it for domestic use instead?

When the agreement was signed between China and Myanmar, Myanmar was under military rule. Two years later, the Myanmar military government began gradually moving toward political reforms that would see military personnel transition into civilian roles, while carefully easing its control over opposition parties and civil society forces. Although there is considerable debate both domestically and internationally about just how deep these political reforms actually are, Myanmar’s current president stated last year that, due to overwhelming domestic opposition, they had no choice but to temporarily suspend this large-scale hydropower project.

The first-phase total investment for this project from the Chinese side is 3.6 billion U.S. dollars, and several hundred million U.S. dollars have already been spent in the early stages. Now the project has been put on hold, and all sorts of problems will likely arise in the future.

Under no circumstances should we overlook the serious conflicts that the aforementioned conspiracy theories could trigger. This project involves 63 villages, none of which are predominantly inhabited by the Bamar ethnic group—the majority ethnic group in their country. The bloody clashes currently unfolding in northern Myanmar between the federal government forces and the Kokang ethnic armed groups have already occurred in the vicinity of this large-scale hydropower project. No one can predict just how far these conflicts will escalate in the future.

During our investigation, we learned that the Chinese investment agency stated: “We didn’t just ask all 63 villages to relocate without providing compensation—in fact, we compensated each household according to the value of their land.” However, when we spoke with villagers from the Myanmar side, they told us: “Compensation was indeed provided, but much of it was siphoned off and embezzled by officials in the then-Myanmar military government. By the time the money reached the relocated households, there was only a tiny fraction left.” As a result, we were forced to move, and the traditional way of life we’d relied on for generations has now been completely destroyed. What’s most unbearable is that this reservoir has submerged the very places where our ancestors have lived for centuries, effectively cutting off our mother river.

In 2014, China continuously put pressure on the Myanmar side. Now that some progress has been made, China has added more funds and provided additional compensation. Rather than handing this money over to officials of the military government, it’s being directly distributed to the households affected by the demolitions—this approach is much better.

The second major case is the Lepetan copper mine, a joint venture between a Chinese company called Wanbao Mining and Myanmar’s Copper Industries Co., Ltd. This project was one of the key agreements signed during the earlier military regime. Before 2014, the copper mine had already experienced several incidents of friction. The most serious incident occurred on December 31, 2014, when local villagers surrounded the construction bulldozers and sat down, refusing to leave. The Chinese side regarded this as a mass disturbance and requested assistance from the Myanmar side. In response, the Myanmar authorities dispatched uniformed police officers, leading to a violent clash that resulted in the death of one farmer and triggered relatively severe consequences.

After the incident was reported, it sparked a huge public response. Both sides decided to seek a neutral party to mediate the dispute. At that time, they invited Aung San Suu Kyi to lead an investigative delegation to get to the bottom of the matter. Fortunately, Aung San Suu Kyi proved to be highly impartial and not biased in any way. After completing her investigation, she concluded that the project should still go ahead—but only if environmental protection and relocation efforts were carried out in strict accordance with international standards.

The inspection team emphasized that, first, the economic compensation for demolition must be fully provided—not just a small amount—and must not end up being embezzled by Burmese officials. Second, the environmental assessment must be conducted by a neutral institution, and reputable international organizations—including NGOs—should be invited to participate; the investor itself should not be allowed to carry out the assessment. Under these two new stringent conditions, the project should proceed.

I’ve read the report’s summary and think it’s fairly balanced and neutral. It will serve as a model for how Myanmar can improve its future development projects, address disputes with foreign investors, and resolve such conflicts.

Investors should consider nine key factors: landmark-style warnings.

These two cases remind us that when China invests in large-scale overseas projects, we must pay attention to at least eight key factors:

First, it involves the protection of the environment and ecosystems. Second, it involves the demolition and relocation of indigenous communities. Third, it touches upon religious and cultural traditions. For example, when the Kachin people think about the many temples and ancestral tombs that will be submerged, they become deeply emotional and even angry. Fourth, it concerns whether the compensation provided by the investors is adequate and sufficient. Since the displaced residents have lost their original livelihoods, we need to carefully consider arrangements for their re-employment.

And more complex, deeper factors include: Fifth, long-standing ethnic disputes and even armed conflicts that have accumulated over time. Sixth, certain incentives driving two-way corruption and bribery. A significant portion of the compensation payments made by the Chinese side to the other party is siphoned off by intermediaries. Seventh, non-governmental organizations (NGOs) in the host country, together with large international NGO networks, can wield considerable influence, leaving investors overwhelmed and struggling to keep up. Eighth, the evolving political landscape and sudden shifts in the political situation within the host country.

When we went to Myanmar and discussed the issue with them—whether with business leaders, media representatives, political activists, or even those who were relatively pro-government—they all said that Myanmar’s initiation of significant political reforms in recent years was precisely aimed at breaking through the sanctions imposed on them by developed countries. Only by ending these sanctions imposed by developed nations could Myanmar achieve a balance among several major global powers.

I’ve visited Mongolia twice and was deeply impressed each time. Among the countries surrounding China, Mongolia is probably one of the most typical examples. The recently enacted Foreign Investment Law in Mongolia includes numerous restrictive provisions; China must carefully examine these and find ways to address them effectively.

Along the Belt and Road initiative in China—particularly in many investment locations along the Maritime Silk Road—the eight factors that caused trouble in the Myanmar case are all present to varying degrees.

We must also add a ninth factor: the threat of terrorism. While this threat is not yet prominent in the Myanmar case, it is highly significant in several countries that are key destinations for Chinese investment. Myanmar is home to ethnic armed groups, and during the dispute over the large hydropower project mentioned earlier, one Chinese worker was already killed by a detonator. China is building an oil pipeline in Myanmar that will stretch over thousands of kilometers and will be in operation for many years to come. If relations with the ethnic groups and local communities along the pipeline route deteriorate, we cannot rule out the possibility that they might resort to radical methods. Such risks could become particularly acute in the future.

There’s also a deeper meaning.

Behind these nine elements lie even greater and deeper underlying implications, reminding us to pay close attention.

First, never forget that Myanmar is one of the countries with the lowest per capita incomes in the world. This easily leads investors to believe that since this place is so poor, it must be desperate for foreign investment—and that even a small amount of investment can yield substantial returns. Investing hundreds of millions of dollars in a wealthy country may not seem like much, but in a country among those with the lowest per capita incomes, such an investment feels like a huge gold ingot falling from the sky.

Second, since the late 1980s, Myanmar has been under military dictatorship and subjected to sanctions by many countries and international organizations for years, making it particularly isolated. China appears to be the only major power—next only to Thailand—that is both willing and able to enter this closed country. Foreign companies from other nations find it difficult or even daunting to go there, whereas China can and dares to venture in, with virtually no competitors.

Third, Myanmar is right next to China, so Chinese investors may feel quite secure. Transportation between the two countries is convenient, and in the event of a major incident, it would be relatively easy to handle and resolve.

These three contextual factors are highly attractive to Chinese investors. Objectively speaking, several countries along the Belt and Road—especially those along the Maritime Silk Road—also share some of the characteristics of the relationship between Myanmar and China.

Looking from Myanmar, one’s gaze extends to Pakistan and Afghanistan.

In which countries are these key factors particularly evident? Take Pakistan and Afghanistan, for example. China has brought Pakistan a huge economic package—currently amounting to 26 billion U.S. dollars—and the world is abuzz with coverage of this. Some people say that Pakistan is completely tying its economic development to China, though of course, a small number of people disagree with this view.

Another close neighbor is Afghanistan. For decades, Afghanistan has been mired in war and remains deeply impoverished. The country’s relatively accessible mineral resources alone would require investments totaling at least 1.2 trillion U.S. dollars. Today, China is Afghanistan’s largest investor. Afghanistan is plagued by terrorism, ethnic conflicts, corruption, and political instability—all of which are present there. After being elected, Afghanistan’s current president made China his very first foreign visit, eager to attract China’s substantial financial resources.

Iran, Iraq, Syria, and Libya are all investment destinations and trading partners that China attaches great importance to. Another key location—Sri Lanka—lies at the strategic nexus connecting the Indian Ocean and the Pacific Ocean, a spot that China highly values. The younger brother of Sri Lanka’s former president serves as its defense minister; another younger brother holds the post of finance minister; and yet another close relative is the speaker of parliament. Essentially, an entire family has secured the most critical government positions. Several years ago, they were in talks with Chinese investors about a port project. However, following the change of government in Sri Lanka through general elections, new doubts and adjustments have emerged regarding China’s port construction projects in Sri Lanka. At present, it appears that China has essentially taken on virtually all major infrastructure projects in Sri Lanka since the end of the civil war—including airports, seaports, highways, and railways—and is also planning to build hydroelectric power stations and power plants.

Treat the Myanmar case as a laboratory.

Looking at these countries through the case of Myanmar, we can see that they provide a highly valuable laboratory for all parties and sectors interested in investing in China. Given that Myanmar is so impoverished, has been subjected to extensive sanctions, yet lies right next to China and has historically maintained long-term, friendly relations with China, if China can find sustainable approaches to carrying out its large-scale projects in Myanmar and achieve positive, comprehensive benefits, it may be able to avoid stumbling when trying to successfully implement similar large-scale projects in other, more distant countries.

I’m deeply concerned about China’s massive investments in Pakistan. Corruption has long been a serious problem in Pakistan, and the country also faces one of the most severe terrorism threats in the world. Given that China is pouring huge sums of money into Pakistan, what kind of meaningful impact can we expect? Is there a real risk that a significant portion of these funds will simply be wasted or siphoned off through corruption? These risks are very real—after all, they’ve happened before. Although Pakistan is currently under sanctions from Western countries, the situation isn’t nearly as severe as Myanmar’s; this is certainly a positive development. However, Pakistan’s past history of squandering and misappropriating U.S. aid serves as a stark and sobering warning about the potential pitfalls of China’s large-scale investments.

There’s also a very important issue that needs to be raised. The vast majority of these large-scale investments coming from China are being made by state-owned enterprises and other public-sector institutions. In more developed economies—whether in the West, in East Asia (including Japan and South Korea), or in our own regions of Taiwan and Hong Kong—overseas investments are predominantly driven by private enterprises. Governments there mainly engage in aid and other non-profit-oriented projects. Today, the private sector in mainland China has already grown to a considerable size. Yet, when it comes to going global, the key driving force remains the state-owned enterprises—and I have serious doubts about this trend. Many of the practices and techniques that state-owned enterprises have honed over the years when carrying out projects domestically simply don’t work in the vastly different regulatory environment overseas. As a result, they often end up paying a higher price and taking longer, more circuitous paths.

Speaking of Pakistan, don't forget the political violence there—former Prime Minister Benazir Bhutto was once assassinated. Although such political developments may not necessarily lead to dramatic changes like those seen in Myanmar, major and medium-sized adjustments could occur at any time.

Therefore, although China currently places great importance on and holds a positive view of Pakistan, it should be highly vigilant about whether Pakistan will be able to deliver a satisfactory return on China’s massive investments over the next two to three decades.

Basic infrastructure projects overseas cannot be adjusted at will, and even if conflicts arise between the two parties involved, it’s hardly possible to simply walk away. Right now, China can’t afford to abandon the oil pipeline and associated facilities it has already built in Myanmar—after all, the investment made is simply too substantial. During our inspection, we saw that along several stretches of coastline in Myanmar, the highways and bridges were all financed by Chinese investment. With such massive sums already poured into these projects, we can’t just turn our backs on Myanmar simply because relations with the Pakistani government have improved for the time being.

Investments in Pakistan also require a relatively careful economic assessment. What are the costs and safety factors associated with maritime transportation? What are the costs and safety factors for land transportation, including pipelines? What are the unit costs of rail and road transportation, respectively? If China truly intends to use the Pakistan Economic Corridor to handle the massive logistics flows between itself and the Middle East, will it end up paying higher transaction fees, maintenance costs, and stability-maintenance expenses?

Historically, Myanmar and China have enjoyed generally good relations. However, in recent decades, Myanmar has experienced serious anti-Chinese incidents, and the local Myanmar population has become quite hostile toward the large number of illegal immigrants who recently arrived from China. During my field visits to Myanmar, I often encountered former Chinese illegal immigrants—some of whom had committed crimes within China itself, even being implicated in cases involving loss of life. Many of these individuals are living comfortably in Myanmar, continuing to engage in illegal activities. Such behavior can easily give rise to latent tensions in people-to-people relations between China and Myanmar, and may even spark violent conflicts.

I sincerely hope that China can manage and successfully handle the situation in Myanmar. This is of immense significance for China’s medium- and long-term overseas operations—not only because Myanmar is rich in resources, but also because it can provide invaluable experience for Chinese enterprises as they go global and expand their reach.

Only by stabilizing and successfully managing matters in Myanmar can China continue to extend its development toward the Indian Ocean and South Asia.