Mekong River Region Economic Zones Draw Illegal Actors — Report

Like more than 100 areas in the Mekong River region earmarked as development zones, the Yatai Shwe Kokko Special Economic Zone (SEZ) in Myanmar was promoted as a way to spur economic growth and deliver material benefits to the local community.

But instead the Chinese-backed U.S. $15 billion real estate mega-project along the Thaungyin River in southeastern Kayin state has gained notoriety in recent months as a bastion of illegal activity, according to a report released Wednesday by the Washington-based Center for Advanced Defense Studies (C4ADS), an independent research outfit that studies transnational organized crime networks.

Shwe Kokko New City, as the area is called, was funded by Hong Kong-registered developer Yatai International Holding Group in partnership with the Chit Lin Myaing Company owned by the Kayin State Border Guard Force (BGF), an ethnic Karen force aligned with the Myanmar military. It includes the Myanmar Yatai Shwe Kokko Special Economic Zone.

But the area became a hub for illicit activity because of weak national laws, a diffusion of responsibility, and a lack of development plans, says the 76-page report titled “Zoned Out: A Comprehensive Impact Evaluation of Mekong Economic Development Zones.”

The study identified 110 official and unofficial foreign-invested EDZs in the Mekong region, including 40 in Cambodia, 15 in Laos, 20 in Myanmar, 16 in Thailand, and 19 in Vietnam, and used publicly available information to assess them in terms of economic development, illicit activity, and geopolitics.

To assess the impact of EDZs, the researchers examined both quantitative indicators derived from personal activity intelligence, including mobile phone location data, change detection in satellite imagery, and nightlight data, along with qualitative research on illicit activity and geopolitical trends.

Because of the strong correlation between nightlight data and economic activity, the researchers measured nighttime luminosity in the EDZs to objectively evaluate the relative economic performance of the zones. They also used information from publicly available reports that detailed illegal activities, including corruption, environmental degradation, land conflict, drug trafficking, and wildlife trafficking.

Shwe Kokko is not the only example of an EDZ gone wrong. The study found that while the establishment of the zones speeds up development, the EDZs themselves can facilitate adverse outcomes that undermine economic growth benefits.

They also found that limited data access concerning the Mekong region’s EDZs can hurt host governments and local communities, and that collaboration among stakeholders from government, grassroots organizations, the private sector, and civil society will increase transparency and better match objectives to end results.

“Without proper management, EDZs can serve as staging grounds for multiple types of transnational illicit activity and geopolitical machinations,” the report says. “Further complicating the situation is a paucity of accessible data, leaving policymakers and observers alike struggling to draw informed conclusions on the effects of zones.”

Lack of regulatory oversight

In the case of the Shwe Kokko SEZ First, the developers allegedly received a 70-year land lease with the possibility of extending to 99 years, violating Myanmar law which limits lease terms to 50 years for official Economic Development Zones (EDZs). Then the BGF confiscated land for the site, but shortchanged residents paying them only U.S. $1,600 an acre — half the amount they sought.

A lack of regulatory oversight enabled the illegal land confiscations along with Chinese gang activities once the project had been built, illegal casinos, money laundering, and environmental degradation, the report says. It also notes that She Kailun, Yatai International’s China-born chairman, had a previous conviction for operating an illegal lottery business that earned nearly U.S. $300 million.

In response, Myanmar’s civilian-led government announced plans in January to address alleged irregularities, including the land confiscations, illicit activities, and local concerns about the impact of the casinos.

The government also cracked down on Chinese criminal groups in the area and requested that the national military enforce the law in Shwe Kokko. When Myanmar’s military overthrew the government in a Feb. 1 coup, it became unclear what would happen next in Shwe Kokko.

“A combination of legal ambiguity, limited host government enforcement, and poor zone management have created numerous negative externalities in Shwe Kokko, including increased criminal activity, decreased geopolitical power, and environmental degradation — all without delivering economic gain for the region itself,” the report says.

Aung Naing Oo, minister of investment and foreign economic relations under the State Administrative Council, the official name of Myanmar’s military government, told RFA that the Myanmar Investment Commission had examined and approved the Shwe Kokko project during the previous civilian-led government, but determined that its scope was much larger than the original proposal.

“Then we checked the project again and ordered that business activities not included in original proposal be stopped, he said. “Because the project was much larger and there were other issues such as land use, we ordered the project to be halted since previous government. They were ordered to do only what had been approved.”

“The activities that were not included in the proposals were the building of hotels among other [sites],” he said. “We asked them to stop, [and] the order has remained unchanged…We have supervised them very closely about the suspension.”

The report details other case studies of other zones plagued by illicit activities, such as the Boten SEZ in Laos, rife with illegal sales of wildlife, such as endangered pangolins, and the Golden Triangle EDZ, also in Laos, a hub for a hub for illicit drug and wildlife trafficking.

An official in the Special Economic Zone Control Department of the Lao Ministry of Planning and Investment told RFA that he could not comment on whether there is illicit activity in the Boten and Golden Triangle SEZs.

China ‘used its influence’

Cambodia’s Sihanoukville SEZ, considered part of China’s Belt and Road Initiative, suffered from high crimes rates among other factors, the report said.

“The Belt and Road Initiative (BRI) promises benefits for local communities. In the case of the Sihanoukville SEZ, however, development was greatly undercut by increasing crime rates, rising rents, overwhelmed infrastructure, and the suppression of local culture in the city of Sihanoukville,” the report says.

“China allegedly used its influence to pressure Cambodia to ban online gambling as part of a broader campaign against gambling by China. This ban further disrupted the city of Sihanoukville by devastating the local gaming economy and causing thousands to leave the city,” it said.

The Cambodian Investment Board did not respond to an email request for comments on the report’s findings concerning the Sihanoukville SEZ. Emails sent to two contact addresses listed on the website of the Cambodian Special Economic Zone Board were undeliverable. Both government agencies deal with investment projects in SEZs.

To improve the impacts of EDZs in the Mekong region, the researchers recommend the development of open, centralized repositories of information on EDZs, the use of emerging technologies such as nightlight capture, satellite imagery, and machine learning to create monitoring processes, and the convening of cross-sector interdisciplinary task forces to address negative impacts.

“Through collaboration and data-driven analysis, host governments can ensure that EDZs serve the needs of the host country economy and the local population,” the report says.

Additional reporting by RFA’s Lao and Myanmar services.