Why a Lobbying Group is the Biggest Winner of China’s Latest Trade Embargo Against Myanmar

Why a Lobbying Group is the Biggest Winner of China’s Latest Trade Embargo Against Myanmar
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What you need to know

Besides being an active participant in government-led anti-smuggling operations, the China Sugar Association also fights smuggling with its own initiatives, such as offering cash rewards to anyone who turn-in a smuggler to the authorities.

China launched a trade embargo against Myanmar last month by freezing more than 1,000 bank accounts belonging to Myanmar merchants with an estimated total deposit of US$29.42 million. As a result, commodities exchange along the 105-mile border trade zone came to a screeching halt. Rice shipments to China, which previously numbered 100,000 bags (50 kg each) per day, have now declined to only 100 bags. Although Chinese banks have started to unfreeze accounts gradually, trade is still negatively affected. According to the latest report, pulses and sesame seeds prices are decreasing due to the embargo.

While Chinese state banks have temporarily closed accounts of Myanmar nationals before, it never reached such scale. The Chinese side justified its actions as part of an anti-crime effort against online gambling. But the story could be much more complicated.

Myanmar’s porous border with China has long served as an entry point for smuggled goods that deeply undercut the interest of domestic Chinese producers. China’s sugar industry, a vocal advocate for tighter border control, came out as the biggest beneficiary of the latest trade embargo.

China’s sugar consumption for the marketing year 2016/2017 is approximately 15.6 million tonnes (1.5 billion kg). However, inefficient domestic producers and protectionist policies have driven sugar prices through the roof. As of June 2017, a tonne of domestically refined sugar can fetch 6,609 yuan (US$979) on the Chinese market, while the price for a tonne of imported Thai white sugar is only 3,540 yuan. With a difference of 3,069 yuan per tonne, domestic producers are making a killing at the cost of Chinese consumers.

But inflated domestic prices are just as alluring to sugar smugglers. About 2 million tonnes are smuggled into China annually, in comparison to less than 3 million tonnes imported via legal channels last year. A high volume of this traffic passes through Myanmar.

Chinese policies regarding the sugar industry are strongly protectionist, in part due to the lobbying of China Sugar Association (CSA) that represents the interest of 458 Chinese sugar mills, 25 sugar refining research institutes, nine design institutes, 15 universities offering sugar refining as a major, and 19 sugar processing equipment manufacturers. The CSA stands against smuggling and legal imports as well because of the bearish pull exerted by competitive foreign sugar.

The CSA is known among industry analysts as the most organized and efficient lobbying group in China. Besides being an active participant in government-led anti-smuggling operations, the CSA also fights smuggling with its own initiatives, such as offering cash rewards to anyone who turn-in a smuggler to the authorities.

The Association made major moves recently to limit sugar imports. After intense lobbying, the Chinese government eventually agreed to raise customs duty on out-of-quota sugar imports, around 1.9 million tonnes in the past two years, from 50 percent to 95 percent, effectively suspending this import channel altogether. But this policy has unintended consequences. Foreign sugar merchants are now forced to work with smugglers in order to get their products into the lucrative Chinese market. In response, the sugar industry pressured the government to escalate the anti-smuggling crackdown, specifically targeting the China-Myanmar border.

The latest trade embargo, which brought misery to both Myanmar traders and Chinese consumers, benefited CSA and China’s sugar industry enormously. The Association has lobbied the Chinese government repeatedly to limit sugar imports, and the shutdown of cross-border commerce is surely a welcoming development. In fact, it is in CSA’s interest to keep the embargo going as long as possible. While it is not the only interest group working behind the scenes, watchers of China-Myanmar relations should pay close attention to CSA’s immense influence in this round of troubles.

Editor: Olivia Yang


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