International Economics and Economic Policy

Assessing the Economic Implications of Kyat-Yuan Transactions in Myanmar-China

Trade
--Manuscript Draft--

Manuscript Number: IEEP-D-24-00055

Full Title: Assessing the Economic Implications of Kyat-Yuan Transactions in Myanmar-China

Trade

Article Type: Original Paper

Keywords: Myanmar-China, bilateral trade, CIPS, trade transaction.

Abstract: In recent years, global economic dynamics have shifted away from the traditional
dominance of the US dollar in international trade. This trend is reflected in China and
Myanmar's bilateral transactions, traditionally conducted in US dollars. However,
geopolitical and economic considerations have prompted these nations to explore
alternatives, with China actively promoting the internationalization of the Yuan. The
decision to adopt the Yuan for bilateral transactions is driven by the desire to reduce
dependency on the US dollar, insulating both nations from its fluctuations and fostering
a more stable trade environment. The research focuses on the economic implications
of Kyat-Yuan transactions in the context of Myanmar-China trade. Utilizing statistical
analyses, and scenario difference-indifference analysis, the study reveals a positive
impact on various economic indicators. The findings suggest that a stable Kyat-Yuan
transaction system can serve as a catalyst for enhancing bilateral trade relations.
Policymakers are urged to ensure the sustainability of these gains, considering
additional adjustments or improvements. In conclusion, the report emphasizes the
crucial role of the trade sector in sustaining economic stability and fostering
international partnerships amid challenging circumstances.

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Assessing the Economic Implications of Kyat-Yuan Transactions in

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2 Myanmar-China Trade
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Abstract. In recent years, global economic dynamics have shifted away from the traditional dominance of the
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7 US dollar in international trade. This trend is reflected in China and Myanmar's bilateral transactions, tradi-
8 tionally conducted in US dollars. However, geopolitical and economic considerations have prompted these
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10 nations to explore alternatives, with China actively promoting the internationalization of the Yuan. The deci-
11 sion to adopt the Yuan for bilateral transactions is driven by the desire to reduce dependency on the US dollar,
12 insulating both nations from its fluctuations and fostering a more stable trade environment. The research fo-
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14 cuses on the economic implications of Kyat-Yuan transactions in the context of Myanmar-China trade. Utiliz-
15 ing statistical analyses, and scenario difference-indifference analysis, the study reveals a positive impact on
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various economic indicators. The findings suggest that a stable Kyat-Yuan transaction system can serve as a
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18 catalyst for enhancing bilateral trade relations. Policymakers are urged to ensure the sustainability of these
19 gains, considering additional adjustments or improvements. In conclusion, the report emphasizes the crucial
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21 role of the trade sector in sustaining economic stability and fostering international partnerships amid challeng-
22 ing circumstances.
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25 Keywords: Myanmar-China, bilateral trade, CIPS, trade transaction.
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28 1 Introduction
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30 1.1 Historical Perspective of Myanmar-China Economic Relations
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32 Trade, as a reciprocal traffic of goods, can take various forms. Direct contact trade involves face-to-face
33 interaction between trading partners, while exchange trade lacks a specific organization or standardized value.
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35 Central place trade occurs when goods are produced or resources are present at central points. These trade mech-
36 anisms have been studied in various contexts, including the Indus-Mesopotamian interrelations (Lamberg-
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38 Karlovsky, 1972).
39 Myanmar and China share a significant economic relationship, marked by extensive border trade activities.
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41 China is one of Myanmar’s largest trading partners and China has been investing consistently in physical infra-
42 structure projects under the Belt and Road Initiative (BRI) through China-Myanmar Economic Corridor (CMEC)
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44 (Kudo, 2006; Mizuno, 2015). The history of Myanmar and China trade is a long and complex one, involving
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economic and cultural factors (Htet Aung, 2020). Myanmar and China have been trading partners since ancient
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47 times, as Myanmar was the main trade route between India and China since 100 B.C. The Mon Kingdom of lower
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Burma served as an important trading center in the Bay of Bengal (Lieberman, 2007). Myanmar's trade with China
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50 increased significantly after 1988, when Myanmar faced western sanctions for human rights violations and polit-
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ical instability. China became Myanmar's largest trading partner and investor, providing economic(Myoe, 2015).
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53 Myanmar has experienced significant changes in its global trade dynamics over the past decade, with various
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55 countries playing crucial roles as both export and import partners. Among these nations, China emerges as the
56 undisputed leader, serving as the primary trade partner for both export and import activities. According to Figure
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58 1.a, which outlines Myanmar's export landscape from 2010 to 2021, China stands out as the dominant destination
59 for Myanmar's goods. Notably, other key export partners include Chile, Tanzania, and Thailand, contributing
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 substantially to Myanmar's export volume. This robust trade relationship has facilitated the exchange of goods
1 and services, fostering economic growth and cooperation.
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3 Similarly, Figure 1.b sheds light on Myanmar's import trends during the same period. Once again, China
4 emerges as the primary source of imports, highlighting the depth of economic interdependence between the two
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6 nations. Singapore and Thailand also play significant roles as high import volume partners, showcasing the diverse
7 network of trade connections that Myanmar has cultivated.
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37 Figure 1 Top 20 (a) Export , and (b) Import trade partner countries of Myanmar during 2010-2021.
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China's trade with Myanmar mainly consists of importing natural resources, such as oil, gas, tin, and rare earth
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41 metals, and exporting machinery, vehicles, metal products, and telecommunication equipment. China also invests
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in infrastructure projects, such as pipelines, ports, roads, and railways, under the BRI and the CMEC (Z. Liu et
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44 al., 2020). Myanmar's trade with China is conducted through official and unofficial channels, involving both legal
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46 and illegal activities. Myanmar's official border trade with China began in 1988, with an agreement between the
47 Myanmar Export Import Services (MEIS) and the Yunnan Province Import Export Corporation (Mizuno, 2015).
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49 The border trade between Myanmar and China is mainly conducted through five border gates: Muse, Lweje, Chin
50 Shwe Haw, Kanpiketee, and Kyaing Tong (Times, 2022). Muse is the largest and most important border gate,
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52 accounting for about 81% of the total border trade value (Figure 2). The border trade between Myanmar and China
53 is affected by various factors, such as political stability, security, infrastructure, border regulations, and exchange
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55 rates (Bolesta, 2018). The trade relations between Myanmar and China are expected to grow further in the future,
56 as both countries are part of the Belt and Road Initiative (BRI), which aims to enhance connectivity and cooper-
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58 ation across Eurasia. The BRI includes several projects in Myanmar, such as the CMEC, the Kyaukphyu Special
59 Economic Zone (SEZ), and the Myanmar-ChinaBorder Economic Cooperation Zone (BECZ) (Ahamed et al.,
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 2020; Ishida, 2009). These projects are expected to boost trade, investment, and development in both countries
1 (Than, 2005). Myanmar’s exports to China are primarily agricultural products, such as rice, beans, and sesame
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3 seeds. However, there is also a large amount of informal trade, smuggling, and trafficking that occurs along the
4 border, because of there is only official system are not build up that time (Ahamed et al., 2020).
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41 Figure 2 Scheme map of MYANMAR-CHINA Trade economic corridors (ISP Myanmar, 2023)
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43 Since February 2021, three novel cross-border trade routes linking two countries have emerged, diverging
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45 from the initial Belt and Road Initiative (BRI). These routes enhance connectivity for China's western provinces,
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providing access to the Indian Ocean and neighboring regions (ISP Myanmar, 2023). The trio of routes comprises:
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48 1. A rail-road-Indian Ocean route connecting Chengdu in Sichuan province to Yunnan province, pro-
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50 ceeding to northern Shan State, and extending through the Yangon port to Singapore.
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52 2. A trade route linking Chongqing in southwest China to Laos, and Myanmar.
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54 3. A maritime route directly connecting the Beibu Gulf port in Guangxi province, China, to the Yangon
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56 port.
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 These new trade routes not only reshape the originally planned China-Myanmar economic corridor,
1 which resembled the letter "Y," but also amplify Myanmar's geopolitical significance for China (Figure 2).
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3 Whether considering the CMEC or the Lancang Mekong Cooperation (LMC), these routes intersect with all pro-
4 jects under the Regional Comprehensive Economic Partnership (RCEP). Infrastructure projects within Myanmar,
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6 under the CMEC as part of the BRI, encompass the construction of roads and ports, including the Kyaukphyu
7 deep-water port with direct access to the Indian Ocean and the Muse-Mandalay railway linking trade routes.
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11 1.2 The important of Trade Transaction
12 Trade transactions refer to the exchange of goods and services between entities, often across borders. Scholars
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14 such as Krugman et al., (2018) define trade transactions as the buying and selling activities that occur in the
15 international marketplace.
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17 In recent years, the global economic landscape has witnessed a significant shift as nations increasingly
18 explore alternatives to the traditional dominance of the US dollar in international trade. Similarly, in China and
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20 Myanmar trade traditionally, the US dollar has been the primary currency as global trade (Oh, 2023). However,
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recent geopolitical and economic considerations have prompted nations to explore alternative currencies, and
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23 China's push for internationalizing the Yuan has gained traction (Ly, 2020). Several factors contribute to China
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and Myanmar's decision to adopt the Yuan for bilateral transactions (Global Times, 2021; MOI, 2022). One of
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26 the key drivers is the desire to reduce dependency on the US dollar and mitigate the risks associated with fluctu-
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ations in its value. By transacting in Yuan, both nations can insulate themselves from the impact of dollar-centric
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29 economic uncertainties, providing a more stable and predictable trade environment.
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31 Furthermore, the move aligns with China's broader strategy of promoting the internationalization of the
32 Yuan, enhancing its role as a global reserve currency (Millar, 2023). For Myanmar, adopting the Yuan can offer
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34 economic advantages, given China's position as a major trading partner and investor. The use of Yuan facilitates
35 smoother financial transactions, reduces currency exchange costs, and fosters a more seamless economic partner-
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37 ship between the two nations (GT staff reporters, 2022). The shift towards Yuan transactions in China and Myan-
38 mar's trade could have broader implications for the international monetary system.
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41 1.3 Operation Analysis of Trade Transaction
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43 Similarly as other countries, the dollar is also the most widely used currency for Myanmar-China trade. As a
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45 key component of the global financial ecosystem, the Society for Worldwide Interbank Financial Telecommuni-
46 cation (SWIFT) enables safe and effective communication between financial institutions (Dias et al., 2022). In-
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48 troduced in 1973, the SWIFT system is a global messaging network that facilitates the secure and standardized
49 communication of financial transaction information between financial institutions around the globe.(Scott &
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51 Zachariadis, 2010). Initially developed to facilitate international fund transfers, SWIFT has evolved to become an
52 integral component of trade transactions, providing a standardized platform for communication and data exchange
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54 (Holland & Lockett, 1996). As global trade becomes subject to an increasingly complex web of regulations and
55 compliance requirements, the role of SWIFT in facilitating adherence to these standards is highlighted in the
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57 literature.(Kaplinsky, 2010) SWIFT messages often include information necessary for compliance with interna-
58 tional trade regulations, making it a valuable tool for financial institutions navigating the evolving landscape of
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60 regulatory requirements(Carton et al., 2020).
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24 Figure 3 Trade Transaction flow chart of SWIFT system (USD base).
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26 However, after Russia-Ukraine crisis, the use of dollar are reduction and both countries shift to used local
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28 currency, such as the Kyat in Myanmar and the Yuan in China, has gained prominence in border trade transactions
29 (Singh et al., 2022). This shift from traditional modes of payment has implications for both countries. One of the
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31 key advantages associated with Kyat-Yuan transactions lies in reducing dependency on third-party currencies
32 (Cherkasov, 2022; Fareniuk, 2019). Prior to the widespread use of local currencies, transactions were often con-
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34 ducted in major international currencies; exposing traders to the risks associated with fluctuations in exchange
35 rates (Cherkasov, 2022).
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37 The China International Payment System (CIPS) was launched in October 2015, with the goal of provid-
38 ing a more efficient and secure platform for international trade transactions(Proskunov et al., 2022). CIPS was
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40 seen as part of China's broader strategy to internationalize its currency, the renminbi (RMB), and enhance its role
41 in global financial markets(Eichengreen & Kawai, 2015). CIPS has gradually gained acceptance in the global
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43 financial landscape, with an increasing number of countries and financial institutions adopting it for cross-border
44 transactions(Zisopoulos et al., 2022). Its integration into international trade has been facilitated by China's eco-
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46 nomic clout and its efforts to promote the use of the RMB in international transactions(Cui, 2017). As more entities
47 join the CIPS network, it is likely to become a more significant player in the facilitation of global trade(Cui, 2017).
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49 One of the primary motivations behind the establishment of CIPS was to reduce China's dependence on Western-
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dominated financial systems, particularly SWIFT(Heilmann, 2005).
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22 Figure 4 Trade Transaction flow chart of CIPS system (Kyat-Yuan base).
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25 The perceived vulnerabilities of relying on foreign-controlled systems for crucial financial transactions have
26 driven China to develop its independent infrastructure, enhancing its autonomy in global financial opera-
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28 tions(Grimes & Yang, 2018). The technical aspects of CIPS involve the use of modern technologies to streamline
29 cross-border payments(Pang & Lodewijks, 2014). CIPS employs a 19-digit transaction code to uniquely identify
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31 each payment, enhancing traceability and reducing the risk of errors(Feng et al., 2000). The system operates 24/7,
32 providing continuous service to cater to the global nature of international trade(Garafonova et al., 2022). The
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34 establishment and growth of CIPS have the potential to shift the dynamics of the global financial land-
35 scape(Wójcik & Ioannou, 2020). As more countries and financial institutions adopt the system, it could lead to a
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37 more diversified and multipolar international financial system(Dailami & Masson, 2009). This might potentially
38 impact the distribution of power in international financial organizations and forums (Newman & Posner, 2016)
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40 and (Seabrooke & Tsingou, 2009). Despite its progress, CIPS faces challenges, including competition from es-
41 tablished systems, concerns over data security, and the need for continuous improvement to meet evolving inter-
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43 national standards (Buszta, 2008; Dacey, 2002; Ellefsen & Von Solms, 2010; Pagnacco, 2021). The future pro-
44 spects of CIPS depend on its ability to address these challenges and gain broader acceptance in the international
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46 community(Pagnacco, 2021).
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By utilizing the Kyat and Yuan, both Myanmar and China aim to create a more direct and stable trade environ-
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49 ment, potentially lowering transaction costs and promoting financial stability. The bilateral trade between these
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two nations has seen a substantial increase in recent years, and the use of the Kyat and Yuan in cross-border
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52 transactions has become a notable aspect of this economic collaboration. This study aims to provide a compre-
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hensive overview of the economic implications associated with Kyat-Yuan transactions in Myanmar-China border
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55 trade. The primary objective of this research is to assess the economic implications of Kyat-Yuan transactions
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57 impact on the context of Myanmar-China trade. This involves a comprehensive analysis of both quantitative and
58 qualitative data, including case studies, to understand the impact of Kyat-Yuan transactions on various economic
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60 indicators within the Myanmar-China trade relationship.
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 2 Research Methodology
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2 2.1 Data and Resources
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4 The interplay between currencies has a profound impact on international trade, influencing trade vol-
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umes, economic indicators, and policy decisions. The comprehensive quantitative data exploration encompasses
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7 insights from the World Integrated Trade Solution (WITS), World Bank, Ministry of Commerce (Myanmar
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MOC), General Administration of Customs of the People’s Republic of China (GACC), and the United Nations
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10 Conference on Trade and Development (UNCTAD). WITS provides a valuable lens through which to examine
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12 the quantitative aspects of Myanmar-China trade. It furnishes data on trade volume and value, offering a detailed
13 breakdown of imports and exports by product categories.
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15 Methods and Software
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17 A detailed examination of trade volume fluctuations will be a key component of the research. This anal-
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ysis will involve annual, monthly, and scenario variations in trade volumes. By categorizing trade data based on
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20 time intervals by scenario of policy change, the study aims to identify any seasonal patterns or cyclical trends in
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22 trade volume. Additionally, scenario analysis will compare trade volumes before and after the introduction of
23 Kyat-Yuan transactions to assess their impact on trade dynamics.
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26 2.2 Statistical Calculation
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28 Pearson correlation analysis is a statistical method that measures the strength and direction of a linear
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relationship between two continuous variables. The Pearson correlation coefficient (r) is calculated using the fol-
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31 lowing formula:
32 ∑(𝑿𝒊 −𝑿̅ )(𝒀𝒊 −𝒀
̅)
33 𝒓= ̅ )𝟐 ∑(𝒀𝒊 −𝒀̅ )𝟐
………………. Equation 1
√∑(𝑿𝒊 −𝑿
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36 where:
37 𝑋𝑖 and 𝑌𝑖 are individual data points. And 𝑋̅ and 𝑌̅are the means of the X and Y variables, respectively.
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39 “r” ranges between -1 and 1. “r = 1” indicates an idealized linear positive connection. “r = -1” indicates a
40 negative linear relationship. “r = 0” indicates no linear relationship.
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42 To hypothesis test the significant of the correlation, a t-test can be performed using the formula:
43 𝒓√𝒏−𝟐
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√𝟏− 𝒓𝟐
……………Equation 2
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where: “n” is the number of data points. If the absolute value of the calculated t-value exceeds the critical t-
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48 value at a chosen significance level (e.g., 0.05), then the correlation is considered statistically significant.
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51 2.3 Linear Regression Analysis:
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53 A dependent variable and one or more independent variables can be modelled statistically using linear
54 regression (Manolov, 2017). There is only one independent variable in basic linear regression, and it is assumed
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56 that the variables have a linear relationship. Finding the best-fitting line, or regression line, to minimise the sum
57 of squared differences between the line's projected values and the actual values is the aim of linear regression.
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59 This line is often represented by the equation:
60 𝒀 = 𝒃𝟎 + 𝒃𝟏 𝑿 + 𝜺 ……………….Equation 3
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 where Y is the dependent variable, X is the independent variable, 𝑏0 is is the y-intercept, representing the
1 value of Y when X is 0, and 𝑏1 is is the slope of the line, indicating the change in Y for a unit change in X. 𝜀 is
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3 the error term, representing the unobserved factors affecting Y.
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Linear Trend:
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7 Linear trend refers to the pattern of change in a variable over time that can be approximated by a straight
8 line. Linear trend analysis involves fitting a linear regression model to time-series data to quantify and understand
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10 the linear relationship between the variable and time (Kim et al., 2003). Use statistical methods to estimate the
11 coefficients 𝑏0 𝑎𝑛𝑑 𝑏1 that minimize the sum of squared residuals. Conduct hypothesis tests to determine if the
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13 coefficients are significantly different from zero. Assess the overall fit of the model using measures like R-
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squared. 𝑏0 𝑎𝑛𝑑 𝑏1 explain the relationship between the variables and the impact of predictors on the dependent
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16 variable.
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19 2.4 TheDifference-in-Differences method
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21 The Difference-in-Differences (DiD) method is a research approach that combines elements of cross-sectional
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treatment-control comparisons and before-after studies to improve the robustness of causal inference. It is com-
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24 monly used to assess the impact of non-randomly implemented policies. In a DiD study, data is collected from
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two distinct groups and two different time periods, typically at the individual level. This data can be in the form
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27 of either repeated cross-sectional samples or a panel.
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30 To explain the method, consider a study evaluating the impact of a policy on trade volumes in Myanmar. If one
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32 only considers a before-after study with data exclusively from the treatment group (Myanmar), it might lead to
33 incorrect attributions of changes in outcomes to the specific intervention. The DiD method addresses this by com-
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35 bining the after-before approach with a treatment (Myanmar export) – control (China import) group comparison.
36 The key step involves deducting the after-before of Kyat-Yuan transaction system difference values in the control
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38 group (China trade volumes) from the same difference values in the treatment group (Myanmar trade volumes).
39 This helps control for factors that change over time in the control group and eliminates the influence of important
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41 characteristics that differ between the treatment and control groups.
42 In summary, the DiD method involves comparing outcomes between two groups over two different time peri-
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44 ods, accounting for changes over time in the control group. The data is collected at the individual level, through
45 either repeated cross-sectional samples or a panel, providing a more granular perspective for analysis. The method
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47 helps address confounding influences and enables researchers to make causal inferences about the impact of a
48 non-randomly implemented policy. With two groups and two periods, the DiD estimate of policy impact can be
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50 expressed as follows:
51 ̅ 𝑨𝒇𝒕𝒆𝒓.𝑴𝒚𝒂𝒏𝒎𝒂𝒓 − 𝒀
𝑫𝒊𝑫 = ( 𝒀 ̅ 𝑩𝒆𝒇𝒐𝒓𝒆.𝑴𝒚𝒂𝒏𝒎𝒂𝒓 ) − (𝒀
̅ 𝑨𝒇𝒕𝒆𝒓.𝑪𝒉𝒊𝒏𝒂 − 𝒀
̅ 𝑩𝒆𝒇𝒐𝒓𝒆.𝑪𝒉𝒊𝒏𝒂 ) …………….. Equation 4
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54 As a linear regression slope of quasi-experiments for difference-in-differences can be written as follow:
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56 𝒀𝒊 = 𝜷𝟎 + 𝜷𝟏 𝑿𝒊 + 𝜷𝟐 𝑫𝒊 + 𝜷𝟑 𝑿𝒊 𝑫𝒊 + 𝜺𝒊 ……… Equation 5
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58 where, 𝑌𝑖 is an outcome variable from 𝛽0 is the estimation of the regression intercept and 𝛽0 is the estimation
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60 of the regression slope with observation variable values 𝑋𝑖 and the combination of this two will be “treatment
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 dummy”. For the slice as difference-in-difference , 𝛽2 𝐷𝑖 is the dummy variable of Kyat-Yuan policy change pe-
1 riod “1” for after and “0” for before. The interaction of these two is explained as 𝛽3 𝑋𝑖 𝐷𝑖 .
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22 Figure 5 Graphical depiction of a segmented linear regression model
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25 2.5 Useful Software for the study
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The study employs a multifaceted approach, combining quantitative and qualitative data analysis using tools
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28 like STATA, SPSS, Microsoft Excel, and Python. Various statistical methodologies, including correlation, linear
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regression, linear trend analysis, and different-in-different analysis, are applied to unravel the impacts of Kyat-
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31 Yuan transactions on Myanmar-China trade. STATA and SPSS are essential for statistical analysis, while Mi-
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33 crosoft Excel is used for data manipulation and visualization (Acock, 2005; X. Liu, 2009).. Python, with its
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36 3 Key Result and Discussion
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38 3.1 Myanmar’s Trade volumes and relevance indicator
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40 Myanmar's trade dynamics experienced a noteworthy transformation during the period from 2000 to
41 2010, marked by interannual variations influenced by geopolitical factors. Under the military government, the
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43 trade volume and key indicators such as foreign exchange rate (Ex_rate) and foreign direct investment (FDI)
44 remained stagnant at low rates (under USD 10 billion trade volumes), primarily because of the country's imposi-
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46 tion of severe international sanctions.
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19 Figure 6 Interannual variation of Myanmar’s trade volumes and the two trade indicators (a) foreign exchange rate and (b)
20 foreign direct investment including the correlation values of each indicator with trade volumes.
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23 The political landscape shifted after 2010, ushering in a democratic election and a civil government. This
24 pivotal change was accompanied by a significant upward trajectory in Myanmar's export and trade volumes, re-
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26 flecting a newfound economic openness (Figure 6). The adoption of a market economy system facilitated the
27 upsurge, allowing the foreign exchange rate and FDI to exhibit a buoyant trend with market-driven fluctuations.
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29 Over the course of a decade, statistical analysis reveals a robust positive correlation between the foreign
30 exchange rate and both export and import volumes (Figure 6.a). The floating nature of the exchange rate, influ-
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32 enced by market forces, played a pivotal role in shaping Myanmar's trade landscape. As the exchange rate fluctu-
33 ated, so did the trade volumes, illustrating the intricate relationship between these economic variables.
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35 Similarly, foreign direct investment emerged as a crucial driver of Myanmar's economic growth during
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this period. The positive and strong correlation between FDI and trade volumes underscored the symbiotic rela-
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38 tionship between foreign investments and international trade (Figure 6.b). The liberalized economic environment,
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coupled with the democratic transition, attracted foreign investors, contributing to the expansion of trade activities.
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41 In essence, Myanmar's journey from a sanctioned economy to a flourishing trading nation highlights the
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intricate dance between political changes, economic policies, and international relationships. The positive corre-
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44 lations observed between exchange rates, foreign direct investment, and trade volumes underscore the intercon-
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46 nectedness of these factors in shaping the country's economic trajectory.
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49 3.2 Trade Volume Comparison
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Over the past decade, the trade dynamics between Myanmar and China have witnessed a remarkable
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52 surge in both import and export activities. Analyzing the annual data from 2010 to 2023 reveals a compelling
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 narrative of economic cooperation and growth.
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20 Figure 7 Trend value of Myanmar-China trade volume (per month) of (a) Import (blue), (b) Export (magenta)
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22 The import graph for Myanmar from China depicts a consistent upward trajectory, highlighting the significant
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24 economic ties between the two nations. The trade volume has experienced a substantial increase, reflecting the
25 growing demand for Chinese goods in Myanmar. This upward trend can be attributed to factors such as increased
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27 consumer preferences, industrial requirements, and a burgeoning Myanmar economy. The annual average data
28 showcases a sustained pattern of growth, underlining the resilience and vitality of this trade relationship (Figure
29
30 7).
31 Simultaneously, Myanmar has emerged as a notable exporter to China during this period. The export
32
33 graph demonstrates a robust performance, with Myanmar's products finding a receptive market in China. This
34 success can be attributed to the diverse range of goods Myanmar offers, including agricultural products, minerals,
35
36 and other commodities. The annual data underscores the strength of Myanmar's export sector, portraying a story
37 of economic diversification and competitiveness.
38
39 The mutual benefit derived from this flourishing trade relationship is evident in the overall trade volume.
40 Both nations have contributed significantly to each other's economic prosperity, fostering a cooperative and mu-
41
42 tually beneficial partnership. The positive trade balance underscores the harmonious exchange of goods, services,
43 and resources between Myanmar and China (Figure 7).
44
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60 Figure 8 Correlation Heat map of Indicators and trade volumes at 95% significant level by two-tail test.
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 Examining the correlation heatmap of Myanmar-China trade export/import volumes and associated in-
1 dicators, particularly as depicted in Figure 8 Correlation Heat map of Indicators and trade volumes at 95% signif-
2
3 icant level by two-tail test., uncovers compelling insights into the dynamics of economic relationships. Over the
4 last few decades, the exchange rate has emerged as a pivotal factor, displaying a robust positive correlation with
5
6 trade volumes, as illustrated in Figure 8. This positive correlation suggests that fluctuations in the exchange rate
7 directly influence the trade volumes between the two nations. A rise or fall in the exchange rate corresponds to a
8
9 similar movement in the trade volumes, showcasing a synchronous relationship.
10
The moderate correlation implies that while FDI plays a role in influencing trade volumes, its impact is
11
12 not as pronounced as that of the exchange rate. This finding underscores the multifaceted nature of economic
13
interactions, where various factors contribute to the overall trade dynamics between Myanmar and China. It's
14
15 noteworthy that all grid values in Figure 8 hold a 95% significance level, validated by a two-tail test. This ensures
16
17 the reliability and robustness of the correlations observed, reinforcing the credibility of the findings.
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40 Figure 9 - Regression scatter plot of predictor (a) Exchange Rate (b) FDI with Myanmar-China Export/Import trade volume
41
42
The regression scatter plot (Figure 9.a) focuses on the Exchange Rate as the predictor for the export-
43
44 import trade volume between Myanmar and China. The scatter plot illuminates a compelling narrative, revealing
45
a robust correlation. Remarkably, the Exchange Rate demonstrates an 87% impact on import trade and an even
46
47 more pronounced 89% impact on export trade. These staggering percentages underscore the significant influence
48
of the Exchange Rate on the bilateral trade volume, indicating a positive connection.
49
50 The second regression scatter plot (Figure 9.b) scrutinizes the role of FDI as a predictor in Myanmar-
51
52 China export-import trade. The scatter plot discloses a noteworthy correlation, albeit with slightly different dy-
53 namics compared to the Exchange Rate. For import trade, FDI wields a substantial 60% impact, while its influence
54
55 on export trade is more modest at 10%. Despite the varying degrees of impact, both percentages indicate a positive
56 connection between FDI and trade volume.
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 In synthesis, these regression scatter plots collectively underscore the intricate dance of economic varia-
1 bles influencing Myanmar-China trade dynamics. The Exchange Rate emerges as a potent force, wielding signif-
2
3 icant influence on both import and export volumes. Simultaneously, FDI plays a pivotal role, albeit with a nuanced
4 impact, contributing positively to the overall trade volume. These findings not only elucidate the complex inter-
5
6 play of economic factors but also provide valuable insights for policymakers and stakeholders navigating the
7 intricate landscape of international trade.
8
9
10
11 3.3 Scenario Analysis
12 Myanmar and China have shared a long history of economic and trade relations. Over the past three
13
14 decades, these ties have witnessed significant transformations due to various geopolitical and economic scenarios.
15 Scenario Slice Analysis of four crucial periods in Myanmar-China trade, each characterized by distinct political,
16
17 economic, and global circumstances.
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37 Figure 10 (a) Annual trade volume of Myanmar-China Trade (b) Annual average trade volume (export = magenta, import =
38 blue, total = green) by 4 scenario periods.
39
40
41 The trade dynamics between the two nations have undergone significant changes over the years, influenced
42 by various factors such as political regimes, global crises, and policy shifts. Scenario Slice Analysis of four key
43
44 periods in Myanmar-China trade, examining the impact of political changes, global events, and policy decisions
45 on trade volumes and dynamics.
46
47 The period from 1994 to 2010 witnessed Myanmar under military rule, characterized by isolation and high
48 international sanctions. Despite these challenges, a low and steady trade volume, with exports and imports re-
49
50 maining under 2000 million USD (Figure 10.a). The military government's policies led to limited economic en-
51 gagement, resulting in a constrained trade environment with China.
52
53 The scenario changed dramatically after the democratic election in 2010, transitioning from military to ci-
54 vilian rule. This shift saw an up-trending pattern in trade volumes, indicative of increased economic cooperation
55
56 between Myanmar and China. The data suggests that the change in political leadership positively influenced trade
57 relations, showcasing the resilience of economic ties despite the preceding period of isolation (Figure 10).
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63 13
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 The subsequent period, from 2011 to 2019, marked Myanmar's transition to a civilian government, accom-
1 panied by a relaxation of international sanctions. During this time, a positive trajectory in trade volumes, support-
2
3 ing the notion that political stability and reduced sanctions contribute to stronger economic ties (Figure 10). The
4 trade dynamics between Myanmar and China thrived under the civilian government, emphasizing the importance
5
6 of political conditions in fostering economic cooperation.
7 However, the global Covid-19 pandemic in 2020 disrupted economies worldwide, leading to unprecedented
8
9 challenges in international trade. Surprisingly, the Myanmar-China trade volume remained resilient during this
10
crisis, defying the expected downturn (Figure 10). This unexpected trend could be attributed to the resilience and
11
12 adaptability of both nations' economies, as well as the strategic importance of their bilateral trade relationship.
13
The pandemic period highlighted the robustness of Myanmar-China trade, possibly due to essential goods and
14
15 strategic partnerships that weathered the storm of global economic uncertainties. This resilience might have been
16
17 a result of the interdependence cultivated during previous periods, underscoring the significance of longstanding
18 economic relationships in times of crisis.
19
20 During the next period of 2022-2023, Myanmar-China governments underwent a significant policy change
21 by shifting from Dollar transactions to Kyat-Yuan transactions in Myanmar-China trade to reduct trade transaction
22
23 with USD currency. This period coincided with heightened sanctions due to political issues. Despite the challenges
24 posed by increased sanctions, Figure 10.a indicates a continued upward trajectory in trade volumes.
25
26 Figure 12.b, specifically focusing on the export-import balance, reveals that the trade balance became closer
27 during this period. The policy shift to Kyat-Yuan transactions may have contributed to this closer balance, poten-
28
29 tially reducing external dependencies and providing. Myanmar with greater control over its economic transactions.
30 The Scenario Slice Analysis of Myanmar-China trade reveals a fascinating interplay of political, global, and
31
32 policy factors shaping the bilateral economic relationship. The transition from military to civilian rule significantly
33 boosted trade volumes, highlighting the importance of political stability. The resilience observed during the
34
35 Covid-19 pandemic showcased the strength of the economic ties between the two nations. Moreover, the strategic
36 policy shift to Kyat-Yuan transactions, despite facing high sanctions, demonstrated Myanmar's efforts to assert
37
38 control over its economic transactions. This complexity and adaptability of Myanmar-China trade, which has
39 endured and evolved through various challenges, sanctions, and policy changes. As the geopolitical landscape
40
41 continues to shift, the future of this bilateral economic relationship remains intriguing, reflecting the ongoing
42
dynamics of international trade and diplomacy.with greater control over its economic transactions.
43
44
45
46 3.4 Impact of Kyat-Yuan Transaction
47 The economic relationship between two countries has been evolving over the years, and a crucial aspect
48
49 of this relationship is the Kyat-Yuan transaction system. This section turn into a deep analysis of the Kyat-Yuan
50 transaction system and its impact on the trade dynamics between these two nations.The examination is supported
51
52 by Figure 11 and Figure 12 which illustrate the annual variation in monthly averages, monthly trade volumes, and
53 the trade balance before and after the policy change.
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17 Figure 11 (a) Annual variation (per month), (b) Monthly average of China-Myanmar trade volume.
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19 Figure 14.a provides a comprehensive overview of the annual variation in monthly averages in the My-
20
21 anmar-China trade volumes. The data reveals a consistent increase in monthly trade volumes year by year. This
22
upward trend suggests a strengthening economic collaboration between the two nations. However, the intriguing
23
24 aspect lies in the nuances of these variations and the implications for the overall trade balance for Myanmar side.
25
Figure 11.a, and Figure 11.b explains into the monthly average of Myanmar-China trade volume. The
26
27 visual representation underscores the dynamic nature of the trade relationship, with fluctuations and peaks evident
28
across different months. This dynamic nature may be attributed to various factors, including seasonal variations,
29
30 economic policies, and geopolitical influences. A more detailed investigation is warranted to discern the driving
31
32 forces behind these fluctuations.
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Figure 12 Monthly average of China-Myanmar trade volume (a) before and (b) after changing of Kyat-Yuan trade transaction
33
34 system and (c) for export (d) for import.
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36 By examining Figures 15.a and b, a noteworthy trend is found that Myanmar's import volumes from
37
38 China consistently exceed its export values. This trade imbalance raises questions about the economic structure
39 and competitiveness of the two nations. It prompts a closer examination of the goods and services exchanged, as
40
41 well as the factors contributing to this persistent disparity. Understanding these imbalances is crucial for crafting
42 effective economic policies and fostering a more equitable trade relationship.
43
44 The turning point in this analysis is the change in the Kyat-Yuan policy, which evidently has repercus-
45 sions on trade dynamics. Figure 15.b indicates a notable convergence in the trade balance after the policy change.
46
47 This prompts an exploration into the specifics of the policy alteration and its implications for trade transactions.
48 A meticulous examination of the policy changes is imperative to comprehend the intricacies of this transformation.
49
50 Figures 15.c and 15.d provide additional evidence supporting the impact of the Kyat-Yuan policy change. The
51 data illustrates a clear uptick in trade volume after the implementation of the new policy. This positive correlation
52
53 raises questions about the causal relationship between the policy change and the increased trade activities.
54
The Kyat-Yuan transaction system holds immense significance in Myanmar-China trade for several rea-
55
56 sons. Firstly, it eliminates the need for an intermediary currency, reducing transaction costs and minimizing ex-
57
change rate risks. Secondly, it fosters economic cooperation by providing a stable and direct channel for trade
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 between the two nations. Understanding the dynamics of this transaction system is crucial to evaluating its impact
1 on the trade volumes.
2
3 The deep analysis of the Kyat-Yuan transaction system in the context of Myanmar-China trade offers
4 valuable insights into the evolving economic relationship between these two nations. The examination of annual
5
6 variations, import-export disparities, and the impact of the Kyat-Yuan policy change provides a comprehensive
7 understanding of the intricate dynamics at play. As these findings unravel, policymakers and economists can use
8
9 this information to formulate informed strategies, fostering a more balanced and mutually beneficial trade rela-
10
tionship between Myanmar and China.
11
12 One pivotal aspect of this relationship is the transaction system between the two nations, particularly the
13
use of the Kyat-Yuan exchange mechanism. In recent years, the Kyat-Yuan transaction system has undergone
14
15 changes, prompting a need for a comprehensive analysis of its impact on Myanmar-China trade. Figure 13 and
16
17 Figure 14 employing the difference-in-difference (DiD) method to provide a nuanced understanding of the trade
18 dynamics between the two countries from 2015 to 2023.
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48 Figure 13 Time-series simulation of before and after impact of Kyat-Yuan transaction system between Myanmar and China
49
50 Trade by difference-in-difference method (dummy = own anomalies) during 2015-2023. (a) for export only and (b) for import
51 only with (c) total trade volumes.
52
53 Subsections Figure 13.a and b focus on export and import volumes separately, while subsection Figure
54
55 13.c provides an overview of the total trade volumes. The identification of trend turning points is crucial for
56 understanding the positive impact of the Kyat-Yuan transaction policy change on trade volumes. The analysis of
57
58 export volumes reveals a significant positive change in the trend following the Kyat-Yuan transaction policy
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63 17
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 change (Figure 13.a). The treatment group, representing Myanmar's exports to China, exhibits a noticeable in-
1 crease compared to the control group. The linear trend also strong positive for Myanmar export to China. (Figure
2
3 14.a). This suggests that the policy change has positively influenced Myanmar's export volumes to China.
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46 Figure 14 The summary plot of difference-in-difference estimates for Kyat-Yuan policy change impact on Myanmar-China (a)
47
48 export, (b) import, and (c) total trade volumes. Left side explained: Observed mean and right side explained linear trend by
49 dummy of China export and Import volumes.
50
51
Similarly, the positive impact on import volumes (Figure 13.b). The treatment group, representing Chi-
52
53 na's exports to Myanmar otherwise, Myanmar import from China, experiences a favorable trend change compared
54
to the control group. The weak linear positive also results (Figure 14.b) when performed difference-in-difference
55
56 analysis. This indicates that the Kyat-Yuan transaction system policy change has led to an increase in China's
57
58 exports to Myanmar. Thus, then the summarize the both phases, overall trade dynamics, as depicted in Figure 13.c
59 and Figure 14.c confirm the positive impact of the Kyat-Yuan transaction system policy change. The overall
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 volume of trade between both countires has increased significantly as a result of the combined influence on import
1 and export volumes.
2
3
4 Table 1 Statistical values out put of difference-in-difference estimates
5
6 Coefficient std. err. t P>|t| [95% conf. interval]
7
8 Export 145.17 20.62 7.04 0.09 -116.83 407.18
9
10 Import 7.82 20.09 0.39 0.76 -247.43 263.06
11
12 Total 142.71 25.45 5.61 0.11 -180.70 466.12
13
14
15
16
17 The positive impact observed in trade volumes following the Kyat-Yuan transaction system policy
18 change has several economic implications. The reduction in transaction costs, exchange rate risks, and the facili-
19
20 tation of direct trade channels contribute to a more robust economic relationship between Myanmar and China.
21 Policy implications arising from the analysis suggest that a stable and well-managed Kyat-Yuan transaction sys-
22
23 tem can be a catalyst for enhancing bilateral trade relations.
24
25
26 4 Conclusion and Policy suggestion
27
28 The study utilizes statistical analyses, case studies, and software tools to understand the multifaceted dynamics
29
30 of Kyat-Yuan transactions. The report conducts scenario analysis, emphasizing the resilience observed during the
31 COVID-19 pandemic and the positive impact of the shift to Kyat-Yuan transactions in 2022-2023. The analysis
32
33 underscores the economic disparities between China and Myanmar, emphasizing Myanmar's adaptability. The
34 report also addresses the impact of local conflicts on Kyat-Yuan transactions, emphasizing the need to address
35
36 underlying issues for long-term resilience.
37 The analysis of export and import volumes, as well as overall trade dynamics, following the Kyat-Yuan trans-
38
39 action system policy change reveals a consistent and significant positive impact on the economic relationship
40 between two countries. The identified trend turning points in export and import volumes highlight the favorable
41
42 shifts in trade dynamics. Specifically, Myanmar's exports to China and China's exports to Myanmar experienced
43 noticeable increases in the treatment group compared to the control group. The economic implications of this
44
45 impact are significant, encompassing the reduction in transaction costs, mitigated exchange rate risks, and the
46 facilitation of direct trade channels. These results support the development of stronger economic ties between
47
48 China and Myanmar.
49
As policymakers contemplate the findings, the analysis suggests that a stable and well-managed Kyat-Yuan
50
51 transaction system can serve as a catalyst for enhancing bilateral trade relations. The observed positive trajectory
52
underscores the need for ongoing attention to ensure the sustainability of these gains. Thus, more adjustments or
53
54 improvements could be considered by policymakers to support the positive trends and encourage continued eco-
55
56 nomic cooperation between China and Myanmar.
57 In conclusion, the report provides a comprehensive analysis of the economic implications of Kyat-Yuan trans-
58
59 actions in Myanmar-China trade. It highlights the evolving trade landscape, the impact of geopolitical tensions,
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63 19
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 and the adaptation of businesses to currency restrictions, emphasizing the crucial role of the trade sector in sus-
1 taining economic stability and fostering international partnerships amid challenging circumstances.
2
3
4
5
6 Data Availability
7
8 All data of this study are open access to everyone by following links.
9
10 1. World Integrated Trade Solution (WITS), World Bank,
11 https://wits.worldbank.org/CountryProfile/en/MMR
12
13 2. Ministry of Commence (Myanmar MOC),
14
https://www.commerce.gov.mm/en/category/trade-data
15
16 3. General Administration of Customs of the People’s Republic of China (GACC),
17
http://english.customs.gov.cn/statics/report/monthly.html
18
19 4. United Nations Conference on Trade and Development (UNCTAD)
20
https://unctad.org/statistics
21
22 https://fx-rate.net/about_us/
23
24
25
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