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* Read story in a PDF link.reuters.com/fyj43v
* Myanmar jade sales twice that of oil and gas
* Almost half of Myanmar's jade sales are "unofficial"
* China the main destination, much of it smuggled
* Government losing out on enormous tax potential
* Industry dominated by military and their cronies
* Drug use rife among miners; deadly landslides common
By Andrew R.C. Marshall and Min Zayar Oo
HPAKANT, Myanmar, Sept 29 Tin Tun picked all
night through teetering heaps of rubble to find the palm-sized
lump of jade he now holds in his hand. He hopes it will make him
a fortune. It's happened before.
"Last year I found a stone worth 50 million kyat," he said,
trekking past the craters and slag heaps of this notorious
jade-mining region in northwest Myanmar. That's about $50,000 -
and it was more than enough money for Tin Tun, 38, to buy land
and build a house in his home village.
But rare finds by small-time prospectors like Tin Tun pale
next to the staggering wealth extracted on an industrial scale
by Myanmar's military, the tycoons it helped enrich, and
companies linked to the country where most jade ends up: China.
Almost half of all jade sales are "unofficial" - that is,
spirited over the border into China with little or no formal
taxation. This represents billions of dollars in lost revenues
that could be spent on rebuilding a nation shattered by nearly
half a century of military dictatorship.
Official statistics confirm these missing billions. Myanmar
produced more than 43 million kg of jade in fiscal year 2011/12
(April to March). Even valued at a conservative $100 per kg, it
was worth $4.3 billion. But official exports of jade that year
stood at only $34 million.
Official Chinese statistics only deepen the mystery. China
doesn't publicly report how much jade it imports from Myanmar.
But jade is included in official imports of precious stones and
metals, which in 2012 were worth $293 million - a figure still
too small to explain where billions of dollars of Myanmar jade
Such squandered wealth symbolizes a wider challenge in
Myanmar, an impoverished country whose natural resources -
including oil, timber and precious metals - have long fueled
armed conflicts while enriching only powerful individuals or
groups. In a rare visit to the heart of Myanmar's secretive
jade-mining industry in Hpakant, Reuters found an anarchic
region where soldiers and ethnic rebels clash, and where
mainland Chinese traders rub shoulders with heroin-fueled
"handpickers" who are routinely buried alive while scavenging
Myint Aung, Myanmar's Minister of Mines, did not reply to
written questions from Reuters about the jade industry's missing
millions and social costs.
Since a reformist government took office in March 2011,
Myanmar has pinned its economic hopes on the resumption of
foreign aid and investment. Some economists argue, however, that
Myanmar's prosperity and unity may depend upon claiming more
revenue from raw materials.
There are few reliable estimates on total jade sales that
include unofficial exports. The Harvard Ash Center, which
advises Myanmar's quasi-civilian government, has possibly the
best numbers available.
After sending researchers to the area this year, the Harvard
Ash Center published a report in July that put sales of Burmese
jade at about $8 billion in 2011. That's more than double the
country's revenue from natural gas and nearly a sixth of its
"Practically nothing is going to the government," David
Dapice, the report's co-author, told Reuters. "What you need is
a modern system of public finance in which the government
collects some part of the rents from mining this stuff."
Read this in a PDF link.reuters.com/fyj43v
Map of jade region link.reuters.com/zut43v
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Chinese have prized jade for its beauty and symbolism for
millennia. Many believe wearing jade jewelry brings good
fortune, prosperity and longevity. It is also viewed as an
investment, a major factor driving China's appetite for Burmese
jade. "Gold is valuable, but jade is priceless," runs an old
Jade is not only high value but easy to transport. "Only the
stones they cannot hide go to the emporiums," said Tin Soe, 53,
a jade trader in Hpakant, referring to the official auctions
held in Myanmar's capital of Naypyitaw.
The rest is smuggled by truck to China by so-called
"jockeys" through territory belonging to either the Burmese
military or the Kachin Independence Army (KIA), both of whom
extract tolls. The All China Jade Trade Association, a
state-linked industry group based in Beijing, declined repeated
requests for an interview.
Hpakant lies in Kachin State, a rugged region sandwiched
strategically between China and India. Nowhere on Earth does
jade exist in such quantity and quality. "Open the ground, let
the country abound," reads the sign outside the Hpakant offices
of the Ministry of Mines.
In fact, few places better symbolize how little Myanmar
benefits from its fabulous natural wealth. The road to Hpakant
has pot-holes bigger than the four-wheel-drive cars that
negotiate it. During the rainy season, it can take nine hours to
reach from Myitkyina, the Kachin state capital 110 km (68 miles)
Non-Burmese are rarely granted official access to Hpakant,
but taxi-drivers routinely take Chinese traders there for
exorbitant fees, part of which goes to dispensing bribes at
police and military checkpoints. The official reason for
restricting access to Hpakant is security: the Burmese military
and the Kachin Independence Army (KIA) have long vied for
control of the road, which is said to be flanked with
land-mines. But the restrictions also serve to reduce scrutiny
of the industry's biggest players and its horrific social costs:
the mass deaths of workers and some of the highest heroin
addiction and HIV infection rates in Myanmar.
There are also "obvious" links between jade and conflict in
Kachin State, said analyst Richard Horsey, a former United
Nations senior official in Myanmar. A 17-year ceasefire between
the military and the KIA ended when fighting erupted in June
2011. It has since displaced at least 100,000 people.
"Such vast revenues - in the hands of both sides - have
certainly fed into the conflict, helped fund insurgency, and
will be a hugely complicating factor in building a sustainable
peace economy," Horsey said.
The United States banned imports of jade, rubies and other
Burmese gemstones in 2008 in a bid to cut off revenue to the
military junta which then ruled Myanmar, also known as Burma.
But soaring demand from neighboring China meant the ban had
little effect. After Myanmar's reformist government took power,
the United States scrapped or suspended almost all economic and
political sanctions - but not the ban on jade and rubies. It was
renewed by the White House on Aug. 7 in a sign that Myanmar's
anarchic jade industry remains a throwback to an era of
dictatorship. The U.S. Department of the Treasury included the
industry in activities that "contribute to human rights abuses
or undermine Burma's democratic reform process."
Foreign companies are not permitted to extract jade. But
mining is capital intensive, and it is an open secret that most
of the 20 or so largest operations in Hpakant are owned by
Chinese companies or their proxies, say gem traders and other
industry insiders in Kachin State. "Of course, some (profit)
goes to the government," said Yup Zaw Hkawng, chairman of
Jadeland Myanmar, the most prominent Kachin mining company in
Hpakant. "But mostly it goes into the pockets of Chinese
families and the families of the former (Burmese) government."
Other players include the Union of Myanmar Economic Holdings
Ltd (UMEHL), the investment arm of the country's much-feared
military, and Burmese tycoons such as Zaw Zaw, chairman of Max
Myanmar, who made their fortunes collaborating with the former
THE CHINA CONNECTION
Soldiers guard the big mining companies and sometimes shoot
in the air to scare off small-time prospectors. "We run like
crazy when we see them," said Tin Tun, the handpicker.
UMEHL is notoriously tight-lipped about its operations.
"Stop bothering us," Major Myint Oo, chief of human resources at
UMEHL's head office in downtown Yangon, told Reuters. "You can't
just come in here and meet our superiors. This is a military
company. Some matters must be kept secret."
This arrangement, whereby Chinese companies exploit natural
resources with military help, is both familiar and deeply
controversial in Myanmar.
Last year, protests outside the Letpadaung copper mine in
northwest Myanmar triggered a violent police crackdown. The
mine's two operators - UMEHL and Myanmar Wanbao, a unit of
Chinese weapons manufacturer China North Industries Corp -
shared most of the profits, leaving the government with just 4
percent. That contract was revised in July in an apparent
attempt to appease public anger. The government now gets 51
percent of the profits, while Myanmar Wanbao and UMEHL get 30
and 19 percent respectively.
China's domination of the jade trade could feed into a wider
resentment over its exploitation of Myanmar's natural wealth. A
Chinese-led plan to build a $3.6 million dam at the Irrawaddy
River's source in Kachin State - and send most of the power it
generated to Yunnan Province - was suspended in 2011 by
President Thein Sein amid popular outrage.
The national and local governments should also get a greater
share of Kachin State's natural wealth, say analysts and
activists. That includes gold, timber and hydropower, but
A two-week auction held in the capital Naypyitaw in June
sold a record-breaking $2.6 billion in jade and gems. But jade
tax revenue in 2011 amounted to only 20 percent of the official
sales. Add in all the "unofficial" sales outside of the
emporium, and Harvard calculates an effective tax rate of about
7 percent on all Burmese jade.
It is, on the other hand, highly lucrative for the mining
companies, whose estimated cost of production is $400 a ton,
compared with an official sales figure of $126,000 a ton, the
"Kachin, and by extension Myanmar, cannot be peaceful and
politically stable without some equitable sharing of resource
revenues with the local people," said analyst Horsey.
THE PECKING ORDER
At the top of the pecking order in Hpakant are cashed-up
traders from China, who buy stones displayed on so-called "jade
tables" in Hpakant tea-shops. The tables are run by middleman
called laoban ("boss" in Chinese), who are often ethnic Chinese.
They buy jade from, and sometimes employ, handpickers like Tin
The handpickers are at the bottom of the heap - literally.
They swarm in their hundreds across mountains of rubble dumped
by the mining companies. It is perilous work, especially when
banks and slag heaps are destabilized by monsoon rain.
Landslides routinely swallow 10 or 20 men at a time, said Too
Aung, 30, a handpicker from the Kachin town of Bhamo.
"Sometimes we can't even dig out their bodies," he said. "We
don't know where to look."
In 2002, at least a thousand people were killed when flood
waters inundated a mine, Jadeland Myanmar chairman Yup Zaw
Hkawng told Reuters. Deaths are common but routinely concealed
by companies eager to avoid suspending operations, he said.
The boom in Hpakant's population coincided with an
exponential rise in opium production in Myanmar, the world's
second-largest producer after Afghanistan. Its derivative,
heroin, is cheap and widely available in Kachin State, and
Hpakant's workforce seems to run on it.
About half the handpickers use heroin, while others rely on
opium or alcohol, said Tin Soe, 53, a jade trader and a local
leader of the opposition National League for Democracy party.
"It's very rare to find someone who doesn't do any of these," he
Official figures on heroin use in Hpakant are hard to get.
The few foreign aid workers operating in the area, mostly
working with drug users, declined comment for fear of upsetting
relations with the Myanmar government. But health workers say
privately about 40 percent of injecting drug users in Hpakant
are HIV positive - twice the national average.
Drug use is so intrinsic to jade mining that "shooting
galleries" operate openly in Hpakant, with workers often
exchanging lumps of jade for hits of heroin.
Soe Moe, 39, came to Hpakant in 1992. Three years later, he
was sniffing heroin, then injecting it. His habit now devours
his earnings as a handpicker. "When I'm on (heroin), I feel
happier and more energetic. I work better," he said. The
shooting gallery he frequents accommodates hundreds of users.
"The place is so busy it's like a festival," he said. Soe Moe
said he didn't fear arrest, because the gallery owners paid off
Twenty years ago, Hpakant was controlled by KIA insurgents
who for a modest fee granted access to small prospectors. Four
people with iron picks could live off the jade harvested from a
small plot of land, said Yitnang Ze Lum of the Myanmar Gems and
Jewellery Entrepreneurs Association (MGJEA) in Myitkyina.
A 1994 ceasefire brought most of Hpakant back under
government control, and large-scale extraction began, with
hundreds of backhoes, earthmovers and trucks working around the
clock. "Now even a mountain lasts only three months," said
Yitnang Ze Lum.
Many Kachin businessmen, unable to compete in terms of
capital or technology, were shut out of the industry. Non-Kachin
workers poured in from across Myanmar, looking for jobs and
hoping to strike it rich.
The mines were closed in mid-2012 when the conflict flared
up again. Myanmar's military shelled suspected KIA positions;
the rebels retaliated with ambushes along the Hpakant road.
Thousands of people were displaced. Jade production plunged to
just 19.08 million kg in the 2012/13 fiscal year from 43.1
million kg the previous year. But the government forged a
preliminary ceasefire with the Kachin rebels in May, and some
traders predict Hpakant's mines will re-open when the monsoon
ends in October.
When operations are in full swing, the road to Hpakant is
clogged with vehicles bringing fuel in and jade out. Such is the
scale and speed of modern extraction, said Yitnang Ze Lum,
Hpakant's jade could be gone within 10 years.
"Every Kachin feels passionately that their state's
resources are being taken away," a leading Myitkyina gem trader
told Reuters on condition of anonymity. "But we're powerless to
(Andrew R.C. Marshall reported from Myitkyina; Min Zayar Oo
reported from Hpakant; Additional reporting by Ben Blanchard in