Myanmar old guard clings to $10 billion jade empire

HPAKANT, Myanmar - 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 US$50,000 (S$63,000) - 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 US$100 per kg, it was worth US$4.3 billion. But official exports of jade that year stood at only US$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 US$293 million - a figure still too small to explain where billions of dollars of Myanmar jade has gone.

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 for stones.

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 US$8 billion in 2011. That's more than double the country's revenue from natural gas and nearly a sixth of its 2011 GDP.

"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."

Hiding Stones

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 Chinese saying.

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) away.

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 neighbouring 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 US 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 opera.