Beijing threatens legal action as Burma halts dam because it is 'against the will of the people'

Burma's decision to suspend the country's biggest hydroelectric project has shocked and enraged China, the government's most influential backer on the international stage.

Senior officials in Beijing have castigated their south-east Asian ally and threatened legal action. It emerged that they were not consulted before President Thein Sien of Burma announced last Friday a halt to building the $3.6bn (£2.3bn) hydropower dam on the Irawaddy – known as the Myitsone project – because it was "against the will of the people".

China is the impoverished nation's second-largest trading partner and biggest foreign investor. Such public displays of discord are unusual. Its reaction contrasted sharply with the response of the US government, which praised Burma's "significant and positive step" towards listening to public concerns and promoting national reconciliation.

This may be because Beijing has more at stake. China Power Investment is the primary funder of the project. Its manager, Lu Qizhou, told domestic media that he was astonished by the announcement.

"I hear about this through media reports. I was very shocked. Before this, Burma did not communicate with us about plans for a suspension," he said, in a warning that a halt to construction would precipitate legal action.

Lu said the project had received the necessary approval in both countries. He described the sudden suspension as "incomprehensible" and the cost for both countries as "immeasurable".

He said the loss was not just about the direct investment, but it was also a missed opportunity to generate electric power and there was damage to the country's reputation because of a breach of contract. In total, he calculated that the cascade of hydropower projects – of which Myitsone is just one – would have earned the Burmese government $54bn in tax revenues, shared profits and free electricity.

Lu downplayed the human and environmental impact of the dam, saying the Myitsone reservoir would necessitate the relocation of only 2,146 people in five villages. He said the Chinese company had provided them with two-storey houses, 21in colour televisions and a 100,000 kyat living allowance.

At the weekend, Hong Lei, a Chinese Foreign Ministry spokesman, called on Burma to hold consultations over the dam and noted that both countries agreed to move ahead with the project after a thorough assessment of the impact.

Opponents of the dam accuse China of being disingenuous. The Burma Rivers Network, which represents communities affected by the hydropower project, said Beijing had negotiated its investments with the military government without considering the will of the people.

"The villagers at the dam site, numerous political and community organisations, international human rights organisations have attempted to contact China Power Investment and discuss the concerns about the impacts and process of the project. Even though CPI never responded to all these attempts at dialogue, they cannot claim to be unaware of the feeling about this project by the people of Burma," the group said.

Far from benefiting Burma through flood control, the group argue that the dam would put the demands of power generation for China before the needs of local people.

"Chinese engineers running the dams will decide how much water to release downstream according to orders from Beijing ... As seen with the Mekong, this can cause unexpected and devastating water surges and shortages," it said.