Laos dances to survive between China and Vietnam
While often portrayed as a pliant client to its larger neighbors, Vientiane's balancing act is more astute than widely recognized
With its sparse 6.7 million population, land-locked Laos is often cast as a passive victim of pell-mell Chinese expansionism, a rich source of raw materials its giant neighbor craves and a virtual truck stop on the way to Thailand and the more prosperous countries of mainland Southeast Asia.
Already forging ahead with the 414-kilometer Kunming-Vientiane railway, China now seems intent on poking a stick in Hanoi’s eye with plans for a major economic zone on the Bolaven Plateau, covering much of southern Champasak province between the Mekong River and Vietnam’s Central Highlands.
But unlike the railway, the scheme to transform an area supposedly five times the size of Hong Kong into a green wonderland built around industrial agriculture and tourism could well demonstrate that the popular picture of a hapless Laos caught in China’s embrace is both misleading and quite possibly wrong.
For starters, vast tracts of land on the southern panhandle’s 1,000-meter-high plateau, with its cooler climate, rich volcanic soil, stunning waterfalls and US$120 million-a-year coffee industry, have already been acquired in one way or another by the wealthy Vientiane elite.
Also, as much as it might try to facilitate such an ambitious and politically-sensitive project, Laos’ communist government is bound by its own laws not to allow more than 10,000 hectares for each individual investor or joint venture.
That might be avoided with the use of subsidiaries, but, as University of Wisconsin professor Ian Baird points out, a lesser known reality is that as all-powerful as the ruling Lao People’s Revolutionary Party (LPRP) appears to be, it is the local governments that make the final decisions.
“If an investor runs into opposition, the central government is always going to back down,” says Baird, a long-time student of the communist state. “Local officials are deferential to the Vietnamese, but not to the Chinese, who can’t seem to translate all that economic activity into political power.”
The Chinese presence in southern Laos isn’t new. North of the plateau in neighboring Savannakhet province, China Minmetals is still operating the Sepon copper mine it acquired in 2009 as part of a wider US$1.4 billion deal to buy most of the assets from Australia’s indebted OZ Minerals.
But Chinese investors have already suffered setbacks with the failure of China Non-ferrous Metals International Mining Co (CNMIM) to proceed with a US$4 billion bauxite project in Champassak and the significant downsizing of a major urban development project in Vientiane, the capital.
Baird and International Institute for Asian Studies (IIAS) researcher Danielle Tan have separately reached the same conclusion that Lao authorities are playing Vietnam off against China, a strategy that could determine Laos’ long-term future as an independent state.
Indeed, there are strong indications that even the US$5.4 billion Kumning-Vientiane railway may not have got off the ground without the Lao government agreeing to a similar 220-kilometer rail link from Savannakhet to the Vietnamese border town of Lao Bao.
The electrified double-track line, to be built by Malaysia’s Giant Consolidated Ltd, will follow Highway 9 which already serves as a trade corridor between northeast Thailand and the South China Sea port of Danang in central Vietnam.
Chinese money may be welcome, says Baird, but it isn’t everything. More important are the Lao regime’s ties with Vietnam, forged during the Indochina War, and memories of China’s efforts from 1979-1985 to foment an anti-government rebellion among Hmong tribal holdouts in Laos.
Indeed, the 10th Lao People’s Revolutionary Party Congress in early 2016 saw the quiet removal from the 11-member Politburo of deputy prime minister and eighth-ranked Somsavat Lengsavad, 72, a wealthy Sino-Lao businessman regarded as the last true Beijing loyalist on the party’s highest body.
Most Politburo members are Vietnamese-trained war veterans, including general secretary and president Bounnhang Vorachith, 80, who joined the revolutionary Pathet Lao in 1952, later serving as its chief political commissar and then as governor of his native Savannakhet province.
One notable exception is popular prime minister Thongloun Sisoulith, 72, who was educated in the Soviet Union and Vietnam before joining the government, rising to state planning minister, deputy prime minister and foreign minister in the early 2000s.
Even today, Lao officials still study in Vietnam, not China, which means the Vietnamese retain more clout in the Lao countryside and are considered superior to the Chinese, politically and culturally, in dealing with provincial governments and local villagers.
Stalled up to now by a lack of funding, China’s involvement in the Bolaven project was grandly described in a recent Chinese news release as “a new step in the Sino-Laos strategic partnership,” language that rival Hanoi would not have appreciated.
The venture is spearheaded by China’s Guangcai Investment Group, a social entrepreneurship program created in 1995 by private businessmen to “combat poverty and contribute to regional development.” In other words, to put a happier face on Chinese investment.
Guangcai’s apparent partners in the project are state-owned China Communications Construction and China Construction Engineering, the China Development Bank, the Ex-Im Bank of China and Hong Kong-based Galaxy Financial Holdings.
Until now, Chinese migration and capital has focused on the northern Lao provinces of Luang Namtha, Oudomxay, Bokeo and Phongsaly provinces, transforming the border region, previously known for semi-subsistence farming, into a market-orientated agricultural economy.
The once-remote village of Boten, the staging ground for a planned cross-border economic zone, is also the starting point for the new China-built railway and the 990-kilometer expressway linking the Yunnan province capital of Kunming with Thailand’s Chiang Rai-Bangkok highway.
Following the same road the Chinese built in the 1960s to supply Thai communist guerrillas, the highway was finally completed in 2013 with the opening of the Ban Houay Say-Chiang Rai bridge across the Mekong River, the fourth to span the waterway.
In opening the way for an onrush of Chinese companies and migrants, it is that north-south economic corridor and other improvements to the border road network that has critics questioning whether Laos is ceding sovereignty to its northern region to China.
While private firms have built casinos and invested in other tourism ventures, China’s state-owned firms have concentrated on agriculture, particularly rubber cultivation, hydro-electric power and mining, notably copper, gold, bauxite, lignite, tin, iron and zinc.
More than a third of Chinese investment has gone into small-scale hydropower projects on Mekong tributaries under a build-operate-transfer model, notably different to China’s involvement in Indonesia’s badly-flawed 10,000-megawatt build-transfer power program spanning 2004-2014.
But it is also the main financier for three planned run-of-the-river projects on the mainstream Mekong, including the 920-megawatt (MW) Pak Beng plant in western Oudomxay province, and the 1,320MW Pak Lay and 700MW Sanakham ventures further downstream in Xayaboury.
While Vietnam’s foreign direct investment, mostly in hydro-power, mining, transportation and plantations, has slowed since a strong surge in 2005-2010, it still claims to match China’s total US$5.3 billion, with Thailand, Laos’ main hydropower customer, trailing at US$4.4 billion.
Vietnam’s biggest project is a US$522 million potash plant in southern Khammounan province, but Star Telecom’s Unitel network, a joint venture between Hanoi’s military-run Viettel and Lao Asia Telecom, controls half of Laos’ telecommunications market with annual revenues of US$700 million.
Another major investment milestone was the completion in 2016 of a 190-kilometer, US$240 million cross-border power transmission line linking the Vietnamese-funded Xekaman I and 3 hydro-plants near southern Attapeu province with Vietnam’s Central Highlands capital of Pleiku.
China clearly has the financial advantage, to a point where economists have expressed public concern that China’s outward direct investment deals do not provide sufficient returns and that state-owned enterprises are not held responsible if a project fails.
In an unusually critical opinion piece in 2015 – two years after the unveiling of the One Belt, One Road initiative that lies behind many of China’s new investments — Peking University professor Yiping Huang pointed out that such “blind spending” was risky and a waste of foreign reserves.
Critics also note that while Southeast Asia needs to spend an estimated US$8 trillion on infrastructure over the next decade, many recipient governments lack the ability to craft bankable development plans, either because of inefficiency or corruption.
That may apply to Laos, given its limited human resources, but Indonesia has also been found wanting with China’s showcase Jakarta-Bandung fast-rail project struggling to get off the ground because of the same land issues it is expected to face on Laos’ Bolaven Plateau.
Chinese and Vietnamese investment has clearly had a harmful impact on the environment and on local communities, with illegal logging decimating the country’s forests and thousands of villagers being uprooted for hydro-dams and industrial agricultural projects.
But IIAS researcher Tan maintained in a 2014 research paper that Laos’ communist leaders have little to fear from their giant northern neighbor and that they may well be paying a worthwhile price for China to act as mediator between Laos and the global economy.