By Frank L. Albert
When Laos becomes chair of ASEAN and hosts President Barack Obama and other leaders at the East Asian Summit (EAS) in 2016, it will step into the world’s spotlight. If Obama comes to Vientiane for the meeting, he would be the first U.S. head of state to visit Laos.
Laos’s profile in Southeast Asia has become more prominent over the past several years. Today external powers compete for influence there, with Vietnam and Japan seeking to limit China’s expanding presence in Laos. Thailand, South Korea, and other states also have significant stakes there. The United States’ involvement in Laos has been minimal since 1975, when the communist government assumed power.
President Obama’s attendance at next year’s EAS would provide opportunities for Washington to diversify and broaden its engagement in Laos and with other members of the Greater Mekong sub-region, which officially includes southwestern China.
From “Landlocked” to “Landlinked”
The new connectivity in mainland Southeast Asia, coupled with ASEAN’s commitment to building an economic community, has transformed Laos’s geographical position from “landlocked” to “landlinked.”
Laos’s economy has benefited from the recently built roads, bridges, and telecommunications infrastructure in the Greater Mekong sub-region. In 2014, Laos’s economy grew by more than 7 percent for the ninth consecutive year—with roughly the same growth level expected in 2015 — and Laos has become a regional player by supplying hydro-electric power to China, Thailand, and Vietnam. Two decades of significant economic growth have helped to reduce the national poverty rate in Laos to 23 percent in 2013 from 46 percent in 1992.
China, Japan, Thailand, and Vietnam have also taken advantage of the new physical connectivity in Laos for commercial purposes. With prospects for even wider transportation links crossing Laos in the future, competition for political influence there continues to grow, primarily among China, Japan, and Vietnam. This jockeying has not broken out openly, but strategic planners should consider it in their assessments of today’s mainland Southeast Asia.
Since 1992, the Asian Development Bank (ADB) has provided some $11 billion for infrastructure projects in the Greater Mekong sub-region, which have either been completed or will be finished soon. China’s new development bank, the Asian Infastructure Investment Bank (AIIB), could easily dwarf the ADB’s funding in the region, with $50 billion in starting capital and a projected capital base of $100 billion. The AIIB will likely help China further expand its influence in Laos and the surrounding area, with Laos serving as a conduit between China and the Malaysian peninsula.
China and Laos have reportedly agreed, after initial delays, to move ahead with the construction of a $7.2 billion high-speed railway project linking the two countries and extending to Thailand. The 262-mile portion of the rail line in Laos would increase China’s access to the maritime heart of Southeast Asia. Economists and others have questioned the railway’s net benefits to Laos—servicing the construction debt could absorb up to 20 percent of Laos’s annual national budget —but China, Laos, and Thailand appear to be fully on board.
Laos in China’s Regional Calculus
China has built a modern sports stadium in Vientiane, constructed an imposing Chinese cultural center in the Lao capital, and erected low-cost shopping malls in Lao urban centers where Chinese-made consumer goods are readily available. Chinese investors have received long-term land concessions in Laos’s special economic zones, whether given in direct response to Beijing’s economic assistance or not.
China’s ambassador to Laos announced in January 2014 that China’s cumulative investment in Laos stood at $5.1 billion, slightly higher than that of Thailand and Vietnam, without acknowledging the $7.2 billion loan for railway construction. Chinese investors have strategically targeted hydro-electric generation and transmission projects, as well as concessions for mining projects for copper ore and its concentrates. Minerals make up two-thirds of the value of Lao exports to China.
All has not gone well for China, however. The Lao government closed a casino near the Laos-China border in May 2011, at the request of the Chinese government, after criminal activities there threatened social stability on both sides of the border. In addition, a small group of lawmakers in the National Assembly, long a rubber stamp body for the ruling Lao People’s Revolutionary Party, objected to the railway project.
More broadly, resentment among segments of Lao society about China’s exploitative business activities has led to growing suspicion about Chinese intentions in Laos. Such resentment, however, is hard to quantify and unlikely to coalesce into effective opposition to either government.
At the same time as Chinese investments have widened the gap between the rich and poor in Laos, basic Chinese consumer goods and the improved infrastructure made possible by Chinese assistance have made life easier for many.
Japan and Vietnam Acutely Aware of Laos’s Strategic Significance
Vietnam and Japan are eager to limit China’s influence in Laos. Vietnam has a long history of enmity with China as well as long established ties to both the Lao military and the Lao People’s Revolutionary Party. More tangibly, the newly built hydro-electric dams along the Mekong River in China and Laos would limit the flow of the Mekong River (known as the “mother of waters” in Lao) to important fishing and rice-growing areas in the Mekong Delta, Vietnam’s rice basket and a large population center.
Vietnam’s leadership clearly wants to maintain Hanoi’s historical and strategic influence in Vientiane. Radio Free Asia (RFA) reported that the secretariat of the Vietnamese Communist Party stated in a August 2013 letter to its Lao counterpart that Vietnam “felt threatened” by increasing Chinese (and Thai) investments in Laos. Vietnam emerged in 2013 as Laos’s top foreign investor with $5 billion in 449 projects, only to fall slightly behind China in 2014. RFA quoted the Vientiane Times as reporting that Laos and Vietnam planned to increase their bilateral trade to $5 billion in 2020 from about $725 million in 2013.
In the meantime, Japanese companies have turned to Laos in search of cheap labor and diversification from their heavy concentration in Thailand, where the companies’ bottom lines were hit by heavy flooding in 2011 and recurring political instability during the past decade.
Japan also appears intent on leveraging its aid and investment in Laos as a counterbalance to China’s clout there. A senior Japanese trade official acknowledged that Tokyo views economic assistance as a way of breaking China’s pre-eminence in countries such as Cambodia and Laos, telling the Wall Street Journal, “We are hoping to see indigenous industries grow in these countries so they can stand on their own, and become less dependent on China.”
More bluntly, Japan does not want China to establish client states in Southeast Asia, a region important to Japan’s economic prosperity and regional profile.
Physical proximity, deep pockets, and an unfettered government in Beijing underpin China’s strong position in Laos, and will likely keep it ahead of the pack there in the future.
It is not clear, however, how China will exercise its power and influence over the long term in Laos, or how long Japan, Vietnam, and others will continue to make overtures there. What is clear is that Laos is now a geopolitical player in Southeast Asia, and should get more creative attention in Washington than it has since 1975.
Mr. Frank Albert, a retired United States foreign service officer, is a Thai and Lao language linguist with wide experience in Southeast Asia. He can be reached at: email@example.com.