Geopolitical Report ISSN 2785-2598 Volume 41 Issue 25
Author: Riccardo Rossi

Since 2013, the People’s Republic of China has recognised the Lao People’s Democratic Republic (LPDR) as a crucial territory for safeguarding interests in Southeast Asia, specifically addressing the concern of the Malacca dilemma.

By evaluating the geographical and economic factors, the analysis seeks to grasp the geopolitical significance that Beijing places on the LPDR.

The geographical aspect

The People’s Republic of China (PRC) considers the LPDR an important bridge between its territory and the major ASEAN countries. Beijing’s interests in Laos stem from the country’s unique geographical features.

• A 423 km border line stretches across the northern Laotian territories, acting as a barrier between them and Kunming, a bustling economic-industrial centre in southern China. Beijing considers this contiguity a factor to be exploited to implement the Belt and Road Initiative (BRI) within the Southeast Asia region. The Kunming-Singapore railway line project, which should operate in synergy with the Myanmar-China oil pipeline, serves as an example supporting this assertion.
• The People’s Republic of China views the Lao river network as a strategic means to expand its economic and financial influence in the Lao People’s Democratic Republic. Beijing, referring to the transboundary Mekong River, sees its centrality in sustaining the rural economy and satisfying a large part of Vientiane’s energy demand. With this in mind, Beijing considers it as a priority to build hydroelectric plants and manage the Mekong’s water flows.

The Geo-Economic Significance of The Lao People’s Democratic Republic

In recent years, Beijing has sought to exploit the geophysical conformation of Laos in order to increase its influence in the country’s mostly rural economy.

China has developed a politico-economic doctrine to induce the LPDR to sign bilateral agreements to build infrastructure, which is essential to connect the major cities in Laos and support the various industrial development programmes launched by the Lao People’s Democratic Republic. These include the Ten-Year Long-Term Program (2016-2025), designed intending to maintain a growth rate of no less than 7.5% and reducing the poverty line to below 10% of the national population.

Vientiane, in this program, recognises the importance of foreign direct investment (FDI) as a driver of economic growth in specific industries such as energy, infrastructure, agricultural and forestry product processing, livestock, processing industry, handicrafts, and medical care.

The People’s Republic of China has taken advantage of the Lao People’s Democratic Republic’s need for foreign investment and has undertaken significant infrastructure projects. As a result, the LPDR is now burdened with a debt of approximately USD 12.2 billion, which accounts for 64.8% of its GDP.

Laos’ debt confirms that the success of the Belt and Road Initiative project hinges on Debt Trap Diplomacy, a strategy aimed at resolving the Malacca Dilemma and fostering economic synchronisation among BRI member countries.

In its politico-economic doctrine for Laos, Beijing emphasises the importance of expanding trade presence as a secondary aim by strengthening market relations and establishing special economic zones.

Beijing exports mostly high-tech goods (computers, cars, insulated wires) to Laos, to increase the country’s dependence on its own technologies. From 1995 to 2022, the PRC increased its exports to Vientiane, from USD 47.3 million to USD 2.1 billion. Laos, during the same period, exported raw materials and raw materials such as rubber ($380 million) and copper ore ($348 million) to China. From 1995 to 2022, Vientiane increased its exports (at a rate of 25.3%) to Beijing from USD 6.18 million to USD 2.73 billion.

At the same time, China and Laos have established several special economic zones (SEZ), such as the Vientiane Saysetha Development Zone and Mohan-Boten Economic Cooperation Zone.

The Chinese company Yunnan Construction Engineering Group Co. Ltd and the Vientiane municipal government built the Saysetha Development Zone (SDZ), about 21 km from the capital. The SDZ, to date, has attracted some 131 companies from China, Japan, Singapore and Thailand, generating an investment of over USD 1.5 billion and the creation of 6,000 jobs.

The Mohan-Boten Economic Cooperation Zone, established in 2016, stretches between the Chinese province of Yunnan and the Lao province of Luang Namtha. The decision to place the SEZ near the Boten-Vientiane high-speed railway line highlighted Beijing and Vientiane’s commitment to strengthening their trade cooperation in this area.

The infrastructure network in Laos

The People’s Republic of China has built numerous infrastructures in Laos, such as the Vientiane-Boten Railway and several hydroelectric plants.

The Vientiane-Boten railway project (opened in December 2021) measures 422 km and connects the northern city of Bolten with the capital Vientiane, but concurrently reduces the travel time between the capital of Laos and the Chinese city of Kunming from 30 (by road) to 10 hours (by train). China and Laos, one year after the opening, have promoted the transport of 1.2 million passengers and almost 2 million tonnes of cargo, of which 1.576 million came from the Chinese province of Yunnan.

To construct the railway, Beijing and Vientiane established a joint venture called the ‘Lao-China Railway Company’. China has a majority stake of 70%, with Laos contributing the remaining 30%. This puts the People’s Republic of China in a powerful position towards the Lao People’s Democratic Republic, fuelling the idea of the effectiveness of Debt Trap Diplomacy.

The Vientiane-Boten Railway plays a crucial role in the larger ‘Pan-Asia Railway Network’ program. This program aims to connect Kunming to Singapore by passing through key routes in Vietnam, Thailand, and Cambodia. Beijing views this project as a potential solution to decrease reliance on the Strait of Malacca, a crucial route connecting China’s industrial-military complex to global markets.

Besides the Vientiane-Boten Railway, the People’s Republic of China, taking advantage of the LPDR’s decision to become the main exporter of hydropower in South-East Asia, could participate in the construction of important plants in the country, such as:

• Nam Tha 1, along the Nam Tha River, built by a partnership between China Southern Power Grid (75%) and Electricite du Laos with a 25% share. The plant produces 721 GWh of electricity.
• Nam Ngum 3, estimated to cost $1.4 billion, produces approximately 2,345 billion kilowatt-hours of electricity annually. China Hydropower Construction International Engineering, China Water Resources and the Tenth Bureau of Hydropower took part in the construction.

The construction of dams in Laos is seen as a vital component of Beijing’s water resource management strategy in Southeast Asia, specifically in terms of overseeing the flow of transboundary rivers like the Mekong and Salween.

Conclusions

Beijing, with its extensive investment policy in Laos (11 billion for the realisation of 840 projects), confirmed the geo-strategic importance of this territory for the defence of national interests and its opposition to the US Pivot to Asia doctrine.

Based on this observation, it is possible to envision a future where the People’s Republic’s economic-financial influence in Lao People’s Democratic Republic expands significantly, with the aim of establishing dominance over all other nations that adopt foreign direct investment policies in Laos.

For further information, reports, and analyses about Laos and Beijing’s involvement in Southeast Asia, contact us at info@specialeurasia.com.