But is the land-locked, communist-run country getting cold feet about over-reliance on Beijing for its economic future?
Sixteen years after first being proposed, work finally began last year on a 414-kilometer railway that will connect southern China to neighboring Laos.
If finished as planned in 2021, the US$6 billion high-speed line will be Laos’ most expensive ever infrastructure project, representing nearly half of the small country’s current gross domestic product (GDP).
For the architect and benefactor, China, the railway will serve as an important link in connecting with countries in Southeast Asia, part of Beijing’s trillion-dollar “One Road, One Belt” initiative envisions a coherent trade link running from the southern Chinese city of Kunming to the island state of Singapore.
For Laos, the railway is emblematic of a clear change in direction for the long-time isolated nation. Indeed, Lao government officials bandy about a new cliché these days, saying they want to transform their “land-locked country” into a “land-linked country.”
To the east, a modern highway linking Vietnam’s capital of Hanoi to Vientiane is now on the cards. In May, the government instructed officials to begin research on a possible jointly-owned seaport in central Vietnam, viewed as necessary to promote industrial development.
Unlike its neighbors, Laos lacks a significant manufacturing industry, due largely to the high logistical costs of transporting goods. The country, approximately the size of France, is around 70% mountainous.
A more connected Laos, however, will require closer relations with its neighbors. The nominally communist nation left its hermetic position in the 1990s, but is still considered one of Southeast Asia’s more opaque countries.
That’s especially true for foreign businesspeople: Laos was ranked the third worst country in Southeast Asia on the World Bank’s latest ease of doing business survey; only Myanmar and Timor Leste scored worse.
The country’s highly bureaucratic government is a large part of the problem. For most analysts, the only discernible difference in political outlook among ruling Lao People’s Revolutionary Party apparatchiks is whether they belong to the pro-Hanoi or pro-Beijing faction.
The division is typically seen as generational, with the older generation favoring Hanoi and younger members leaning towards Beijing, or geographic, split between the pro-China networks in the north and pro-Vietnam ones in the south.
Some analysts assert that in recent years, especially following the 8th Party Congress, held in 2006, the pro-Beijing faction gained momentum. China became Laos’ largest foreign investor in 2013, pushing Vietnam into second place. Yet not all analysts agree with that follow-the-money analysis.
“There have been a lot of journalists in recent years who have got it totally wrong,” Ian Baird, professor in the University of Wisconsin-Madison’s geography department, told this writer last year. “They saw the money coming in from China and thought this meant it was gaining a lot of political strength in Laos. It’s not the case.”
That’s because China and Vietnam invest funds in Laos in different ways and through different channels. China, on one hand, prefers large-scale infrastructure works and seeks to build relations with officials in the central government. As such, China’s influence and projects tends to be more conspicuous.
Vietnam, however, understands that a great deal of power rests in local governments and thus Hanoi often cultivates ties to provincial officials and smaller businesses owned by influential party-aligned figures, Baird said.
If there ever was a pro-Beijing faction in the party, it was likely small. Former deputy prime minister Somsavat Lengsavad was thought to be the Politburo’s leading Sinophile, as well as one of Laos’ richest men, but he was removed from the top decision-making body last year.
Bouasone Bouphavanh, another supposed pro-Beijing proponent, ended his tenure as prime minister in 2010 with his government under a cloud of corruption allegations.
Analysts who disagree with the notion of factional politics say that the Lao government’s true aim is to balance interests between the two neighboring nations without becoming overly dependent on either. What has been notable since last year’s 10th Party Congress, however, is the government’s effort to extend ties beyond China and Vietnam.
Then US President Barack Obama’s visit to Vientiane last September was a momentous occasion, not only because he was the first sitting American president to visit Laos in 41 years, but also because his tour was seen as a sign the communist government was looking for the first time to the West to diversify its relations.
Prime Minister Thongloun Sisoulith is also looking for alternative investors in Asia. He was invited to Singapore in May by his counterpart, Lee Hsien Loong, for a high-profile visit. Bilateral trade between the two nations was worth US$51 million last year. Singapore has invested an estimated US$284 million in Laos over the years.
Although analysts believe that Laos will continue to rely heavily on China for loans and investment – especially if it is to achieve ‘upper middle-income country’ status by 2030, as it intends – there are concurrent signs that Thongloun aims to counter perceptions his country has become a pawn of its larger northern neighbor.
That’s perceived in part by a more patient tone about the need for rapid economic development, including in relation to developing its hydropower resources. “If Laos is to be ‘the battery of Asia’, this might be overly ambitious,” Thongloun said in an interview earlier this year, referring to the country’s growing number of export-oriented hydropower dams.
Last year, his government banned the opening of new banana plantations, a Chinese-driven boom in the north of the country, after reports that intensive use of chemicals was polluting water sources and affecting the health of workers. Soon after his government also banned the export of timber, much of which goes to China.
Thougloun no doubt understands that environmental destruction and unchecked farming threaten the Party’s legitimacy in the eyes of the public. “We can have foreign investment, but we must share the benefits,” he said, adding: “There should be fairness.”
This might be read in Laos’ obscure political discourse as an admission that previous policies have promoted inequality. But it’s a clearer sign that foreign investment will not, as before, always be welcomed whatever the cost domestically.
Indeed, Laos has certain leverage. Its geographic location at the center of the Greater Mekong Sub-region’s three most economically important countries – Thailand, Vietnam and China – means the country is an important transit route for Beijing’s One Belt, One Road initiative.
A big political and social test, however, will come when seven China-funded hydropower dams currently planned along Laos’ stretch of the Mekong come on-line. Vietnamese officials have complained for years that the dams will choke their downstream portion of the river, threatening the livelihoods of hundreds of thousands of people.
Laos will have to carefully navigate the potential fallout from Hanoi should the reduced river flows and environmental destruction come to fruition while also profiting from the hydro-power energy exports to China and other neighbors. Such are the diplomatic risks of more integration and greater connectivity with the region.