By Frank Albert

Chinese premier Li Keqiang told his Lao counterpart, President Choummaly Sayavone, in Beijing on September 2 that China wants, “to protect the peace, prosperity and stability of the (ASEAN) region.” The 79-year old Lao president responded perfunctorily that his government “looked forward to working with China on future projects.”

Whether one views the Chinese leader’s words as reassuring, threatening, or simply condescending, China wants to maintain unfettered transit rights through Laos and ongoing access to its hydroelectric power, minerals, and arable land. Lao government leaders’ interest in safeguarding, even expanding, Chinese investments and other types of support are equally transparent.

It is not clear, however, what would happen if ASEAN were to call for policies and actions under Laos’s chairmanship in 2016 that are at odds with China’s goals in the region. What would the Lao government do, for example, if some ASEAN claimant states in the South China Sea push the regional organization, as the Philippines did this year in Malaysia, to call on China to stop land reclamation activities in that international waterway?

Will Laos  merely ignore entreaties over that issue from Vietnam, the Philippines, and possibly others? Would a lack of responsiveness from Lao leaders have practical consequences for ASEAN or Laos’s position in it in particular?

Answers will not come for another year. We will also have to wait and see whether President Barack Obama’s participation in the 2016 East Asian Summit will affect regional security discussions, and how the United States will approach them. Might the Obama administration use the forum to propose joint initiatives that could be developed over the coming months with ASEAN allies, Japan, and possibly with China?

In the meantime, China has a long list of investments and initiatives in Laos, which explains why Vientiane has reason to maintain close relations with its big brother to the north.

North-South Economic Corridor

The roads, bridges, and other infrastructure built since 1992 to tie the Greater Mekong sub-region together have contributed significantly to China’s economic and commercial access to mainland Southeast Asia. Decision makers in Laos and Thailand want to maintain and expand this physical connectivity.  Beijing’s new Asian Infrastructure Investment Bank (AIIB) provides a vehicle for achieving those goals.

The western corridor of the regional North-South Economic Corridor passes from China through Laos to Thailand (Route 3A). This highway, while longer than an alternate route through Myanmar (Route 3B), has been used more heavily than the latter because of continuing security problems in Myanmar’s border areas.  Another route on the Mekong River is also in place, but has been plagued by uncertain upstream water levels.

Both Laos and Myanmar benefited from the increased trade through the corridor, but China and Thailand were the big winners because of the size and capacities of their economies. The largest economy, China, reaped the most benefits.  The bridge completed in 2014 over the Mekong from Houayxay, Laos, to Chiang Khong, Thailand, will further facilitate the flow of goods and capital southward from China. Land prices and human migration in several directions could also escalate, altering communities and cultures in their wake.

Kunming-Singapore Railway

Lao deputy prime minister Somsavat Lengsavad confirmed on September 18 that a railway “linking China, his country, and other ASEAN members” will be built starting “later this year.”  He made the announcement at the 12th China-ASEAN EXPO in China’s Guangxi Zhuang Autonomous Region, part of the Greater Mekong sub-region. Funding details for the $7.2 billion, 260 mile rail line through Laos are opaque, but could be based on a loan from China’s Export-Import Bank tied to long term concessions to China for mineral rights as well as timber and agricultural concessions in Laos. China will gain from this major new transportation and shipping link — as could Thailand, Malaysia, and Singapore — but the economic benefits for Laos are not so apparent.

Energy, Minerals, and Land

The Lao economy has grown over 7 percent annually since 2006, largely because of foreign direct investment (FDI). Lao government data show China provided one-third of the FDI in Laos from 1989 to 2014, followed by Thailand and Vietnam. Japan, a relative newcomer, is an increasingly important investor in Laos, particularly along the border with Thailand.

The leading investors from China have targeted hydroelectric generation and transmission projects valued at $1.6 billion through 2013, as well as mines for copper ore and concentrates costing $1.1 billion.  Under the China-ASEAN Free Trade Agreement, outward Chinese FDI turns Laos into a supply base for natural resources for bordering provinces in China and an export base to other ASEAN countries.

This is illustrated by the year-to-year trade figures between China and Laos. The value of Laos’s exports to China grew by 300 times from 2005-2013, while its exports to other countries increased by only four times during the same period.  Laos’s reliance on China for exports and inward FDI is clear.

Curiously, while Laos is a net exporter of electricity to Thailand, 90 percent of the electrical power used in Laos’s four northern provinces has been imported from China since 2009.  Overseas power projects are becoming an income generator for Chinese power companies in anticipation of more multilateral power trading under a single grid in the Mekong region.

Beyond that, analysts at the Hong Kong Liaison Office of the international trade union movement (IHLO) have noted that booming investments by Chinese companies in Laos’s agricultural sector raise questions about biodiversity, land eviction, unemployment of displaced farmers, and price controls.To preclude related objections, the Netherlands-based Transnational Institute reports the companies often seal deals in advance with provincial and even central government officials, thereby closing off effective recourse by those adversely affected.

Mr. Frank Albert, a retired U.S. foreign service office, can be reached at falbert2000@hotmail.com.