Holding all the cards

Bounnhang: China conundrum

There are five ‘officially’ Communist countries left in the world and China and Laos are two of them.

So perhaps it’s surprising that it had been 11 years since a senior Chinese leader visited the small, landlocked nation.

That changed last month when President Xi Jinping spent two days in the Laotian capital Vientiane, meeting with Bounnhang Vorachith, one of the only men in the world who holds the same two titles as the Chinese leader: President and General Secretary of the ruling Communist Party.

Despite the similarities in job roles, Bounnhang’s Politburo is less pro-China than previous ones. A small indication of that shift came earlier this year when agricultural officials cracked down on the use of pesticides after hundreds of workers fell sick on Chinese-owned banana farms. Some plantations were given warnings, others had their licences revoked. Some provinces in Laos have stopped issuing new licences to Chinese companies too, according to The Diplomat.

“Laos’ leaders have grown increasingly aware of the country’s dependency on China and [are seeking] to diversify its external relationships,” the magazine wrote.

Another bone of contention is the proposed railway line connecting Vientiane with the Chinese city of Kunming to the north and Singapore to the south. The 420km line will cost $6 billion, roughly half of Laos’ annual GDP.  In 2013 the Asian Development Bank called the project “unaffordable” and a Chinese feasibility study suggested it would generate an unimpressive rate of return, according to the Financial Times. As a result Chinese firms have been reluctant to invest in the project and Laos was encouraged to take on more of the initiative, using a loan from China’s ExIm Bank.

Some say the project was pushed through by former deputy prime-mister Somsavat Lengsavad, a fluent Chinese speaker who stepped down in January last year.

“China’s goal is clearly to find a land route to move goods from western China to mainland Southeast Asia. But with Laos’ small population and economy, little of this trade would stay in Laos and Laos would ship very little to China on the railway,” says Murray Hiebert of the Centre for Strategic and International Studies.

Sino-Lao relations formally date back to 1961 when the Cold War powers and their proxies backed opposite sides in a 20-year civil war.

In 1975 the Communists won. Despite a downgrading of relations in 1979 when China had a border war with Vietnam – an ally of Laos – ties have generally been friendlier since.

But past experience makes Laos wary of opening up too much to its huge northern neighbour. In 2007 it created a special economic zone around Boten close to the border with the Chinese province of Yunnan. The project boomed but in the wrong way. Chinese investors set up casinos and Chinese tourists piled across the border to gamble. Some of them got into trouble, unable to pay off their gaming debts, and the casinos locked them up. The Chinese police got involved and Boten effectively became a Chinese enclave. In 2010 both sides agreed to shut it down.

Today the zone is largely abandoned, awaiting a new lease of life, and there has been talk of a more gentrified development, featuring holiday properties, a golf course and duty-free shopping.

On the flipside another potential hub for Chinese investment in Laos had its hopes dashed last month when the government refused an application to build a new airport. Again, gambling was a focal point. King Romans, a special economic zone on the border with Thailand, had applied to build a landing strip so that high-rolling guests could fly in more easily from China. But local officials said the community would be better served by upgrading the existing airport in the province, media in Laos reported.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.