China and Vietnam square off in Laos

By Brian McCartan

VIENTIANE - China's growing influence in resource-rich Laos is seen by some as coming at the expense of ties with Vietnam, long the communist country's main patron and de facto security guarantor. The diplomatic recalibration is part of the landlocked country's bid to more fully integrate economically with the region and has so far served its interests well.

Laos is of increasing strategic importance to both China and Vietnam, two of Asia's fastest growing countries. Vietnam's interests lie primarily in securing its long land border with Laos and developing greater access to markets in Thailand. For China, Laos provides a growing avenue to export products to wider Southeast Asia, particularly from its remote and less-developed, landlocked southwestern regions.

Both countries have a growing interest in Laos' bountiful and largely untapped natural resources, agricultural products and hydropower to fuel their expanding economies.

Some analysts here predict that the balance of influence inside the ruling Lao People's Revolutionary Party (LPRP) could soon shift in Beijing's favor, as senior Lao leaders fade from the political scene and younger, more market-savvy cadre lacking experience in the communist revolutionary period assume positions of power.

Although 10 of the 11 member politburo's standing committee speak fluent Vietnamese - a mark of their deep personal ties to Hanoi and its political leadership - rising mid-ranking cadre are less likely to have studied in Vietnam while an increasing number have studied in the former Soviet Union, China or elsewhere.

Lao Prime Minister Bouasone Bouphavanh's appointment at the 2006 Eighth Party Congress was seen by many as the beginning of a shift towards more Chinese influence over the government. Born in 1954, he was a 21-year-old student activist and not a revolutionary war veteran when the communists took over the country in 1975. He later studied in the Soviet Union rather than Hanoi.

In apparent realization of this changing dynamic, China has adopted a long term diplomatic strategy for Laos. Rather than overly leveraging its commercial might, Beijing is simultaneously cultivating younger Lao leaders through programs that bring them to China for vocational, ideological and military training. These moves are being made in anticipation of an already dawning era when Vietnam-orientated old guard cadre fade from the political scene.

In an interview with Asia Times Online, Lao spokesman Yong Chanthalangsy showed the pragmatic side of Lao thinking. Noting that China is the new emerging power in the region, he said, "Openness and integration in the region is far better than the Cold War in the past imposed by some power. When Laos was a part of a security belt, it resulted in thirty years of war.”

Although he was referring to the broader Indochina War with the US, and earlier France, he could have just as easily been referring to the era of cool relations between Laos and China in the period between 1975 and 1988. Now, as the region's former communist countries reform their centrally planned economies with more market-driven policies, commercial imperatives are redefining how the region interacts, including with Laos.

Commercially positioned
Laos is now eager to promote itself as "land-linked" instead of "landlocked", emphasizing its potential role as a trade crossroads between China and Southeast Asia. According to spokesman Yong, "Laos has been suffering because it is landlocked and isolated. Connectivity in the region can only bring good things to Laos."

This view means that Laos sees the value in diversifying its diplomacy away from its traditional reliance on Vietnam. The balancing act has also extended to its erstwhile Western donors: while keen to accept investment and aid to boost the economy, create jobs and raise living standards, at the same time the government would rather avoid the conditions for political change and more official transparency often accompanying such aid.

Investments from China and Vietnam, on the other hand, come without pre-conditions. According to a 2005 monograph by noted Lao scholar Martin Stuart-Fox, it is not in the strategic best interests of China or Vietnam for the LPRP to lose its monopoly on political power and with both countries' commercial support there is little incentive for the LPRP to initiate political reforms.

Vietnam's strong relationship with Laos stems from the origins of the two countries' communist parties through the Indochinese Communist Party in the 1930s. This relationship was further cemented in the thirty years of struggle against the colonial French and then an American-backed regime, which was finally overthrown in 1975.

Communist Lao and Vietnamese forces fought side-by-side throughout those wars; then-North Vietnam's supply pipeline - the Ho Chi Minh Trail - famously used in its fight against the US-backed South Vietnam, ran through eastern Laos. Lao communist cadre received ideological and military training in Hanoi, while Chinese involvement in the struggle in Laos was confined to road building in the northern regions.

Laos and Vietnam entered into a formal twenty-five year Lao-Vietnam Friendship and Cooperation Treaty in 1977, underpinning what the two sides referred to as a "special relationship". Vietnam's siding with the Soviet Union against China in a doctrinal dispute meant that relations between its ally Laos and China also cooled. Relations worsened when Vietnam invaded Cambodia in late 1978 and China made a limited invasion of northern Vietnam in early 1979.

Bilateral relations between Laos and Vietnam are still strong, although the 1977 alliance was allowed to lapse in 2002. Personal ties between Lao and Vietnamese leaders remain strong enough politically for the "special relationship" to endure. Lao state-run media contains almost weekly news of bilateral socio-economic, cultural and military cooperation between the two countries. Billboards across Laos last year hailed the 45th anniversary of diplomatic ties and the 30th anniversary of the Lao-Vietnam Friendship and Cooperation Treaty.

Meanwhile, Vietnam remains Laos' second largest trading partner. The Vietnam-Lao Committee for Cooperation said in July that two-way trade hit US$240 million for the first half of this year, an increase of 58% year on year. The two countries have stated a shared goal of reaching $1 billion in bilateral trade by 2010 and $2 billion by 2015.

Investment competition
Vietnam is also clearly competing with China for investment influence. Figures released at an August 12 conference on Vietnam-Lao investment cooperation held in Vientiane showed that Vietnam's investment had grown to 177 projects valued at $1.28 billion. If accurate, this would raise Vietnam to the second-largest foreign investor in Laos behind Thailand and would move China down into third place.

Targeted investment areas include mining and expert-oriented agriculture and processing. Recent years have seen heavy Vietnamese investment in rubber plantations in southern Laos, particularly in Savannakhet and Champassak provinces. Laos is also increasingly being seen as a potential source of hydropower and state-run PetroVietnam and Electricity Vietnam are reported to be planning new projects in the country.

To facilitate trade and investment and access to markets in Thailand and the rest of Southeast Asia, Vietnam has been busy constructing roads in eastern Laos as part of the Greater Mekong Subregion's East-West Corridor road project, which aims to link Vietnam, Laos, Thailand, Myanmar and India. The most important link is the road connecting the Vietnamese central port of Danang with the so-called "Second Friendship Bridge" across the Mekong connecting Savannakhet, Laos, with Mukhdahan, Thailand.

While commercial ties are fast expanding, the two countries security links are perhaps better-established. Until at least the late 1980s, 40,000-50,000 Vietnamese soldiers were estimated to be based in Laos. Although Vietnam pulled its troops out in the 1990s, it still maintains training cadre, and according to some sources, military intelligence stations in the country. The Lao military continues to turn to Vietnam for military advice, especially concerning the ethnic Hmong insurgency. Lao military delegations to Vietnam in 1999 and 2000 went, according to some analysts, to seek advice after protests and a wave of mysterious bombings across the capital, Vientiane.

In contrast, China only resumed normal diplomatic relations with Laos in 1988 - but it is now fast making up for lost time. China was able to vastly increase its clout in Laos by bailing out the country from the 1997 Asian financial crisis through increased aid, investment and trade. Generous export subsidies and interest-free loans helped stabilize the tanking local currency, the kip.

Since then, a series of bilateral agreements have been signed covering economic and technical cooperation, infrastructure development and investment and banking. In 2000, President Jiang Zemin paid the first visit ever by a Chinese head of state to the country, paving the way for continued high-level government-to-government exchanges. According to Chinese media reports, Beijing canceled much of Laos' $1.7 billion debt owed in 2003.

China's interest in Laos is primarily economic, as both a source of natural resources and a conduit for its manufactured goods into Southeast Asia. Chinese investors are heavily involved in Lao hydropower and several dams are under construction with more in the planning stage. Mining is also an important area of investment, with concessions granted to Chinese investors for gold, copper, iron, potassium and bauxite.

So, too, is commercial agriculture, with Chinese investing heavily in corn, cassava, sugarcane and rubber in northern regions for export to China. Noting the new technology, seeds and markets brought in by Chinese investment, spokesman Yong said "Improved relations and opening up to China in those six (northern) provinces has had an immediate benefit."

Two-way trade stood at $249 million in 2007, but similar to Vietnam, China has said it hopes bilateral flows will hit $1 billion over the next few years. According to the Lao Committee for Planning and Investment, Chinese direct investment totaled $1.1 billion by August 2007, making China the second largest investor behind Thailand.

During Chinese Premier Wen Jiabao's visit to Vientiane in March, in conjunction with a Greater Mekong Subregion Summit, seven agreements were signed between the two countries covering economic issues, technology, energy and e-governance. China also offered $100 million in export purchaser credits for the vehicles and helicopters. Chinese loans have also helped to set up the Lao Telecom Company and Lao Asia Telecom, establish e-government projects and purchase aircraft for Lao Aviation.

China has paid particular attention to the development of the fast-expanding network of roads in northern Laos. Reconstruction of Route 3, connecting the Chinese city of Jinghong in Yunnan, through Laos to the town of Huay Xai across from Chiang Khong, Thailand, was completed earlier this year. Construction on a bridge - funded by China - across the Mekong River to complete the route is expected to begin later this year. The road project is a part of the Greater Mekong Subregion's North-South Corridor to connect China, Laos and Thailand. China hopes that the route will allow it to more efficiently transport goods through Thailand to the rest of Southeast Asia and provide a link with Thai seaports.

Soft and hard power
However not all Chinese investment has been strictly commercial. Considerable effort - and money - has been spent on "soft influence" projects, including the Beijing-financed construction of the $7-million National Cultural Hall, the 13-kilometer Central Avenue, renovation of the Patuxai Victory Monument and its surrounding park in Vientiane. It has also constructed a Sino-Lao Friendship Hospital just outside of the tourist town and old royal capital of Luang Prabang. In addition, increasing numbers of LPRP cadre are attending trainings and seminars in China, many in the southern Chinese city of Kunming, while more and more scholarships are being made available for Lao students to study in China.

Significantly, China has built on these economic ties to make strategic initiatives towards Laos, seen by some as a potential threat to Vietnam's position. It has recently increased contacts between the Lao People's Army (LPA) and the Chinese People's Liberation Army (PLA), while the number of Lao officers attending trainings in China has increased.

The Lao military's budget has grown steadily in recent years, according to analysts, and the government is no doubt aware that with China's huge weapons industry and Beijing's demonstrated willingness to exchange military hardware for commercial concessions is better placed to modernize its military through closer ties with China than Vietnam.

Not everyone is happy with China's growing role, however. While many Laos are happy to have access to cheaper Chinese manufactured goods, they are not always as enthused about what some see as a growing influx of Chinese migrants into the country and a perceived increase of Chinese influence over the government. Lao fears of a gradual "Chinese invasion" were perhaps most in evidence through the disapproval expressed in the wake of the government's announcement of a big land concession to Chinese investors near Vientiane's iconic That Luang Buddhist monastery.

While the land grant was apparently made in exchange for China's construction of a modern new sports stadium complex to be used when Laos hosts the 2009 Southeast Asia Games, the arrangement apparently angered some in the LPRP who were not consulted on the deal. Although the government has been at pains to dispel these rumors, they continue to persist.

Former Lao president Kaysone Phomvihan once said, "The mountains may wear out, rivers may run dry, but the Lao-Vietnam relationship will last forever." That may be true, due to geography as much as history, but China-Vietnam competition for influence in Laos is running high and so far the country has benefited nicely in balancing the two neighbors' advances.

Brian McCartan is a Chiang Mai-based freelance journalist. He may be reached at brianpm@comcast.net.