Historical Background

Over the past decade, China has risen to become Cambodia’s largest source of investment and development assistance. China’s presence as a major investor began to develop around 2006, after a state visit from then Premier Wen Jiabao, which resulted in the signing of several bilateral agreements and a commitment of 600 million USD in loans and grants. Since then, the relationship has strengthened significantly, and the two sides have upgraded relations to a ‘comprehensive strategic cooperation partnership’ in 2010.

China is now arguably Cambodia’s strongest political ally. In 2018 the two countries marked 60 years of diplomatic relations, though ties have experienced several shifts during that period. Relations were interrupted in the early 1970s by a republican coup that pushed the late King Norodom Sihanouk from power and replaced him with the pro-Western General Lon Nol. Sihanouk fled to Beijijng, where he lived in exile for five years, forming a government-in-exile and encouraging the Cambodian people to support the Khmer Rouge forces that were building up in rural areas and fight against the Lon Nol regime. The links between the Cambodian royal family and China remain strong to this day. In 1975, Lon Nol was ousted by the Khmer Rouge, a communist insurgent group that received economic, political, and military support from China. In 1979, the Khmer Rouge were in turn defeated by Vietnamese-backed Cambodian forces led by actors that in large part continue to rule Cambodia to this day. During the 1980s, in the midst of the cold war era Sino–Soviet split, China was viewed with distrust by the Cambodian leadership, which continued to receive backing from Vietnam. This mistrust was deepened by the fact that China continued to provide political backing to the Khmer Rouge, who were now waging guerrilla war from Cambodia’s borderlands. Only following the withdrawal of Vietnamese troops in 1989 and the UN-brokered elections of 1993, were diplomatic relations between China and Cambodia re-established.

After 1993, Chinese investment and aid to Cambodia began to increase, but Cambodia also maintained relations with Taiwan, which at the time was one of the country’s top sources of investment. Taiwan maintained a representative office in Phnom Penh, but as Cambodia drew closer to mainland China this office was closed by Prime Minister Hun Sen in 1997. This coincided with a period of international isolation for Cambodia, when factional fighting between the ruling coalition parties led to bloodshed in the capital, after which China was one of the few nations that maintained normal diplomatic relations with the country. As the relationship strengthened, subsequent attempts to re-open a Taiwan representative office in Cambodia have been blocked by the Prime Minister, who frequently voices unflinching support for the One China Policy.

Foreign investment in Cambodia began to rise in 2004, after the country joined the World Trade Organisation. China’s presence as a major investor began to take shape two years later, after Premier Wen Jiabao’s visit. This set a trend of high-level meetings between the two sides, which consistently result in high-profile investment and aid packages, and commitments to develop large infrastructure projects—including power plants, roads, and other major public works. Between the various meetings, there is no shortage of visits to China and Cambodia by government officials and business people, along with state-supported trade and investment junkets from provinces around China. In recent years, Cambodia has become a focal point for geopolitical tensions between China and the United States, with the latter increasingly concerned about China’s presence and influence in Cambodia and across the region.

BRI Status

Cambodia was quick to sign up to the Belt and Road Initiative (BRI) and in 2016 the two parties signed a memorandum of understanding (MoU) on developing a framework for jointly advancing the BRI in Cambodia. Subsequently, the two countries have signed several MoUs that discuss aligning the BRI with Cambodia’s ‘Rectangular Strategy’, that is the five-year plans that set out the government’s development agenda. 

Although the BRI is frequently brought up in statements by Cambodian and Chinese Embassy officials, as well as by companies active in Cambodia, it is often used in very broad terms. Numerous projects that were approved, commenced construction, or were even completed prior to the existence of the BRI, are now referred to as BRI projects. As there is no list of what exactly is a ‘BRI project’, many companies have used the label to enhance the profile of their endeavours. A more useful way to assess which projects are seen as a shared priority by the two governments is to refer to joint statements that come out of high-level bilateral meetings, which identify agreed cooperation projects between the two countries.

For instance, one recent high-level joint communiqué between China and Cambodia was released in January 2019 during a trip to Beijing by Prime Minister Hun Sen. It stated that the two countries will continue to support companies to invest in the development of agricultural, manufacturing, and processing parks, enhance cooperation in power supply and power grid construction, advance the development and application of clean energy resources, and construct basic public infrastructure—including water supply, roads, and rural schools. The communiqueé made specific reference to the Sihanoukville Special Economic Zone, Phnom Penh-Sihanoukville Expressway, and a new international airport in Siem Reap.

Pushing back on criticism that the BRI is an agenda pushed on its partners, the Chinese government frequently asserts that the initiative seeks to complement the development strategies of its partners, rather than acting as an external imposition. Cambodian officials have been equally keen to present the BRI as something that supports the realisation of national development goals, and the government frequently mentions the BRI in the same breath as Cambodia’s Rectangular Strategy, National Strategic Development Plan, and other long-term development plans such as its Industrial Development Policy.

Current Economic Relations

Trade: China is Cambodia’s largest trade partner, with total trade reaching 8.53 billion USD in 2019. In the 2019 joint communiqué, the two countries have committed to increasing the bilateral trade volume to 10 billion USD by 2023. Currently this trade is heavily imbalanced. In 2019, China was Cambodia’s largest source of imports, worth over 7.5 billion USD (about 51% of total imports), but Cambodia shipped just over 1 billion USD of goods to China (about 7% of total exports). In order to achieve the increased trade target, and potentially reduce this deficit, negotiations began in 2019 on a Cambodia–China free trade agreement (FTA). This was signed in October 2020 and held up by both sides as a landmark achievement, having been negotiated and finalised in just seven months, and being the first FTA between China and a least developed country, and the first to have a specific chapter dedicated to the BRI. The agreement will come into force on 1 January 2022.

Chinese companies also benefit from Cambodia’s trade agreements with other partners, including the European Union’s Everything But Arms (EBA) and the US Generalized System of Preferences (GSP). Both provide tariff free market access to products made in Cambodia, and manufacturers of garments, footwear, and accessories have been a major beneficiary. In August 2020, the European Trade Commissioner took the drastic step of partially withdrawing EBA benefits due to ‘serious and systemic violations’ of freedom of expression, labour rights, and freedom of association, in addition to long-running concerns regarding workers’ rights and land-grabbing. Chinese companies are deeply embedded in Cambodia’s export-oriented manufacturing sector and dominate the garment industry. This development therefore has potentially serious impacts for companies in mainland China that produce and sell equipment and materials that are used in the manufacturing industry—which make up the bulk of China’s exports to Cambodia. On the Cambodian side, Chinese companies will factor EBA and GSP benefits into their investment decisions, and several Chinese economic zone operators list these agreements as ‘trade advantages’ when promoting their zones to potential Chinese tenants. Withdrawal of this tax benefit is likely having a significant impact on this low-profit margin industry. 

Investment: Although China’s officially recorded global investment has been dropping since 2016, its investment in Cambodia does not follow the same trend, and has increased relatively steadily between 2015 and 2018.

The above data is gathered from company self-reporting to China’s Ministry of Commerce (MOFCOM), as per the Ministry’s 2018 Statistical Bulletin of China’s Outward Foreign Direct Investment (中国对外直接投资统计公报). Therefore, it does not include investment that is not declared, for whatever reason. Smaller private investment that is not in full compliance with Chinese regulations will therefore not show up. Likewise, secondary investments by Chinese companies that are already established overseas may not be represented. Nevertheless, MOFCOM data shows that recorded investment into Cambodia has risen significantly since the 2000s, reaching 778.34 million USD in 2018.

Figures from Cambodia’s top investment body report approved investment, rather than realised investment, but indicate a rapid increase in approved investment from China in the 2010s. According to this data, China has been Cambodia’s top investor since 2013, accounting for 22% of all approved foreign investment from 1994 to 2019. In 2019, approved investment from China hit 2.75 billion USD. Chinese capital flows to a wide range of sectors, including agriculture, industry, energy, transport, mining, tourism, and entertainment. In 2020, Cambodia’s central bank reported that China accounted for over 50% of all FDI inflows. This put China far ahead of the second largest source, Singapore, with just 8%.

Aid: Since 2010 China has been the largest source of bilateral development assistance to Cambodia. As of December 2018, China had provided a total of 5.8 billion USD in development assistance to Cambodia. In 2019 alone, China’s development assistance amounted to almost 500 million USD, up from 353 million USD in 2018. More than half of the projects funded via concessional loans or preferential buyer’s credits from the Export and Import Bank of China concern transport (mostly road development or improvement), energy (mostly high-voltage transmission lines), and irrigation. Grants and interest-free loans mostly support prestige projects, such as stadiums and government buildings, as well as several new hospitals. Chinese aid also supports capacity building and training in areas such as agriculture technology and techniques. As of 2020, Cambodia’s outstanding foreign debt stood at 8.8 billion USD. Of this amount, 44.3% was owed to China through interest-free and concessional loans (down from 48% in 2019).

Key Controversies in Bilateral Relations

Land conflict & displacement: With foreign investment flowing into Cambodia and land prices increasing, land conflicts and evictions have been a major and ongoing concern since the mid-2000s. Development projects led by both local and foreign investors have been linked to serious land rights abuses. Chinese companies have been implicated in several high-profile cases, including the Boeung Kak Lake case in Phnom Penh, which saw the eviction of over 4,000 families between 2007 and 2010, and the Dara Sakor tourism project in Koh Kong province, which cut 45,000 hectares from the national park and displaced over 1,000 after it commenced in 2008. 

Water: China’s role in Cambodia’s energy sector is now so extensive that as of 2018 almost three quarters of the domestic power supply came from Chinese-built and financed power plants. The nine Chinese-supported hydropower projects alone represented just under half of the country’s total generating capacity in 2019. Several of these hydropower projects have been highly controversial, especially the Lower Sesan 2 in northeast Cambodia, which displaced as many as 5,000 people, and raised concerns of environmentalists due to its likely impacts on sediment flows, fisheries, and biodiversity.

Climate change: Cambodia only began to develop coal power plants relatively recently, with the first plant built by a Malaysian company coming online in 2014. Since then, two more plants have come online, with four more under construction and a number under study. Of the seven active projects, five are linked to Chinese companies. This expansion of coal and plans for the development of Chinese-supported natural gas infrastructure could shift the country’s energy mix drastically to almost 75% fossil fuel. As a result, Cambodia may face the withdrawal of major international brands who produce in or purchase products from Cambodia, and do not want to be associated with manufacturing powered by fossil fuel. 

Labour conflict: Since the early 2000s, Cambodia has maintained annual GDP growth of around 7%. This growth has been fuelled in large part by the export-oriented garment and footwear industry. As of 2019, almost 70% of Garment Manufacturers Association in Cambodia (GMAC) members were from the Greater China region: 285 from mainland China, 82 from Taiwan and 52 from Hong Kong. Although Chinese garment and footwear companies are often implicated in labour disputes, there is no evidence that labour conditions and labour relations present any substantial difference when compared to companies of other ownership. However, serious concerns have been raised about Chinese employers in the construction sector. Due to the ban on online gambling (see below), which fuelled much of the construction industry in Sihanoukville, combined with the economic downturn caused by the Covid-19 pandemic, many construction projects have ground to a halt. This has resulted in companies failing to pay wages to both Cambodian and Chinese labourers, and throughout 2020, local media reports have covered protests by construction workers, including many Chinese citizens who have become trapped and impoverished in Cambodia without funds to return home.

Gambling and other illicit activities: A significant focus for Chinese investment in Cambodia has been the gambling industry. This expanded rapidly in just a few years, and between 2017 and 2018, the number of licensed casinos in Cambodia jumped from 98 to 150, with many located in coastal Sihanoukville. As well as in-person gambling, a huge online gambling industry also grew in Cambodia in a short space of time. This includes actual gambling and lotteries, but also various scams and fraudulent activity. Operations are generally led by criminal elements who target Chinese citizens, but need a base where law enforcement and digital regulation is lax. As these operations expanded in Sihanoukville, so did gang activity, eventually leading to a ban on online gambling being announced in August 2019. The online gambling ban heavily hit Sihanoukville’s economy, as much of the city’s development was centred around the industry.

Military presence: Since 2018, the United States has raised concerns that Cambodia is being used as a base for Chinese military operations. This began with rumours that the port and airport facilities at Union Development Group’s Dara Sakor project in Koh Kong were either a cover for a military base, or intended for dual use (for more details see the dedicated project profile). The US Treasury later sanctioned Union Development under the Global Magnitsky Act due to alleged connections to human rights abuses. Attention later shifted to the Ream Naval Base in Sihanoukville, after the Wall Street Journal reported that it had obtained a leaked draft document between China and Cambodia discussing the basing of Chinese forces within a newly developed area of the base. Both the Cambodian and Chinese governments have aggressively denied these claims.

Key Sources

English-language Media:

• Reuters, Associated Press, Voice of Democracy, Voice of America, and Radio Free Asia all have correspondents in Cambodia and report from the country. 
• Local media outlets in English include the privately-owned Phnom Penh Post, Khmer Times, CamboJA, Cambodianess, as well as the state-owned Agence Kampuchea Presse.

Reports and Scholarly Articles:

• Council for the Development of Cambodia. 2020. ‘Development Cooperation and Partnerships Report.’ Council or the Development of Cambodia website, March. English, Khmer.
• Franceschini, Ivan. 2020a. ‘As Far Apart as Earth and Sky: A Survey of Chinese and Cambodian Construction Workers in Sihanoukville.’ Critical Asian Studies 52, no. 4: 512–29. Link.
• Franceschini, Ivan. 2020b. ‘The Chinese Trade Union Goes Global: Evidence from Cambodia.’ China Perspectives 4/2020: 29–37. 
• Franceschini, Ivan. 2020. ‘At the Roots of Labor Activism: Chinese and Cambodian Garment Workers in Comparative Perspective.’ Journal of Contemporary Asia, vol. 50, no. 1: 144–67. Link.
• Grimsditch, Mark. 2019. ‘The Cambodia Conundrum: The Belt and Road, Private Capital and China’s “Non-interference” Policy.’ Panda Paw Dragon Claw, 25 June. Link.
• Inclusive Development international. 2020. ‘Briefing Paper: Reassessing China’s Investment Footprint in Cambodia.’ Inclusive Development International website, August. Link.
• Mertha, Andrew C. 2014. Brothers in Arms: Chinese Aid to the Khmer Rouge, 1975–1979. Ithaca, NY: Cornell University Press.

Updates & Corrections

25 November 2022: Updated data regarding Cambodia-China Free Trade Agreement, specifying date it will come into force and linking to original document.

5 June 2021: Updated data about 2020 added to the paragraphs about investment and aid.

Cover Photo (CC) @mayanais.

Historical Background

Relations between Indonesia and the People’s Republic of China (PRC) have alternated between great closeness and equally great antagonism. In 1950, five years after Sukarno declared the independence of the country and one year after the Netherlands finally gave up its colonial pretensions, Indonesia became the first Southeast Asian nation to establish official diplomatic relations with the PRC. This eagerness reflected the need to be recognised as a newly formed sovereign entity through the establishment of foreign relations with other countries. The bilateral relations further improved in the following year, as Sukarno successfully positioned himself as a leader of the non-aligned ‘Third World’ with China’s support, a process that culminated at the Bandung conference of 1955.

Political alignment notwithstanding, tensions were always lurking, especially in relation to the contentious status of the Chinese diaspora in the country, which historically had often been resented by the local population due to their perceived economic success and privilege. At the Bandung Conference of 1955, Chinese Prime Minister Zhou Enlai and his Indonesian counterpart signed the Sino-Indonesian Dual Nationality Treaty—which came into force only in early 1960, after repeated delays—that first clarified the status of Chinese Indonesians, mandating that they choose between Chinese and Indonesian nationality. On 14 May 1959, a new regulation from the Indonesian Ministry of Trade that forced all foreign nationals relocate their retail shops from rural to urban areas put the burgeoning bilateral relations to the test, with the status of Indonesian Chinese remaining unclear in spite of the recent Treaty. The regulation ended up affecting an estimated 300,000 ethnic Chinese. While threatening to call a trade boycott by the large and powerful Singaporean Chinese community and urging Indonesian overseas Chinese to resist the policy and the evictions, the PRC authorities inaugurated a repatriation policy that oversaw the return of roughly 119,000 Chinese. Considering the prominent role of the Chinese community in the local economy, the repatriation had high economic and social costs for Indonesia.

A period of reconciliation ensued as the two countries realised that their confrontation was harmful not only to their domestic situation, as the new returnees had difficulty integrating back into China, but to their shared goals of promoting similar socialist ideals in the international arena. Hence, Indonesia during the Sukarno presidency remained on good terms with the PRC, especially between 1963 and 1965, when anti-Chinese demonstrations broke out. Both governments took a unified stance to condemn these racial episodes, at times violent, which started in West Java and spread to East Sumatra. However, in 1965 everything changed. Following an abortive coup targeting military leaders on the night of 30 September 1965 in which the Indonesia Communist Party (PKI) was allegedly involved, sections of the Indonesian army led by then Major General Suharto ousted Sukarno and established a new regime. The PKI was promptly outlawed, and massacres took place all over the country, targeting especially leftists and Chinese Indonesians. An estimated half a million people lost their lives, including thousands of members of the Chinese diaspora. Under the so-called New Order, Suharto’s government adopted a series of discriminating laws targeting the Chinese community. In 1967, Jakarta unilaterally decided to suspend diplomatic relations with the PRC on the basis that China had meddled with the country’s affairs by supporting the PKI. The freezing of diplomatic relations lasted for 23 years. 

Relations resumed in August 1990 but only after 1998 did they begin to show significant improvement. This followed a shift in Indonesia’s domestic politics after May 1998, when Suharto resigned in the wake of massive popular demonstrations triggered by the repercussions of the Asian Financial Crisis. At the same time violent ethnic riots once again targeted the Chinese community in Indonesia because of their wealth. The rapprochement culminated with the start of the Wahid presidency in 1999, coinciding with an attitudinal shift in China’s foreign relations towards Southeast Asia, which scholars often call ‘good neighbour’ policy, ‘charm diplomacy’, or ‘charm offensive’. China’s new foreign policy approach was directed towards the whole of Asia, and particularly to Southeast Asia. In the case of Indonesia, it included providing economic support to address the consequences of the financial crisis, as well as relief after the tsunami in 2004. 

Paradoxically, the riots of May 1998 played a major role in boosting China’s image among the Indonesian political elites. Despite the international outcry and condemnation, the Chinese government’s attitude remained staunchly non-interventionist. As the Chinese ambassador in Jakarta declared at that time, the riots were ‘part of Indonesia’s domestic politics. Its resolution must come from the Indonesian government itself. The Chinese government must not act as if it could be the chef in somebody else’s kitchen.’ As Indonesia’s high-ranking officials started to release statements of friendship towards China, China announced its readiness to support Indonesia’s infrastructural development. Hence, under Susilo Bambang Yudhoyono’s (2004–14) and Joko Widodo’s (2014–) presidencies, China became an important partner to boost Indonesia’s economic growth through trade and foreign investment. 

BRI Status

In October 2013, President Xi Jinping announced the plan for the 21st Century Maritime Silk Road during a speech at the Indonesian Parliament. This became one of the two main routes envisioned under the then nascent Belt and Road Initiative (BRI). The decision to first announce this plan in Indonesia illustrates the country’s strategic and economic significance to China and renewed previous efforts by both countries to promote bilateral economic cooperation. President Xi’s speech demonstrated a skillful leveraging of the ‘charm offensive’ initiated by his predecessors, citing mutual help in times of need, such as during earthquakes and tsunamis, as a testimony of ‘the sincere friendship between the Chinese and Indonesian peoples’. 

The year 2013 was particularly fruitful for bilateral relations. The two countries issued the Future Direction of China-Indonesia Comprehensive Strategic Partnership, a landmark document. The strategic partnership comprises five key areas of cooperation: 1) Politics, defence, and security; 2) Economy and development; 3) Sea, aerospace, science and technology; 4) Society and culture; 5) International and regional cooperation. Within this framework, cooperation agreements were signed in the economic, trade, financial, fishery, outer space exploration, meteorology, and tourism fields.

After coming into office in October 2014, President Widodo stepped up bilateral cooperation. In November 2014, Indonesia signed the Memorandum of Understanding (MoU) to join the Asia Infrastructure Investment Bank (AIIB), of which the country became officially a member in 2016. Indonesia is the tenth largest shareholder with a contribution of 3,360.7 million USD and has taken up one of the five vice-president seats. Also in November 2014, 12 MoUs between Indonesian and Chinese companies were signed at the Asia-Pacific Economic Cooperation (APEC) Summit. These included investments in manufacturing, steel processing, and energy for a total amount exceeding 1 billion USD. At the 2015 Boao Forum for Asia Annual Conference, leaders of the two countries signed the Joint Statement on Strengthening Comprehensive Strategic Partnership between the PRC and the Republic of Indonesia. In May 2017, President Widodo and President Xi met again at the Belt and Road Forum, and in August, Chinese and Indonesian officials held the third high-level economic dialogue to further deepen their cooperation. 

Current Economic Relations

Trade: Since 2013, China has surpassed Japan as Indonesia’s largest trading partner. In 2018, Indonesia imported 24.3% of its goods from China, mostly electronics equipment and ferroalloys, while China accounted for 14.3% of the country’s total exports, mostly commodities such as coal, lignite, natural gas, copper, nickel, and palm oil. In recent years, the Indonesian government resorted to export bans of raw mineral goods such as nickel, to shift investments away from mining to mineral processing and towards a more value-added export structure. Chinese contractors entered the Indonesian market in the early 2000s, especially under the 10,000MW Fast Track Programme through which the Indonesian government sought to add 10,000 megawatts of electricity to the country by enticing domestic and foreign firms to build new power plants. Since the launch of the BRI, Chinese energy firms have not only further expanded their presence in the energy sector, but have also joined local companies in the building of key transport and business infrastructure, such as roads, bridges, railways, and industrial parks.

Investment: Chinese foreign direct investment (FDI) in Indonesia has increased almost sixteen-fold between 2013 and 2019, according to data from the Indonesian Investment Coordinating Board (BKPM). Chinese statistics show a less dramatic, but still impressive three-fold increase in the same period (such disparities between host countries and official Chinese investment figures are not uncommon as the two sides often use different methodologies and criteria for data collection). According to the BKPM, in 2019, Chinese investment in Indonesia reached 4.74 billion USD, surpassing investment from Japan for the first time. Chinese data, however, shows only a 2.22-billion-USD-FDI flow in Indonesia in the same year. Singapore is Indonesia’s leading source of FDI, but the city is mainly used to reroute investments from other countries, especially China and other Southeast Asian nations, and from Indonesia itself. Chinese investment since 2013 has largely flowed into metal and mineral manufacturing, as well as coal power plants, but after 2015, investment in new sectors such as fintech, cloud computing, and tourism has also started to materialise.

Aid: China is one of the largest aid donors to Indonesia. The flow of aid started after the 1997 financial crisis, as part of China’s ‘charm offensive’ in Southeast Asia during those years and continued after the country was hit by a series of earthquakes and tsunamis in the first two decades of the new millennium, up until recent years. A Chinese charter flight was among the first to enter Palu, Central Sulawesi, to deliver humanitarian aid after the small town was struck by a magnitude 7.4 earthquake and a subsequent tsunami in September 2018. After the BRI was launched, a significant amount of aid also targeted the educational sector, providing opportunities for Indonesian students to study in China. In 2020/2021, Indonesia also received donations of medical supplies amid the COVID-19 pandemic and purchased 3 million vaccine doses from China, as part of China’s diplomacy to showcase its contribution to the global public good.

Key Controversies in Bilateral Relations

Chinese illegal labour: With more than a million people turning 15 years of age (the legal age of employment) every year, there is an ingrained sensitivity to prioritise hiring local workers in Indonesia. This has led to some of the strictest regulations within the Association of Southeast Asian Nations (ASEAN) regarding the hiring of foreign labour. While these rules have kept unemployment rates relatively contained over the past few years (official data record an employment rate of around 4-5%), they have also created frictions with Chinese companies. The author’s field research in 2018 found that many Chinese investors complained about difficulties to comply with numerous bureaucratic delays to obtain work permits while trying to bring technical experts to the country in a timely manner to fulfill project implementation schedules. Soon after the launch of the BRI, a rumour that the initiative intended to flood the Indonesian market with cheap Chinese workers started to spread. 

When activities at the Indonesia Morowali Industrial Park (IMIP) on the island of Sulawesi took off in 2016, media reports claimed there were thousands of illegal workers from China in the area, but later only about 20 people were found without proper permits on the whole island. However, there were also concerns regarding preferential treatment Chinese workers received in the IMIP’s smelter plant. These fomented the fear of Chinese workers stealing jobs from Indonesians, which likely comes in part from the deeply rooted anti-China sentiment and distrust described earlier in this profile. These feelings are easily exploited by nationalist politicians, as in the case of General Prabowo, who unsuccessfully ran against Widodo in the 2019 general elections, and by local media during the pandemic. The recent Omnibus Law, which seeks to relax the strict employment laws for foreign workers, has in fact attracted plenty of opposition, and rallies and vigilantism to targeting undocumented Chinese workers have been common over the past few years.

South China Sea and fisheries: Although the two countries have had conflicting claims over the maritime administration of waters surrounding the Natuna Islands, until recent years Indonesia was among the few countries in the ASEAN that was not involved in major disputes regarding China’s nine-dash line in the South China Sea. Things began to get heated in the early 2010s. In 2010, Indonesia sent a first formal letter to the United Nations (UN) noting that, while the country is a non-claimant in the South China Sea dispute, the ‘nine-dotted-lines-map’ lacks international legal basis and is tantamount to upsetting the UN Convention on the Law of the Sea (UNCLOS) of 1982. Although in 2015 China acknowledged that the full sovereignty of the Natuna Islands belonged to Indonesia, the surrounding waters remain contested. 

Chinese fishing vessels that are at times accompanied by Chinese coastguards are often caught in the vicinity of, or even trespassing, the boundaries of the exclusive economic zone (EEZ) of Indonesia, which extends 200 nautical miles from its shore. As this area holds the largest untapped natural gas deposits in the country, this has led to many heated confrontations between the two countries over the years. After one such confrontation in 2019, the Indonesian government immediately summoned the Chinese ambassador to issue a diplomatic protest, and deployed ten naval ships and four F-16 fighters to protect the area, which led to a standoff that lasted until the first week of 2020.  Also in May 2019, under the fierce leadership of fisheries minister Susi Pudjiastuti, 51 confiscated fishing vessels, some Chinese among them, were sunk in an assertive move against illegal poaching. Recent questions related to maltreatment and sea burial of Indonesian fishermen on Chinese vessels are also exacerbating these disputes. In 2020, as these new tensions escalated, Indonesia sent a new official diplomatic communication to the office of the UN Secretary-General, reiterating this claim. It also cited the ruling of the International Court of the Hague on 12 July 2016 in the case related to the Spratley Islands that pitted China against the Philippines (which ruled in favour of the latter), claiming that ‘any historic rights that the People’s Republic of China may have had to the living and non-living resources were superseded by the limits of the maritime zones provided for by UNCLOS 1982’.

Environmental concerns related to mining and coal power plants: In recent years, Chinese companies have replaced US and other foreign investors in Indonesia’s mining sector. This has led to various concerns from local environmental groups, which have documented a degradation of coastal areas, reduction of fish stock, and water contamination in the vicinity of Chinese-invested plants. Recent news sounded the alarm over how the international drive for electric vehicles, as well as the new push for using nickel as opposed to cobalt, will sustain investments in Indonesia’s nickel mines, mostly in biodiversity rich areas such as Sulawesi and Maluku, causing more environmental impacts. Furthermore, because of their considerable investment in the manufacturing of nickel, some Chinese-invested projects such as the IMIP are able to demand much cheaper prices for mineral commodities, thus pushing small local suppliers to cut down on environmental and social standards and go into restricted areas to look for supplies. In addition, a recent NGO report has explicated legal loopholes available to miners to evade compliance with restoration policies after the exploitation of a mine is completed.

Chinese companies and financiers have also expanded their presence in energy production, becoming some of the largest investors in coal power plants. A recent study has demonstrated that these investors are building new coal power plants not only to supply the national grids, but also to support the booming heavy metal manufacturing industry. Local and international NGO coalitions have flagged a number of environmental and social concerns related to coal power plants, which often undermine the food security of low-income communities. One example is the Celukan Bawang plant in Bali, which was built near the planned marine reserve of Lovina that hosts protected and endangered species like dolphins.

Monopoly pricing of mineral commodities: After the launch of the BRI in 2013, investment in smelters has skyrocketed in Indonesia. Among these investors, the IMIP consortium emerged as the largest buyer of nickel in the country. In 2014, Indonesia banned the export of unprocessed minerals in a bid to spur investments in smelter plants, especially from Chinese companies. At this time, the IMIP consortium among other large Chinese investors such as Virtue Dragon, established its position as the leading buyer of nickel in the country, at the centre of a large network of small mineral producers that would have otherwise lost much of their profits due to the export bans. Thanks to its unique position, the consortium was able to demand lower prices than that of the Shanghai Index, the reference index for metals, or those mandated by the Indonesian government, pushing other big smelters to buy nickel at the same low rate. In turn, Tsingshan, the leading partner in IMIP’s consortium, is exporting its stainless steel at much cheaper prices than its competitors within Asia. As a result, China issued a warning that they would enact anti-dumping duties and later introduced preliminary tariffs against Indonesian steel, and other firms in Asia and even Europe seemed equally pressured by IMIP’s competition. Meanwhile, pressure is also building on small mining firms in Indonesia, which are being choked off by having to sell at such low prices, with consequent cuts to environmental and social safeguards.

Key Sources

English-language Media:

English-language media outlets in Indonesia include The Jakarta Post, Jakarta Globe, The Bali Times, and International Bali Post.

Reports and Scholarly Articles:

• Brackman, Arnold C., 1965. The Malay World and China: Partner or Barrier. London: McGraw Hill Book Company.
• Bertrand, Jacques., 2004. Nationalism and Ethnic Conflict in Indonesia. Cambridge: Cambridge University Press.
• Camba, Alvin, Angela Tritto, and Mary Silaban. 2020. ‘From the Postwar Era to Intensified Chinese Intervention: Variegated Extractive Regimes in the Philippines and Indonesia.’ The Extractive Industries and Society 7, no. 3: 1054–65.
• Kurlantzick, Joshua. 2006. ‘China’s Charm Offensive in Southeast Asia.’ Current History 105, no. 692: 270.
• Sukma, Rizal, 1999. Indonesia and China: The Politics of a Troubled Relationship. London and New York, NY: Routledge. 
• Sukma, Rizal, 2009. ‘Indonesia-China Relations: The Politics of Reengagement.’ In Living with China, edited by Shiping Tang, Mingjiang Li, Amitav Acharya, 89–106. New York, NY: Palgrave Macmillan.
• Suryadinata, Leo, 1990. ‘Indonesia-China Relations: A Recent Breakthrough.’ Asian Survey 30, no. 7: 682–96.
• Tritto, Angela and Albert Park. 2020. ‘Belt and Road in Indonesia.’ HKUST-UOB Series Belt and Road in ASEAN. Link. 
• Tritto, Angela. 2021. ‘China’s Maritime Silk Road: From Perceptions to Realities in Indonesia’s Coal Power Sector.’ Energy Strategy Reviews, 34, March. Link. 
• Zha, Daojiong. 2000. ‘China and the May 1998 Riots of Indonesia: Exploring the Issues.’ The Pacific Review 13, no. 4: 557–75.

Cover Photo: Soekarno Bridge, North Sulawesi, by Christian Gloor (CC).

Historical Background

The Lao People’s Democratic Republic (Lao PDR) was established in 1975 by the communist Pathet Lao movement and has remained under its authoritarian rule since. The newly established state initially enjoyed a friendly relationship with China through their shared political ideology; the Lao PDR was among the early recipients of Beijing’s aid, which primarily went into road construction in the north of the country. Relations became strained in the aftermath of the Sino-Vietnamese war (1979), when Lao authorities sided with Vietnam and the Soviet Union against China. In 1986, just as Vietnam launched its Doi Moi economic market reforms, the Lao PDR embarked on its own transition to a market economy through the introduction of the ‘New Economic Mechanism’. It was in this context, as the Cold War was approaching its end, that the Lao Government began to recalibrate its relations with China. In October 1989, the leader of Pathet Lao, Kaysone Phomvihane, visited China in a historic move to open a new chapter in bilateral relations. He was the first head of a foreign country to visit China after the Tiananmen Incident, in a diplomatic exchange much welcomed in Beijing given the international isolation China was facing at that time.

As geopolitical tensions eased at the start of the 1990s, Chinese began entering Laos for business. Most of these pioneers were petty traders who made a living by peddling cheap Chinese products on the Lao market. This wave of cross-border migration included a sizeable number of traders from Hunan Province‘Cross‐Border Rubber Cultivation between China and Laos: Regionalization by Akha and Tai Rubber Farmers.’ Singapore Journal of Tropical Geography 34(1): 70–85., in central China. During the Mao Zedong era, the Chinese Government had resettled Hunanese workers in Yunnan—the southwestern province bordering Laos, Myanmar, and Vietnam—to work on state-run rubber farms. As market reform set in, some of these Hunanese workers quit the harsh and poorly paid jobs on the state farms to pursue entrepreneurial opportunities in neighbouring Laos. Simultaneously, they reconnected with their native Hunan Province to access commodities (in particular, metal parts) for their trading endeavours and, in the process, brought more Hunanese into Laos through chain migration. This left an indelible imprint on the demography of the Chinese in Laos today; migrants originating from Hunan still account for the majority of Chinese living in the country.

Alongside spontaneous cross-border trading activities was the Chinese state’s effort to reengage Laos economically in the 1990s. Initially, the central government took a backseat, placing the Yunnan provincial government in charge of wooing the estranged neighbour. The policy mandate oriented some Yunnan provincial state-owned enterprises (SOEs) towards projects and investments in Laos. For instance, in the unpublished memoirDajian 达鉴. 2016. 旱季，雨季，湄公河 [Dry Season, Monsoon, and the Mekong River]. Unpublished memoir. of a mid-tier SOE manager who was tasked with establishing a foothold in Laos, he recalls arriving in the Lao capital, Vientiane, for the first time in 1991 to deliver a batch of agricultural machinery purchased by a Lao SOE under the mandate of both national governments. His venture then became a direct investment: under the manager’s intermediation, his home company leased a Swedish-backed motorbike assembly plant from the Lao Government and transformed it into a profitable venture. His business success was touted as an exemplary case of South–South industrial cooperation and featured in a German TV show. At that time, the Chinese presence in Laos was not politicised as it is today.

The scale of Chinese state-sponsored investments in the country grew in the 2000s, after the institutionalisation of China’s Going Out policy. The Chinese Government also began pursuing a more active role in directing relations and interactions with Laos. The shift was marked by then Chinese president Jiang Zemin’s visit to Vientiane in 2000—a diplomatic gesture later repeated by all his successors. Under the sweeping Going Out campaign, many Chinese SOEs entered Laos and became major players in the country’s hydropower and mining sectors.

Beijing’s post-2000 strategic pivot to Laos was underscored not only by economic calculations as spelled out in the Going Out policy, but also by geopolitical interests. Because the Lao PDR is a member of the Association of Southeast Asian Nations (ASEAN), its support would become important to China in territorial disputes about the South China Sea. Moving into the 2010s, the Chinese presence in the country continued to grow with the launch of the Belt and Road Initiative (BRI) in 2013, despite ups and downs in foreign direct investment (FDI) flows. By 2019, Laos ranked fifth in Asia in terms of the cumulative Chinese FDI received.

Even though China today is Laos’s most important economic partner in terms of investment and trade volume, Beijing is far from displacing the country’s deep sociocultural ties and history of strategic political alliance with Vietnam. Caught in the rivalry between China and other major powers active in the region—most notably, Vietnam, Japan, and the United States—the Lao PDR today faces unprecedented developmental opportunities if it can properly harness the foreign aid and loans extended by these powers. It is, by and large, up to the country’s political elites to shape the outcomes of these interactions.

BRI Status

The Lao PDR and China signed a memorandum of understanding (MoU) to co-draft a plan for BRI cooperation in September 2016. A formal cooperation plan was then signed in May 2017. Laos is in the China–Indochina Peninsula Economic Corridor, which is one of six economic corridors envisioned in the BRI. In particular, Laos hosts a section of the corridor’s flagship project, a high-speed railway seeking to eventually link Kunming, in China’s southwestern Yunnan Province, to Singapore (for more details, see the project profile). As is commonly seen in projects that are now labelled as part of the BRI, the China–Laos Railway pre-dated the initiative. Bilateral negotiations on the project started in the early 2010s, and public concerns soon emerged about the Chinese construction company’s rights to develop the land along each side of the railway. Negotiations were concluded in November 2014, with an agreement to co-develop the railway through a joint venture 70% owned by Chinese entities and 30% by Lao entities. Construction of the railway started in 2016 and, in December 2021, the China–Laos Railway was completed and began operation. As well as the railway, hydropower and mining resources in Laos are significant for China’s economic engagement. Laos has also collaborated closely with China in the science and technology sector, including making its first satellite, the Lao Sat-1, which went into operation in 2015.

Current Economic Relations

Trade: China is the second-largest export market and origin of imports for the Lao PDR, after Thailand. In 2019, the value of Lao exports to China reached 1.67 billion USD, consisting mainly of raw materials such as timber, rubber, and copper, as well as agricultural products such as bananas. This was evened out by 1.68 billion USD of imports from China in the same year, which were, unsurprisingly, concentrated in industrial goods such as heavy machinery and electronics.

Investment: Over the past decade, China has surpassed Thailand and Vietnam to become the largest source country of FDI in Laos. In 2019, China’s Ministry of Commerce recorded 1.15 billion USD in FDI flows to Laos, and in the same year the value of Chinese FDI stocks in Laos reached 8.25 billion USD—a nearly tenfold increase from 2010, when it was 846 million USD. Investment from China is concentrated in hydropower generation and transmission, mining, agriculture, and real estate.

Top Ten FDI by Countries (1989 – 2015)

Country	Value of Investment (million USD)
China	5484
Thailand	4491
Vietnam	3574
Malaysia	813
South Korea	751
France	491
Japan	438
Netherland	435
Norway	436
Britain	202

FDI by Sector (1989-2017)

No.	Sector	Value of Investment (million USD)	Investment Share (%)
1	Electricity generation	7,303	30
2	Mining	5,698	23
3	Agriculture	2,946	12
4	Service	2,544	10
5	Industry and handicraft	2,111	9
6	Hotel and restaurant	1,023	4
7	Construction	827	3
8	Telecom industry	663	3
9	Wood	410	2
10	Banking	372	2
11	Trading	325	1
12	Garment	95	0
13	Consulting	67	0
14	Public health	64	0
15	Education	31	0
	Total	24,479	100

Aid: China began to provide aid to Laos in the 1960s, starting with road construction along the two countries’ shared borders, but suspended the assistance between 1978 and 1986, when Laos sided with Vietnam during the Sino-Vietnamese war. Aid resumed after bilateral relations thawed in the late 1980s, and China soon became a major source of foreign assistance for the country. According to a study by the Shanghai Institute for International Studies, China provided at least 39 aid projects in Laos between 1999 and 2016, ranging from transportation infrastructure, agriculture, cultural and sporting facilities to government buildings, hospitals, technical assistance, satellites, financial system development, and disaster relief. In recent years, China has been promoting its poverty-reduction approach in Laos through its foreign aid program, including rural community resettlement (a practice with a long history in Laos), ‘demonstration villages’, and the construction of infrastructure in rural areas, improving water and energy supplies, providing health clinics, and even access to satellite TV. China also provides frequent training for Lao Government officials and technical experts.

Other Finance: Laos’s external debt amounted to 9.93 billion USD in 2019. China is now the largest creditor, accounting for 77% and 69% of Laos’s concessional and non-concessional bilateral loans, respectively, according to the World Bank. Most of China’s lending went to projects in the transportation, infrastructure, and hydropower sectors.

Key Controversies

Displacement

China’s engagement in the Lao PDR has long sparked concerns about development-induced population displacement. Given most Chinese capital flows into large-scale projects that involve the relocation of local communities, China is often criticised for dispossessing peasant populations at an unprecedented scale and speed. An example of this is the Nam Ou River Cascade Hydropower project—a series of seven dams to be constructed along the largest tributary of the Mekong River in Laos. Financed with loans from the China Development Bank, the Export–Import Bank of China, and the China Construction Bank, and developed by a joint venture between China’s Sinohydro (85%) and Électricité du Laos (EDL) (15%), the project has been widely criticised for dispossessing communities along the Nam Ou River Valley since construction commenced in 2016. The reservoirs for each of the seven dams cut deep into the land of riverside villages, forcing thousands of families to relocate. For instance, roughly 300 families from five villages in Luang Prabang Province alone had to be moved to a new site to make way for the Nam Ou 4 Dam. Apart from inadequate and often delayed compensation payments, as a convention in Laos, households are granted only residential land in their relocation village. Given most of these people are semi-subsistence farmers, the loss of access to farmland and other common resources like forest products and fisheries is devastating for their livelihoods. There are also several examples of displacement and land compensation issues in urban and peri-urban areas, such as the 450 Year Road and That Luang SEZ (see also this related lecture), both in Vientiane.

Though sometimes perceived as a passive recipient of outside assistance, the Lao Government plays an active role in enabling and facilitating the displacement induced by foreign investments, including that triggered by Chinese projects such as the dams on the Nam Ou River. Another example is the Laos–China Railway, which displaced or otherwise affected more than 4,000 households. The Lao Government was responsible for all land compensation and resettlement for the project, which served as a means to swiftly acquire land, expand state power, and reduce its capital input for compensation. State-facilitated displacement has been motivated by the government’s intention to capitalise on the country’s natural resources. The Lao state has also been using resettlement as a method to control the population—for instance, by relocating ethnic minorities from mountainous areas to the lowlands. The location of many resource-based development projects in remote mountainous areas where ethnic minorities dwell builds on this history of displacement for development. The process of relocation deprives minority groups of their traditional livelihoods based on swidden cultivation, which the state cannot easily tax. It also reduces the ability of these marginalised communities to engage in political dissent. For instance, displacement has been used to suppress political activism by the Hmong, a highland ethnic group with a long history of opposing the rule of the communist Pathet Lao.

Environmental and Public Health Concerns

Investments in agribusiness have also been criticised for their negative impacts on the environment and public health. China is the leading investor in agricultural land concessions (followed by Vietnam), which have driven the country’s rapid transition to intensive commercial production systems. This transition has involved vast enclosures and the transformation of communal land, less-intensive production systems, forests, and fallow lands into monoculture plantations with significant environmental costs.

Commercial agriculture has also spurred the heavy and unregulated use of pesticides, herbicides, and chemical fertilisers that pollute the environment and harm the health of workers and nearby communities. Maize, watermelon, and many other export crops involve intensive agrichemical use, but in Laos, none has captured the level of attention of Chinese banana plantations. Chinese investments in bananas spread from Guangxi and Yunnan provinces into northern Laos in the late 2000s. As is the case in banana production worldwide, Chinese banana plantations in Laos have high inputs of chemical fertilisers and intensive water use, fruit are encased in protective plastic as they grow, and are doused in a pesticide bath before being sent almost exclusively to markets back in China. Bananas frequently replace rice paddy fields in Laos, and their high water demands have meant the growing of bananas often permanently restructures local irrigation systems, resulting in considerable environmental and land management impacts and subsequent conflicts among local land users at the village level.

Social media has also been the site of complaints by workers about the health effects of exposure to banana fertilisers and pesticides, by local officials and communities about the overwhelming rise in plastic waste, and by local and national officials about the tendency of investors to lease land directly from villagers instead of through the state. In 2016, further establishment of banana plantations was banned by six provincial governments across northern Laos, but the crop has since expanded into central and southern Laos and continued under closer state supervision in some northern Lao provinces (with no signs that the use of chemicals has changed).

Labour

Labour is another aspect of Chinese investments that often attracts criticism in Laos. The controversy tends to focus on the mass importation of Chinese workers, especially in the construction sector, rather than issues of labour exploitation. The import of Chinese labour is often offered as evidence of Chinese investments depriving locals of employment opportunities, and thus failing to deliver on the official ‘win-win’ narratives. The Laos–China Railway, for instance, has been plagued by such controversies. Yet, research shows that the railway’s dependency on a Chinese workforce was motivated less by the project’s use as an outlet for surplus labour in China, than by the nature of the project financing. The disbursement of the Chinese loan for the railway was delayed because stakeholders failed to commit their assets into the project on time. Consequently, the railway was built under chronic financial difficulties, with the labour contractors unable to make regular wage payments to the construction workers. To avoid more direct conflicts with Lao workers who demanded immediate payment, Chinese labour contractors brought in workers from China, who were more willing to accept lump-sum payments at long intervals.

Overdependency on imported labour is less of a concern in other sectors. Chinese-invested agribusiness, trade, and commerce activities traditionally source low-skill labour locally. According to interviews conducted by the authors, in hydropower and other sectors that require a more skilled workforce, the hiring of local employees is increasing. To cut costs, corporations are eager to hire Lao people who have received education in China to fill managerial and technical positions.

Debt

Given the debt Laos has assumed from its participation in the China–Laos Railway, the country has been cited as a victim of Beijing’s ‘debt trap diplomacy’. Criticisms about China’s unsustainable lending practices in Laos mounted after the Covid-19 pandemic put the country on the brink of a debt crisis. In 2020, its repayment obligations hit 1.2 billion USD, but foreign reserves stood at only 864 million USD. In September 2020, the Lao state-owned EDL and Chinese state-owned China Southern Power Grid Company (CSG) signed a shareholding agreement to create a new company called Électricité du Laos Transmission Company Limited (EDL-T), and a Reuters report citing insider knowledge suggests CSG will hold a majority stake in this joint venture. In March 2021, EDL-T signed a concession agreement with the Lao Government, appointing the company as the national power grid operator to invest in, construct, and operate power grids of 230kW and above and implement grid interconnection projects with neighbouring countries. The concession is for 25 years, during which the company will invest 2 billion USD, before transferring control to the government.

This event came at a time when the ‘debt trap’ narrative was being pushed strongly by the US Trump administration, and some saw it as a prime example of Beijing’s debt trap in action. However, despite the speculation, it is not clear whether this deal was related to debt concerns. The more immediate debt repayment pressures for Laos are from commercial banks and Thai bondholders, although the largest external debt stock is owed to China. Some have argued that ‘selling EDL-T to CSG may have been one of the better options in a difficult predicament’, as completion of the domestic electricity grid could allow for more efficient energy distribution within Laos, while strengthening the country’s position to bargain with external electricity users.

Key Sources

English-Language Media:

The Vientiane Times is an official Lao state media outlet that provides narratives on the BRI in English.

The LaoFAB Repository is a nongovernmental organisation–run database that supplies more critical information about the BRI in Laos. The database is only accessible to members of a Google group, but membership is free.

Books, Reports, and Scholarly Articles:

Baird, Ian G. and Philippe Le Billon. 2012. ‘Landscapes of Political Memories: War Legacies and Land Negotiations in Laos.’ Political Geography 31(5): 290–300.

Barney, Keith and Kanya Souksakoun. 2021. ‘Credit Crunch: Chinese Infrastructure Lending and Lao Sovereign Debt.’ Asia & The Pacific Policy Studies 8(1): 94–113.

Bouté, Vanina and Vatthana Pholsena (eds). 2017. Changing Lives in Laos: Society, Politics, and Culture in a Post-Socialist State. Singapore: NUS Press.

Chen, Wanjing Kelly. 2020. ‘Sovereign Debt in the Making: Financial Entanglements and Labor Politics along the Belt and Road in Laos.’ Economic Geography 96(4): 295–314.

Creak, Simon and Keith Barney. 2018. ‘Conceptualising Party-State Governance and Rule in Laos.’ Journal of Contemporary Asia 48(5): 693–716.

Diana, Antonella. 2013. ‘The Experimental Governing of Mobility and Trade on the China–Laos Frontier: The Tai Lue Case.’ Singapore Journal of Tropical Geography 34(1): 25–39.

DiCarlo, Jessica. 2020. Mind the gap: Grounding development finance and safeguards through land compensation on the Laos–China Belt and Road Corridor. Global China Initiative Working Paper 013, Global Development Policy Center, Boston University.

DiCarlo, Jessica. 2021. Grounding global China in northern Laos: The making of the infrastructure frontier. PhD dissertation, the University of Colorado, Boulder.

DiCarlo, Jessica and Micah Ingalls. 2022. ‘Multipolar Infrastructures: Mosaic Geopolitics and State Restructuring in Laos.’ In The Rise of the Infrastructure State: How US–China Rivalry Shapes Politics and Place Worldwide, edited by Seth Schindler and Jessica DiCarlo. Bristol, UK: Bristol University Press.

Dwyer, Michael B. 2014. ‘Micro-Geopolitics: Capitalising Security in Laos’s Golden Quadrangle.’ Geopolitics 19(2): 377–405.

Dwyer, Michael B. 2020. ‘“They Will Not Automatically Benefit”: The Politics of Infrastructure Development in Laos’s Northern Economic Corridor.’ Political Geography 78: 102–18.

Evans, Grant. 2002. A Short History of Laos: The Land in Between. Sydney: Allen & Unwin.

Evrard, Olivier and Yves Goudineau. 2004. ‘Planned Resettlement, Unexpected Migrations and Cultural Trauma in Laos.’ Development and Change 35(5): 937–62.

Friis, Cecilie and Jonas Østergaard Nielsen. 2016. ‘Small-Scale Land Acquisitions, Large-Scale Implications: Exploring the Case of Chinese Banana Investments in Northern Laos.’ Land Use Policy 57: 117–29.

Gunn, Geoffrey. 1990. Rebellion in Laos: Peasant and Politics in a Colonial Backwater. Boulder, CO: Westview Press.

Hett, Cornelia, Vong Nanhthavong, Miles Kenney-Lazar, Ketkeo Phouangphet, and Savanh Hanephom. 2018. Assessing Land Investment Quality: A Methodology to Assess the Quality of Land Concessions and Leases in the Lao PDR. Bern, Switzerland: Centre for Development and Environment, University of Bern, with Bern Open Publishing. Link.

Ivarsson, Søren. 2008. Creating Laos: The Making of a Lao Space between Indochina and Siam, 1860–1945. Nordic Institute of Asian Studies Monograph Series 112. Copenhagen: NIAS Press.

Kenney-Lazar, Miles. 2018. ‘Governing Dispossession: Relational Land Grabbing in Laos.’ Annals of the American Association of Geographers 108(3): 679–94.

Laungaramsri, Pinkaew. 2019. ‘China in Laos: Enclave Spaces and the Transformation of Borders in the Mekong Region.’ The Australian Journal of Anthropology 30(2): 195–211.

Lu, Juliet. 2021. ‘Grounding Chinese Investment: Encounters between Chinese Capital and Local Land Politics in Laos.’ Globalizations 18(3): 422–40.

Lu, Juliet and Oliver Schönweger. 2019. ‘Great Expectations: Chinese Investment in Laos and the Myth of Empty Land.’ Territory, Politics, Governance 7(1): 61–78.

Manivong, Vongpaphane, Sengphachanh Sonethavixay, Piya Wongpit, and Isabelle Vagneron. 2016. Fair Deal or Ordeal? Enquiry into the Sustainability of Commercial Banana Production in the Lao PDR. Montpellier, France: CIRAD [French Agricultural Research Centre for International Development]. Link.

Nyíri, Pál. 2012. ‘Enclaves of Improvement: Sovereignty and Developmentalism in the Special Zones of the China–Lao Borderlands.’ Comparative Studies in Society and History 54(3): 533–62.

Rigg, Jonathan. 2012. Living with Transition in Laos: Market Integration in Southeast Asia. 2nd edn. London: Routledge.

Schindler, Seth, Jessica DiCarlo, and Dinesh Paudel. 2021. ‘The New Cold War and the Rise of the 21st-Century Infrastructure State.’ Transactions of the Institute of British Geographers, (Early view): 1–16.

Shi, Weiyi. 2008. ‘Rubber Boom in Luang Namtha: A Transnational Perspective.’ GTZ Rural Development in Mountainous Areas. Component 1: Natural Resource Management and Local and Regional Economic Development. Bonn: German Technical Cooperation. Link.

Stuart-Fox, Martin. 2003. A Short History of China and Southeast Asia: Tribute, Trade and Influence. Sydney: Allen & Unwin.

Stuart-Fox, Martin. 2018. ‘Laos: The Chinese Connection.’ In Turning Points and Transitions: Selections from Southeast Asian Affairs 1974–2018, edited by Daljit Singh and Malcolm Cook, 384–98. Singapore: ISEAS Publishing.

Walker, Andrew. 1999. Legend of the Golden Boat: Regulation, Trade, and Traders in the Borderlands of Laos, Thailand, China and Burma. Honolulu: University of Hawai`i Press.

Cover Photo: Klim Levene (CC).

Historical Background

Malaysia has enjoyed a relatively stable and good relationship with China. This is largely undergirded by two factors. Firstly, Malaysia was one of the earliest countries in Southeast Asia to recognise the People’s Republic of China (PRC), establishing diplomatic ties with Beijing as early as 1974, merely three years after the PRC was admitted into the United Nations. Capitalising on this ‘early mover advantage’ and its proximity to China, Malaysian–Chinese bilateral ties have blossomed under successive governments. Secondly, Malaysia’s ethnic Chinese minority (which constitutes about 25% of the population) has long played a key role in advancing bilateral trade and investment, despite state-sanctioned affirmative action policy limiting their participation in some activities. Many of these Malaysian Chinese have invested in China since Beijing started its economic reforms in 1978. Following the launch of the Belt and Road Initiative (BRI) in 2013, they have intensified ties with their counterparts in mainland China who intend to enter the Malaysian (and by extension, Southeast Asian) market. 

BRI Status

Since achieving independence from British rule in 1957, Malaysia has successfully transformed its previously commodity-driven economy into a middle-income economy, maintaining a relatively open stance towards foreign trade and investment and taking advantage of its low labour cost. This development model, however, has come under considerable stress as Malaysia has become less appealing in the eyes of international investors, following the emergence of a newer cohort of developing economies such as Vietnam and Indonesia. Some economists have argued that the reduced levels of private investment have been partly caused by Malaysia’s decades-old affirmative action policy, which is designed to redistribute income across ethnic groups supposedly discouraging investors.  

As trade and foreign direct investment (FDI) from ‘traditional’ sources such as industrialised Western countries, Singapore, and Japan dwindle, Malaysian policymakers are forced to seek alternative sources. China has thus emerged as an attractive prospect, especially since the launch of the BRI. In May 2017, on the occasion of the first Belt and Road Forum, Malaysia signed a Memorandum of Understanding (MoU) for BRI cooperation with China. To facilitate economic ties between the two countries, during former Prime Minister Najib Razak’s tenure (2009 to 2018), the Malaysian Ministry of International Trade and Investment (MITI) established the Belt and Road Initiative National Secretariat (BRINS). In 2019, BRINS was renamed China Section to better reflect the work of the department, which also encompasses other bilateral matters not related to the BRI. 

Indeed, some of the most prominent Chinese projects were initiated during the Najib era. In November 2016, under the aegis of Najib, prominent figures from the Malaysian corporate and public sectors inked 14 business-to-business agreements and 16 government-to-government MoUs with their Chinese counterparts. These MoUs amount to approximately 144 billion MYR (36 billion USD), including high-profile undertakings such as the East Coast Rail Link (ECRL) and the acquisition of four Chinese littoral mission ships. Other significant projects include the Malaysia-China Kuantan Industrial Park (MCKIP) and Bandar Malaysia, a 197-hectare mixed development project in the heart of Kuala Lumpur. These projects act as catalysts to attract even more trade and investment to Malaysia, but are challenging to execute because of their capital intensity and technological complexity. In addition, their rollout has been complicated by Malaysia’s inability to insulate them from unsolicited sociopolitical scrutiny and pressure. Recent controversies include alleged power abuse by politicians linked to some of these projects. 

Economic Relations

Investment: According to the Malaysian Investment Development Authority (MIDA), in 2019 China was the largest investor in the country, contributing 15.3 billion MYR (3.8 billion USD) of FDI compared to the 14.2 billion MYR (3.6 billion USD) of the United States, 5.6 billion MYR (1.4 billion USD) of Singapore, 5.2 billion MYR (1.3 billion USD) of Taiwan, and 3.8 billion MYR (950 million USD) of Japan. Although there is no publicly available data on Chinese investment on a sectoral basis, a recent survey reveals that real estate, construction, consumer and retail, manufacturing, and oil and gas are popular destinations. More interestingly, statistics provided by MIDA show that Chinese investment is generating the greatest amount of employment among the top five investors, with 14,174 jobs having been created by Chinese investors, followed by 9,297 by investors from Singapore, 4,578 fromUnited States, 3,642 from Taiwan, and 2,789 from Japan.

Trade: China has been Malaysia’s largest trading partner since 2009, with bilateral trade valued at 316.6 billion MYR (79.2 billion USD) in 2019, accounting for 17.2% of Malaysia’s total trade in that year. Trade is especially dense in electrical and electronic goods, with both sides importing and exporting components and finished goods in large quantities. In commodities, trade takes on a more one-way character with Malaysia exporting relatively simple products (such as petroleum and agricultural goods) to the Chinese market. Following both countries’ signing the Regional Comprehensive Economic Partnership (RCEP) agreement on 15 November 2020, the largest free-trade agreement in the world, it is expected that bilateral trade and investment will soar in the coming years. Yet, scepticism remains. A coalition of non-governmental organisations (NGOs) has voiced their concerns regarding the agreement’s circumscribing of policy space and national sovereignty. 

Controversies

Lack of transparency: Despite the strong investment and trade relationship as well as cordial political ties between both countries, several Chinese projects have sparked controversy due to their alleged lack of transparency. One of the most prominent examples is the ECRL, an ambitious 600-kilometre project connecting the relatively backward east coast states (Pahang, Terengganu, and Kelantan) to Selangor, the country’s most economically prosperous state. Announced in November 2016 and then targeted by opponents of Najib during the run-up to the country’s historic 2018 general election as a ‘white elephant’ project lacking transparency, the ECRL  was dramatically cancelled by then Prime Minister Mahathir Mohamad (who defeated Najib at the polls) during an official visit to China in August 2018. However, the project was revived on 15 April 2019 after both sides renegotiated some of the commercial terms. Scant detail is available on the renegotiation process, but newspaper reports suggest that the binding nature of the ECRL deal was a sore point for the Malaysian renegotiating team, who felt that the terms were lopsided. Recent research also indicates that Mahathir’s bold move to slash the ECRL was driven by his desire to renegotiate the terms of the original project rather than cancelling it outright.

Disconnect from the local society: Some Chinese projects in Malaysia have been subjected to criticism due to their disconnect from the local society. The Forest City is the most high-profile case in point in this sense. Taking the form of four man-made islands sandwiched between the narrow waterways separating Malaysia’s southernmost Johor state and Singapore, the Forest City project was launched with great fanfare in 2013. In spite of its lofty ambitions to become one of Southeast Asia’s foremost smart cities and expectations that it would bring in a projected total investment of 58 billion USD, Forest City has attracted criticism from several quarters. Some of the sharpest backlash centred on allegations that the project has led to significant outflows of capital and jobs to Chinese firms and to an influx of Chinese immigrants. Adding fuel to fire is the enclaved nature of Forest City. With an average price of 1,200 MYR (300 USD) per square foot, residential units are effectively priced too high for the majority of Johoreans, exacerbating the lack of low-cost housing in the locality. Indeed, this groundswell of discontent was picked up in a survey conducted in February 2018, merely three months before the general election. The survey noted that as many as 29% of respondents in Johor expressed distrust and a sense of disconnect with massive projects claimed by the developers to be contributing to the BRI. They were also unhappy with the influx of Chinese investment, which was thought to have contributed to rising property prices in the state.

Key Sources

English-language Media:

Reuters, Associated Press, BBC, Channel News Asia, and The Straits Times all have correspondents in Malaysia and report from the nation.

Local media outlets in English include Malaysiakini, Malay Mail, Free Malaysia Today, as well as the government-owned The Star.

Books, Reports, and Scholarly Articles:

• Camba, Alvin. 2020. ‘Derailing Development: China’s Railway Projects and Financing Coalitions in Indonesia, Malaysia, and the Philippines.’ Global Development Policy Center, Boston University, GCI Working Paper no. 8. Link.
• Chin, James. 2009. ‘The Malaysian Chinese dilemma: The Never Ending Policy (NEP).’ Chinese Southern Diaspora Studies 3: 167–82.
• Gomez, Edmund Terence, Siew Yean Tham, Ran Li, and Kee-Cheok Cheong. 2020. China in Malaysia: State–Business Relations and the New Order of Investment Flows. Singapore: Palgrave Macmillan.
• Jones, Lee and Shahar Hameiri. 2020. ‘Debunking the Myth of “Debt-Trap Diplomacy”.’ Chatham House. Link.
• Li, Ran and Kee-Cheok Cheong. 2017. ‘Huawei and ZTE in Malaysia: The Localisation of Chinese Transnational Enterprises.’ Journal of Contemporary Asia 47, no. 5: 752–73.
• Lim, Guanie. 2015. ‘China’s Investments in Malaysia: Choosing the “Right” Partners.’ International Journal of China Studies 6, no. 1: 1–30.
• Lim, Guanie, Chen Li, and Xianbai Ji. 2021. ‘Chinese Financial Statecraft in Southeast Asia: An Analysis of China’s Infrastructure Provision in Malaysia.’ The Pacific Review: 1–29. 
• Lim, Guanie, Chen Li, and Emirza Adi Syailendra. 2021. ‘Why Is It So Hard to Push Chinese Railway Projects in Southeast Asia? The Role of Domestic Politics in Malaysia and Indonesia.’ World Development 138: 105272. 
• Liu, Hong and Guanie Lim. 2019. ‘The Political Economy of a Rising China in Southeast Asia: Malaysia’s Response to the Belt and Road Initiative.’ Journal of Contemporary China 28, no. 116: 216–31. 
• Malaysian Investment Development Authority. 2019. ‘Malaysia Investment Performance Report: Crafting the Future.’ Malaysian Investment Development Authority website. Link.
• Moser, Sarah. 2018. ‘Forest City, Malaysia, and Chinese Expansionism.’ Urban Geography 39, no. 6: 935–43.
• Ngeow, Chow Bing. 2018. ‘The Political Economy of China’s Economic Presence in Malaysia.’ In China’s Footprints in Southeast Asia, edited by Maria Serena I. Diokno, Hsin-Huang Michael Hsiao, and Alan H. Yang. Singapore: NUS Press: 90–116.
• Pua, Tony. 2011. The Tiger That Lost its Roar: A Tale of Malaysia’s Political Economy. Kuala Lumpur: Democratic Action Party.
• Tham, Siew Yean. 2019. ‘The Belt and Road Initiative in Malaysia: Case of the Kuantan Port.’ ISEAS-Yusof Ishak Institute website. Link.
• Todd, Laurence and Meghan Slattery. 2018. ‘Impacts of Investment from China in Malaysia on the Local Economy.’ Institute for Democracy and Economic Affairs website. Link.
• Zhang, Miao. 2020. ‘Beyond infrastructure: re-thinking China’s foreign direct investment in Malaysia’, The Pacific Review: 1–25.

Cover Photo: Sergii Gulenok (CC).

Historical Background

Myanmar’s relations with the People’s Republic of China (PRC) have seen great ups and downs since the two countries established diplomatic relations in 1950. Myanmar was the first non-socialist country to recognise the PRC, a move it viewed as necessary for its own security. After an initial period of aloofness due to ideological differences, the bilateral relationship warmed up after 1954 as Beijing sought friendly neighbours against the US encirclement in the context of the Cold War. The next decade or so was a honeymoon period for the two countries. China settled the boundary disputes with Myanmar in 1960–61, the first such settlement among China’s neighbours. It was at that time that the term ‘pauk-phaw’ (literally, ‘fraternal’ in Burmese)—which to this day remains common in diplomatic rhetoric—started to be used to describe the special relationship.

The relationship took a heavy blow in 1967, when anti-Chinese riots broke out in Rangoon (Yangon) in response partly to the perceived spread of China’s Cultural Revolution overseas. At that time, China also moved away from its earlier constrained policy toward the Burma Communist Party (BCP) and began to support it openly, further aggravating the relations with the Ne Win military government that the BCP sought to overthrow. The BCP continued to be a thorny issue between the two countries even though they re-normalised ties in 1971. Moreover, the dramatic geopolitical shifts in the 1970s following the Sino–US rapprochement meant that Myanmar’s buffering role was no longer as important to China. Consequently, the country was sidelined in China’s diplomacy.

After China started the economic reforms in 1978, economic cooperation gradually picked up again. Myanmar agreed to open up border trade with China in 1988, right before the uprising that brought down Ne Win’s government and ended its experiment with a ‘Burmese Way to Socialism’. As both countries became targets of Western sanctions following their respective bloody crackdowns on pro-democratic movements—Myanmar’s in August 1988 and China’s in June 1989—they were drawn even closer together. Concurrently, China also cut support for the withering BCP, causing the latter’s final collapse in 1989 and thus shelving this long-standing issue between the two countries.

In the following decades, China gradually became one of the most important economic partners of Myanmar, as the State Peace and Development Council military regime installed in 1988 became increasingly isolated internationally due to its human rights abuses. When Western sanctions began to be lifted following Myanmar’s transition to semi-civilian rule in 2011, foreign investors showed great interest in Myanmar’s potential. Some Chinese investment projects were thwarted as Myanmar was expecting a rebalancing in terms of its relations with China and the rest of the world. However, the Rohingya crisis that hit international headlines in 2017 pushed Myanmar back again to the receiving end of Western criticisms, and the anticipated influx of Western investment dissipated. China, meanwhile, has provided diplomatic cover for the Myanmar authorities in international forums, and China’s importance for Myanmar’s economy has once again heightened.

In February 2021, Myanmar’s military ousted the elected government, effectively ending the country’s nearly decade-long experiment with democracy. This came after the military claimed fraud in the November 2020 election, in which Aung San Suu Kyi’s National League for Democracy (NLD) enjoyed a landslide victory. Leading figures in the NLD leadership were subsequently arrested and charged with a range of offences, with many going into hiding and setting up the Committee for Representing Pyidaungsu Hluttaw, a government in exile representing NLD lawmakers deposed by the coup. According to multiple sources, hundreds have been killed by security forces since, with many more injured or detained and held incommunicado.

The general public of Myanmar views the Chinese government’s role with suspicion, believing it is assisting the junta and shielding it from international pressure. China has denied offering direct support to the regime, and many rumours of Chinese involvement after the coup lack corroborating evidence, but tepid Chinese statements since the coup and failure to condemn the military violence have only served to further inflame local resentment. Meanwhile, a notorious lobbyist hired by the junta has claimed that the generals would seek to distance itself from China. On 14 March, individuals whose identity remains unknown vandalised more than 30 factories operated by Chinese privately-owned enterprises in Hlaing Tharyar, the country’s largest industrial zone, in Yangon, burning several to the ground. 

The fates of the Chinese projects in Myanmar—carried out by variegated players ranging from state-owned enterprises, private firms, to civil society organisations—will hinge on the evolution of the situation of Myanmar. Hong Kong media reported that China’s State-owned Assets Supervision and Administration Commission (SASAC), the agency in charge of the country’s state-owned enterprises (SOEs), had ordered SOEs active in Myanmar to repatriate all non-essential staff. This was denied by China’s nationalist press, but various media reports indicate that Chinese businesspeople have shut down operations and are considering their futures in Myanmar. The country has been hit by nationwide strikes, including at the Letpadaung copper mine, which is the largest copper mine in the country and exports to China (for more details, see the Letpadaung Copper mine profile). Recent media reports have indicated that since the coup, exports of crucial metals including rare earths, tin and copper have dropped significantly, raising prices of these commodities in China. With protests and violence gripping the nation, armed conflicts in some states in northern and eastern Myanmar have also escalated.

BRI Status

When State Counsellor Aung San Suu Kyi, Myanmar’s then de facto leader, attended the first Belt and Road Forum in Beijing in May 2017, Myanmar signed an MoU to cooperate with China regarding the BRI. The move surprised many who did not expect Aung San Suu Kyi to fall back onto the foreign policy position of the military government vis-à -vis China. In November 2017, Chinese foreign minister Wang Yi proposed in his meeting with Aung San Suu Kyi that both countries jointly build a China-Myanmar Economic Corridor (CMEC) under the umbrella of the BRI, with the official MOU signed in September 2018. The envisaged Y-shaped corridor stretches from Yunnan province to Mandalay and then to Yangon New City and the Kyaukpyu Deep Sea Port and SEZ. To implement the CMEC, both sides have formed working groups to collaborate in twelve priority areas that include development planning, transport, energy, borderland economic cooperation, tourism, etc. Aung San Suu Kyi also personally chairs the Steering Committee for the Implementation of BRI. Actual progress has been slow, but the visit of Chinese president Xi Jinping to Myanmar in January 2020—the first visit for a Chinese president in nearly two decades—provided additional political momentum, with 33 more agreements for bilateral cooperation signed on that occasion.

Current Economic Relations

Trade: China is Myanmar’s largest trading partner. Between 2011 and 2019, the share of Myanmar’s bilateral trade with China in its total trade averaged 32.5 percent. Around half of the formal trade flows through Myanmar’s largest border station Muse, in the northern Shan State, which is separated by a river from Ruili, Yunnan province. Myanmar’s main imports include complete equipment, electromechanical products, textiles, motorcycle accessories, and chemical products, while exports are mainly agricultural products and minerals. Chinese construction companies are also active in Myanmar. According to China’s Ministry of Commerce, over 50 Chinese companies, including some leading state-owned enterprises, provide EPC (Engineering, Procurement, and Construction) services in Myanmar in recent years. Data from China’s Ministry of Commerce show that between 2010 and 2018, Chinese companies completed construction contracts totaling 13.65 billion USD.

Investment: According to Myanmar’s Directorate of Investment and Corporate Administration (DICA), from 1988 to 2018 China was the second largest contributor to Myanmar’s FDI stock after Singapore. The stock of FDI from China during the period amounted to 6.9 billion USD. FDI from China slowed down in recent years, however, and China slipped to the seventh position in 2018 in terms of net FDI inflow. According to the Chinese Ministry of Commerce, Chinese direct investment mainly flows into oil and gas exploration and pipelines, electricity generation, mining resource development, and garment manufacture. Apart from officially-registered investment, small and medium-sized informal Chinese businesses also exist in sectors including small-scale mining, agriculture, and tourism. Such investment largely falls in a legal grey zone.

Aid: Though official data is not available, sporadic reports and anecdotal evidence suggest that China is active in providing development assistance to Myanmar. The Mohinga Aid Information Management System, managed by the Myanmar government, registers 15 projects totaling 68.3 million USD committed by the government of China since January 2011. However, the system is based on self-reporting by development partners, and the figure is likely incomplete. The difficulty with getting a complete picture of Chinese aid is also because aid has been provided by various entities from China—ranging from central, provincial, and local governments to NGOs. An unpublished preliminary research by the Chinese Academy of International Trade and Economic Cooperation shows that at least 342 Chinese-funded development cooperation projects in Myanmar were announced between 2014 and October 2019. The leading sectors of these programmes were education, government and civil society, and health.

Key Controversies in Bilateral Relations

Land: The image of Chinese investment in Myanmar has suffered from the poor management of land acquisition and livelihood compensation in some high-profile projects, such as the Myanmar–China Oil and Gas Pipelines, the Letpadaung Copper Mine, and the now suspended Myitsone Dam. For the acquisition of land, Chinese corporations had to rely on their local partners, often companies with ties to the military, whose lack of care in dealing with disputes over land ownership caused by vague property rights, coupled with corruption in the handling of compensations, led to recurrent conflicts. This is not specific to the Chinese investments but almost unavoidable in a country with weak governance, although the scale of the Chinese projects makes it more salient.

Conflicts: Many of the areas rich in natural resources where Chinese investment concentrates are near Myanmar’s borders with China and Thailand and are de facto governed by various ethnic armed organisations (EAOs). Investment in such territories, if not carefully implemented, risks exacerbating existing conflicts and being undermined by local clashes. For instance, the suspended Myitsone Dam is located in an area that has been controlled by the Kachin Independence Organisation (KIO) for decades, but the Chinese company failed to consult the KIO and the local population in the negotiation of the project. The clash over the dam project is believed to have contributed to the collapse of the 17-year old ceasefire between the Kachin Independence Army (the KIO’s armed branch) and the Myanmar military in 2011. The Kyaukpyu Deep Sea Port and SEZ projects have also been repeatedly been the targets of complaints by Rakhine politicians because of their distrusts towards the Burman who lead the national government. The projects have been negotiated between the Chinese corporation and the Burman-led Myanmar central government, while local administrators complained that they received little information. 

The perceived ties China has with EAOs, whose existence continues to threaten Myanmar’s statehood, have exacerbated the worries about China’s outsized economic influence in Myanmar. Some of the EAOs residing on the borders with China have thrived financially from cross-border economic activities, including illicit trade. Their entanglement with local interests in Yunnan, the bordering province in China, have complicated the bilateral relationship sometimes beyond the control of the Chinese and Myanmar central governments. Some EAOs are ethnic Chinese—for instance, the Myanmar National Democratic Alliance Army (aka Kokang Army) and the United Wa State Army—and can be traced back to the BCP, which makes their ties with China even more sensitive. While China has played some constructive role in the peace talks between the Myanmar government and the EAOs, there is widespread suspicion that the government of China could leverage its influence over the EAOs to pressure the Myanmar government into agreeing to China’s demands. Such distrust has tainted the nominally close diplomatic relations and held back economic cooperation.

Shadow economy: An emerging area of concern is what appears to be Chinese capital that has been flowing into Shwe Kokko village and the city of Myawaddy in Myanmar’s Karen State, on the border with Thailand, since around 2017. According to investigations by a local NGO, large-scale construction started with an influx of Chinese workers, while local villagers were kept in the dark about the true nature of the project. It only became clear later that the construction was to build casinos, hotels, and condos housing online gambling companies operated by Chinese companies. Some of them had started operation in 2019 even though the Myanmar government had yet to licence any casino. These unauthorised ‘special economic zone’ projects were operated in partnerships with local, mutually hostile armed groups, whose involvement has made it very difficult for local residents to speak out. Journalists were attacked when they tried to cover the project. A report released in April 2020 by the United States Institute of Peace asserts that ‘157 square kilometers of Burmese territory have fallen under control of Chinese enterprises tied to gambling, money laundering, cryptocurrency, and even criminal networks.’ A long-time observer of Chinese activities in Southeast Asia has pointed out that these investments involve overseas ethnic Chinese through companies registered outside mainland China and therefore fall out of China’s jurisdiction. However, there is evidence that certain Chinese state-owned companies have been involved in the projects as construction contractors. The surge of gambling investment into Karen State seems to be partially linked to a crackdown on online gambling that took place in Cambodia in August 2019, which pushed some of those businesses used to be active in Cambodia to seek opportunities elsewhere.

Debt sustainability: While the International Monetary Fund’s latest analysis assesses Myanmar’s risk of external debt distress as low, Myanmar politicians and civil society members are wary of so-called ‘debt traps’, a concept that has become popular in the country since mid-2018 in relation to the pending Kyaukpyu SEZ project, as well as other economic cooperation projects involving China. Aware of the public concern, Myanmar officials are carefully evaluating infrastructure projects to boost the economy while ensuring debt sustainability. China is one of the largest bilateral creditors of Myanmar’s public and publicly guaranteed external debt, along with Japan.

Key Sources

English-language Media:

Reuters, Associated Press, BBC, Channel News Asia, and The Straits Times have correspondents in Myanmar and report from the nation.

Local media outlets in English include the independent The Myanmar Times (operations temporarily suspended), The Irrawaddy, Frontier Myanmar, Myanmar Now, as well as the government-owned Global New Light of Myanmar.

Books, Reports, and Scholarly Articles:

• Chan, Debby Sze Wan. 2017. ‘Asymmetric Bargaining between Myanmar and China in the Myitsone Dam Controversy: Social Opposition akin to David’s Stone against Goliath.’ The Pacific Review 30, no. 5: 674–91.
• Foran, Tira, Laur Kiik, Sullivan Hatt, David Fullbrook, Alice Dawkins, Simon Walker, and Yun Chen. 2017. ‘Large Hydropower and Legitimacy: A Policy Regime Analysis, Applied to Myanmar.’ Energy Policy 110: 619–30.
• Ford, Michele, Michael Gillan, and Htwe Htwe Thein. 2016. ‘From Cronyism to Oligarchy? Privatisation and Business Elites in Myanmar.’ Journal of Contemporary Asia 46, no. 1: 18–41.
• International Crisis Group. 2020. ‘Commerce and Conflict: Navigating Myanmar’s China Relationship.’ International Crisis Group website, 30 March.Link.
• Jolliffe, Kim. 2015. ‘Ethnic Armed Conflict and Territorial Administration in Myanmar.’  Asia Foundation website, July. Link.
• Kiik, Laur. 2016. ‘Nationalism and Anti-ethno-politics: Why “Chinese Development” Failed at Myanmar’s Myitsone Dam.’ Eurasian Geography and Economics 57, no. 3: 374–402.
• Kirchherr, Julian, Katrina J. Charles, and Matthew J. Walton. 2017. ‘The Interplay of Activists and Dam Developers: The case of Myanmar’s Mega-dams.’ International Journal of Water Resources Development 33, no. 1: 111–31.
• Kudo, Toshihiro. 2006. ‘Myanmar’s Economic Relations with China: Can China Support the Myanmar Economy?’ Institute of Developing Economies, Japan External Trade Organisation. Link.
• Li, Chenyang and Shaojun Song. 2018. ’China’s OBOR Initiative and Myanmar’s Political Economy.’ The Chinese Economy 51, no. 4: 318–32.
• Li, Chenyang 李晨阳, Zijun Meng 姿君孟, and Shengrong Luo 圣荣罗. 2019. ‘“一带一路”框架下的中缅经济走廊建设: 主要内容、面临挑战与推进路径 [Development of the China-Myanmar Economic Corridor Under the ‘Belt and Road’ Initiative: Main Contents, Challenges, and Pathways].’ 南亚研究 [South Asian Studies], no. 4: 112–13.
• Liu, Wu 刘务. 2007. ‘缅甸外交政策的新调整: 从对华友好到大国平衡外交 [New Adjustments in Myanmar’s Foreign Policy: from a China-friendly Policy to Great-power-balancing Diplomacy].’ 东南亚研究 [Southeast Asian Studies], no. 2: 44–49.
• Mark, SiuSue and Youyi Zhang. 2017. ‘From Impediment to Adaptation: Chinese Investments in Myanmar’s New Regulatory Environment.’ Journal of Current Southeast Asian Affairs 36, no. 2: 71–100. 
• McCarthy, Stephen. 2015. ‘The Limits of Civil Society in Militarised Regimes: Evidence from the Asia-Pacific.’ Australian Journal of International Affairs 69, no. 6: 711–28.
• Mizuno, Atsuko. 2016. ‘Economic Relations Between Myanmar and China.’ In The Myanmar Economy, edited by Konosuke Odaka, 195–224. Tokyo: Springer. Link.
• Mon, Su and Thazin Aung. 2017. Governing the Transition: Policy Coordination Mechanisms in the Myanmar Core Executive, 2011–2016. PhD dissertation at the University of Hong Kong.
• Olinga-Shannon, Stephanie, Mads Barbesgaard, Pietje Vervest, and Lahpai Seng Raw. 2019. ‘Selling the Silk Road Spirit China’s Belt and Road Initiative in Myanmar.’ The Transnational Institute website, 7 November. Link.
• Steinberg, David I. and Hongwei Fan. 2012. Modern China–Myanmar Relations: Dilemmas of Mutual Dependence. Copenhagen: NIAS Press.
• Summers, Tim. 2019. ‘The Belt and Road Initiative in Southwest China: Responses from Yunnan Province.’ The Pacific Review: 1–24. Link.
• USIP China Myanmar Senior Study Group. 2018. ‘China’s Role in Myanmar’s Internal Conflicts.’ United States Institute of Peace website, 14 September. Link.
• Wang, Chong 王冲. 2012. ‘缅甸非政府组织反坝运动刍议 [Humble Opinions on the Anti-dam Movement of Myanmar’s Non-governmental Organisations].’ 东南亚研究 [Southeast Asian Studies], no. 4: 75–82.
• Woods, Kevin. 2011. ‘Ceasefire Capitalism: Military–private Partnerships, Resource Concessions and Military–state Building in the Burma–China Borderlands.’ Journal of Peasant Studies 38, no. 4: 747–70.
• World Bank. 2019. ‘Myanmar Country Environmental Analysis.’ World Bank website. Link.
• Yao, Ying and Youyi Zhang. 2018. ‘Public Perception of Chinese Investment in Myanmar and Its Political Consequences: A Survey Experimental Approach.’ International Growth Centre website, March. Link.
• Zerrouk, Emel and Andreas Neef. 2014. ‘The Media Discourse of Land Grabbing and Resistance during Myanmar’s Legal Reformation: The Monywa Copper Mine.’ Law and Development Review 7, no. 2: 275–312.
• Zhang, Cong 张聪 and Xuefeng Sun 学峰孙. 2016. ‘中国在缅投资项目成败的原因(2011—2016) [Causes of Successes and Failures of Chinese-invested Projects in Myanmar (2011-2016)].’ 国际政治科学 [International Political Science] 1, no. 4: 23–58.
• Zhang, Taofu 张涛甫 and Qingxiang Wu 庆祥伍. 2011. ‘社会运动中的媒体行动者——以缅甸媒体的昂山素季事件报道为例 [Media Actors in Social Movements: Case of the Myanmar Media’s Reporting of the Aung San Suu Kyi Incident].’ 国际新闻界 [International Press], no. 10.
• Zou, Yizheng and Lee Jones. 2020. ‘China’s Response to Threats to Its Overseas Economic Interests: Softening Non-Interference and Cultivating Hegemony.’ Journal of Contemporary China 29, no. 121: 92–108.

Updates & Corrections

18 February 2022: The term ‘local militias’ has been replaced with ‘ethnic armed organisations’ to avoid mischaracterisations.

25 April 2021: In the discussion of unrest in Hlaing Tharyar, we replaced ‘rioters’ with ‘individuals’ to avoid confusion as the term ‘rioters’ is being used by the military junta to refer to anti-coup protesters.

Cover Photo: Shwedagon at night. Credit (CC): @deischi.

Historical Background

Debates about the provenance of the Thai people continue today, and over the course of the twentieth century many Thai and Western anthropologists sought to understand the relationships between modern Thailand and the Tai-speaking peoples found scattered throughout Laos, Yunnan province, Myanmar, and Vietnam. In the twentieth century, Thai ideologists, seeking to define a Thai ‘race’ and influenced by Western theories of race and eugenics, traced back the origins of Tai-speaking groups to China, telling a story of retreat under demographic pressure, as Han groups spread southward. 

Thailand’s political relations with China can be traced back to the Ayutthaya period (1350–1767), when the city-state at the junction of the Chao Phraya and Pa Sak rivers grew rich and powerful through its trade and tribute with imperial China. Ayutthaya, today a World Heritage site, preserves a number of remains that indicate the presence of a Chinese diaspora that grew to as many as 10,000 by the end of the period. One of these is the Shrine of the Lady Soi Dok Mak (‘Necklace of Areca Flowers’) that commemorates an apocryphal legend of the Chinese emperor’s daughter arriving to marry an Ayutthayan king, only to die of disappointment at the humble surroundings of her new home. Burmese forces sacked Ayutthaya in 1765, but a noble of Chinese (Teochiu) descent, Taksin, raised an army of Chinese soldiers, drove the Burmese out and proclaimed himself king. Today shrines to King Taksin can be found all over Thailand. 

The Chakri dynasty, founded after Taksin and which continues to this day, is likely to have some Chinese ancestry. Nonetheless it was king Mongkut, Rama IV (1851–68), who ended tribute missions to China in 1853. 

Waves of Chinese migration continued regardless, as they had for decades. In the era of Rama III (1824–51), Chinese labourers built the Saen Saep Canal connecting Bangkok with Siam’s eastern provinces, in part to support its wars in Cambodia. In the late nineteenth century, Hakka, Hokkien, Hainanese, and Teochiu-speaking migrants continued to arrive via steamship, increasingly filling important roles in the local economy. Chinese capital formed a co-dependent but uneasy relationship with the Thai monarchy. Rama VI (1910–25) was disturbed by both a Chinese labour strike that paralysed the city in 1910 and the rise of Chinese nationalism after the 1911 revolution, and wrote a racist tract calling the Chinese the ‘Jews of the East’.

Relations with China became more strained after Thailand’s absolute monarchy ended in 1932 and as the country moved close to Japan in the era leading up to the Second World War. Harsh suppression of Chinese expressions of identity followed, and many immigrant Chinese adopted Thai names, even while continuing to control much of the economy. After the war, Thailand moved increasingly into the US camp, contributing forces to the Korean conflict in 1950 and joining the Southeast Asian Treaty Organisation in 1954. There were no diplomatic relations with communist China, and Thailand accused China of supporting its own communist insurgency. Nonetheless, Prime Minister Phibun Songkram (in power 1938–44 and 1947–57) and his advisor Sang Phathanothai maintained back-channel communications, including through sending Sang’s son and daughter to China to live under the care of Zhou Enlai. 

The US defeat in Vietnam in 1975 saw Thailand seek a reset in its relations with its communist neighbours. Accordingly, it established diplomatic relations with the People’s Republic of China in 1975, ceasing recognition of Taiwan. But Thailand’s military and monarchy remained fervently anti-communist, as Thailand sought to manage its own communist insurgency and demands for a more liberal politics. Vietnam’s invasion of Cambodia in late 1978 saw the Thai military shift its view of China from foe to friend. China’s thrust into northern Vietnam and subsequent support to the Khmer Rouge guerrilla resistance allayed Thai fears of Vietnam further expanding its sphere of influence. With the tacit support of the United States, the Thai military assisted the transport of Chinese arms to the Khmer Rouge.

Relations began to warm further as China opened up to market reforms and foreign investment in the Deng era. Biofarming giant Charoen Phokphand, founded by the Guangzhou emigrant Dhanin Chearavanont (ธนินท์ เจียรวนนท์ in Thai, known in Chinese as Chia Kok Min or Xie Guomin, 謝國民) was the first foreign investor in China, with registration number ‘0001’. Trade steadily increased until China became Thailand’s number one trading partner in 2012. The Thai Princess Sirindhorn, elder sister of the current King Vajiralongkorn (Rama X 2016–), one of the most popular members of the royal family and at one point considered a potential successor to King Bumhibol (Rama IX 1946–2016) studied Chinese language, calligraphy, and poetry, and has made numerous visits to the country.

China’s economic success spurred pride among Sino-Thais, which some estimate to be about a third of the population of Bangkok. In 2005, the immensely popular Sino-Thai prime minister Thaksin Shinawatra celebrated his Chinese ancestry with a visit to his grandparent’s ancestral home in Guangdong. Chinese culture and food is familiar, as are Chinese literary works such as The Romance of the Three Kingdoms (known as Sam Kok in Thai). 

Thailand remains a US ally but diplomatic relations between China and Thailand have improved, while those with the United States have been strained since the coups of 2006 and 2014. In 1999 Thailand and China signed a ‘Plan of Action for the Twenty First Century’, which called for recognising a ‘new multipolar security order’. Thai-Chinese military relations have grown, with the addition of air, naval, and land force exercises, though on a much smaller scale than Thailand’s exercise programme with the United States. Most recently, the Thai military has announced its intention to purchase three Chinese Yuan-class submarines, which has caused controversy. While Thai-US military ties remain very substantial, with up to 60 bilateral exercises each year, turbulence in the bilateral relations since the 2006 and 2014 coups has prompted speculation that Thailand is drifting towards China. 

BRI Status

China and Thailand were founding members of the Greater Mekong Subregion (GMS) forum established in 1992 to develop the region by increasing transport connectivity in order to attract private capital investment in tourism, agriculture, and manufacturing. As such, they have cooperated for some years on connective infrastructure, and in particular on the GMS North–South Economic Corridor (NSEC) linking China to seaports in Thailand and Myanmar by road. In this context, China and Thailand jointly funded the R3 highway connecting Yunnan (Xishuangbanna prefecture) with northern Thailand (Chiang Rai province) through northern Laos. The highway was completed in 2005 and then linked to Thailand’s Chiang Khong via a Friendship Bridge opened in 2013.

Thailand has been a vocal supporter of the Belt and Road Initiative (BRI) since it was announced in 2013. In practice, caution can be discerned in the ways it has sought to steer the initiative in its own interests. Rather than simply agreeing to China’s proposals, it has emphasised the complementarity of the BRI with its own infrastructure plans, as well as those of ASEAN and other multilateral groupings such as the Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy (ACMECS) which comprises the five countries of mainland Southeast Asia (Cambodia, Laos, Myanmar, Vietnam and Thailand). A good example is Thailand’s Eastern Economic Corridor (EEC), which will initially link its three key airports (Don Muang and Suvarnabhumi in Bangkok, and Utapao in Rayong province) with high-speed rail. Thailand is prioritising this project ahead of the Singapore–Kunming Rail Line (see below), while stressing its connectivity with the GMS North–South Economic Corridor (China’s priority, now subsumed into the BRI) and inviting Chinese investment. The project aligns with goals of making Thailand the indispensable regional logistical hub, including by placing the EEC at the heart of the East–West Economic Corridor (EWEC) connecting Thailand’s ports with those of Myanmar, Cambodia, and Vietnam. Japan supports this goal, and is directing the majority of its GMS investment to the EWEC. 

The centrepiece of Thailand’s BRI cooperation with China has been a high-speed rail project connecting Bangkok to Kunming via Laos. The idea of a railway linking Kunming to Singapore (the Singapore–Kunming Rail Link, or SKRL) was originally an ASEAN proposal, announced at the Fifth ASEAN Summit in December 1995. The advent of the BRI, and China’s proven experience in high-speed rail development, saw an increase in the momentum for making the SKRL a reality. In 2021 it will complete the Laos section, linking Kunming to Laos’ capital, Vientiane (see also the project profile for the section of the railway in Laos).

The rail project with Thailand has had, however, a troubled history almost since its inception, with tough negotiations leading to frustration on both sides. In 2010, Thailand signed a memorandum of understanding (MoU) with China for a joint venture company to build the high-speed rail line. Changes of government and public criticism saw further MoUs, but no construction. The junta of Prime Minister Prayuth Chan-ocha, on coming to power in 2014, signed another MoU agreeing to a route from Nong Khai on the Laos border to Bangkok. But unresolved issues around shareholding structure, interest rates, and control of adjoining land again prevented work starting. In 2016, Thailand announced it would finance the entire project itself, and the following year the Thai prime minister was not invited to the BRI conference, a clear message of China’s discontent. Prayuth’s junta reacted by overriding bureaucratic roadblocks on use of Chinese materials and accreditation of Chinese engineers. In 2020, after nine rounds of negotiations, a contract for joint construction of a high-speed route was finally signed, but only for a section between Bangkok and the north–eastern city of Nakhon Ratchasima. There is at present no agreement for the construction of the joining section from Nakhon Ratchasima to Nong Khai, leaving the SKRL incomplete and Laos still landlocked. 

Thailand has also been cautious on other Chinese proposals. In 2019, it declined China’s proposal to blast all the rapids in the Mekong in order to allow the passage of ships 500 tonnes and above, putatively in response to pressure from environmentalists (environmentalists in Thailand have also been concerned about the impact of the China-backed Sanakham Dam on the Mekong). To date it has stalled on moving ahead with China’s proposal for a canal across the Kra peninsula linking the Andaman sea and the Gulf of Thailand, thereby allowing shipping transiting from the Middle East to Northeast Asia to bypass the Malacca Strait. In sum, Thailand has long held a vision of itself as an infrastructure hub connecting maritime and mainland Southeast Asia, as well as China and Southeast Asia, and works to portray the BRI as complementary to these plans. In this goal it has geography on its side.

Current Economic Relations

Trade: China has been Thailand’s most significant trading partner since 2012. Thailand was quick to take advantage of China’s opening up, and between 1996 and 2006, according to data from the UN Commodity Trade Statistics (COMTRADE) database (UN Statistics Division) trade with China grew by 568%. A significant portion of the trade, both imports and exports, was office machines, and electronic and telecommunications equipment, reflecting the involvement of both countries in global supply chains. The two countries signed a free trade agreement in agriculture in 2003. Thailand’s economy is not, however, unhealthily dependent on China. It still exports more to the United States than to China, and while 19% of its trade is with China, 23% is with ASEAN. In 2018 Thailand’s total trade with ASEAN was 120.4 billion USD in 2018, more than its total trade with China (79.8 billion USD). This should not be surprising, as in 2019 China’s share of total ASEAN trade was only 18%, and mainland Southeast Asian countries are highly outward-facing; Vietnam and Thailand together have three ports in the world’s fifty busiest ports.

Investment: Japan has long been the largest foreign investor in Thailand, but was overtaken by China in 2019. Japanese investment, worth 71.5 billion USD in 2016, was from Japanese manufacturing firms establishing factories for general machine industry and transportation equipment. Later Japanese investment also targeted agriculture, farm products, chemical industry and paper manufacturing. Two factors pushed Chinese investment higher: the trade war with the United States and Thailand’s invitation to Chinese companies to invest in the Eastern Economic Corridor. Jack Ma’s Alibaba, for example, is investing in an e-commerce and product distribution centre in the EEC. Two Chinese firms have bought land and are planning to build ‘smart cities’. The EEC project, which will cover some 13,000 square kilometres in the provinces of Rayong, Chonburi, and Chachoengsao, is seen as Thailand’s strategy for lifting itself out of the ‘middle income trap’ and is part of its ‘Thailand 4.0’ strategy, that is preparing Thailand for the fourth industrial revolution by targeting new industries such as biotechnology and robotics.

Controversies

Tourism: Tourism is very important to the Thai economy. In 2017, the sector employed 2,336,500 people directly and contributed 9.4% of Thailand’s GDP. Chinese tourists have become increasingly important to this industry. Prior to the COVID-19 pandemic, anywhere between half a million and a million Chinese tourists arrived in Thailand each month, making China the largest source of tourists of any country. But an undercurrent of dissatisfaction with Chinese tourists has been increasing. Many Thais feel that Chinese tourists are ill-mannered or do not respect Thai customs or traditions. There are fears that the so-called ‘zero baht’ package tours primarily profit Chinese travel companies and reduce the flow of economic benefits to Thais. Consequently, there have been calls for the country to limit the number of tourists entering Thailand.

Mekong: China’s capacity to control Mekong water flows has the potential to become an irritant in the relationship. Observers argue that there was significant rainfall and snowmelt in China in 2019, but because China withheld the water from this precipitation in its dams, Mekong flows were low even as the lower Mekong Basin suffered a severe drought. However, China has denied that its dams are responsible for low water levels downstream, and Thailand is actively building dams of its own on the mainstream Mekong in Laos.

Communications infrastructure: Thailand is cooperating with China’s Huawei in the construction of its 5G mobile phone network, which has prompted warnings from the United States about the intelligence ramifications. As of March 2021, Thailand has not signed a contract but has invited Huawei to establish a test-bed as part of the EEC project. Thailand has already hosted Beidou satellite ground stations since 2013. 

Kra canal project: Building a canal across the narrow Isthmus of Kra in southern Thailand is a potential project attractive to Beijing because it would alleviate the China’s ‘Malacca Dilemma’—that is its excessive reliance on the sea-routed trade passing through the thin Straits between Malaysia and Singapore. The project is often framed as another litmus test of Thailand’s accommodation of China. Senior Thais from General Prayuth to the former Foreign Minister Surakiart Sathirathai have emphasised the perception that a canal would endanger Thailand’s territorial integrity by dividing the country in two. Some have suggested that the project might require the Thai monarchy to assent. 

Key Sources

English-language Media:

Reuters, Associated Press, ABC, BBC, Channel News Asia, and The Straits Times have correspondents in Thailand and report from the nation.

Local media outlets in English include The Bangkok Post, The Nation, Thai Enquirer, Khaosod English and Prachathai English.

Books, Reports, and Scholarly Articles:

• Haacke, Jurgen. 2005. ‘The Significance of Beijing’s Bilateral Relations: Looking “Below” the Regional level in China–ASEAN Ties.’ In China and Southeast Asia: Global Changes and Regional Changes, edited by Ho Khai Leong and Samuel C.Y. Ku. Singapore: Institute of Southeast Asian Studies.
• Kasetsiri, Charnvit and Michael Wright. 2007. Discovering Ayutthaya. Bangkok: Toyota Thailand Foundation.
• Medeiros, Evan S., Keith Crane, Eric Higinbotham, Norman D. Levin, Julia F. Lowell, Angel Rabasa, and Somi Seong. 2008. Pacific Currents: The Response of US Allies and Security Partners in East Asia to China’s Rise. Santa Monica: RAND Corporation.
• Raymond, Gregory and John Blaxland. Forthcoming. The US-Thai Alliance & Asian International Relations: History Memory and Current Developments. London and New York: Routledge.
• Raymond, Gregory V. 2019. ‘Competing Logics: Between Thai Sovereignty and the China Model in 2018,’ in Daljit Singh and Malcolm Cook (eds.) Southeast Asian Affairs, Singapore: ISEAS.
• Skinner, G. William. 1957. Chinese Society in Thailand: An Analytical History. Ithaca, NY: Cornell University Press. 
• Wongsurawat, Wasana. 2019. The Crown and the Capitalists: The Ethnic Chinese and the Founding of the Thai Nation. Seattle, WA: University of Washington Press.
• Zawacki, Benjamin. 2017. Thailand: Shifting Ground between the US and a Rising China. London: Zedbooks. 

Cover Photo: Bankok, Thailand. Credit: (CC) Luke Milliron.