Lao People’s Democratic Republic

Lao People’s Democratic Republic

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. In the decades since, Vientiane has largely enjoyed a friendly relationship with China through their shared political ideology and, from the 1990s, business ties.

Lao People’s Democratic Republic

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.

Source: Chinese Ministry of Commerce.

Top Ten FDI by Countries (1989 – 2015)

CountryValue of Investment (million USD)
China5484
Thailand4491
Vietnam3574
Malaysia813
South Korea751
France491
Japan438
Netherland435
Norway436
Britain202
Source: Investment Promotion Department, Ministry of Planning and Investment, Laos

FDI by Sector (1989-2017)

No.SectorValue of Investment (million USD)Investment Share (%)
1Electricity generation7,30330
2Mining5,69823
3Agriculture2,94612
4Service2,54410
5Industry and handicraft2,1119
6Hotel and restaurant1,0234
7Construction8273
8Telecom industry6633
9Wood4102
10Banking3722
11Trading3251
12Garment950
13Consulting670
14Public health640
15Education310
 Total24,479100
Source: Investment Promotion Department, Ministry of Planning and Investment, Laos

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).

Updated on 26 March 2022.


Wanjing (Kelly) Chen is a research assistant professor in the Division of Social Science at Hong Kong University of Science and Technology. Her research focuses on the relationship between the state and capital in the ongoing globalisation of the Chinese political economy. Following the footprint of Chinese investors who are lured into Laos by the Chinese state’s vision of the Belt and Road Initiative, she demonstrates how their discrete and improvisational practices of investment collectively work to turn the initiative into a reality.

Juliet Lu is a political ecologist who focuses on the implications of China’s growing investments in land and other resources across the world, particularly on rubber in the Mekong Region. She is currently a postdoctoral research fellow at the Cornell University Atkinson Center for Sustainability and will be starting in July 2022 as an Assistant Professor at the University of British Columbia in Forest Resources Management and the School of Public Policy & Global Affairs.