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Apr 17 2017
Assessment and Prospect of China-Laos Development Cooperation

SIIS’s task force released the report on Assessment and Prospect of China-Laos Development Cooperation in Vientiane on April 6, 2017. The China Office and Laos Office of the Asia Foundation provided the sponsorship to conduct one week field studies in Laos in 2016.

Lao People’s Democratic Republic (Laos) is located in the north of IndoChina Peninsula of Southeast Asia. Covering approximately 236,800 square kilometers, Laos is the only landlocked country on the peninsula. Suffering from geographical disadvantages, Laos has in recent years prioritized construction of transport infrastructure. Transforming itself into a “land-linked” from a “land-locked” country has become one major national development strategy. Laos geographical features can be generalized as mountains in the north, plateau in the southeast, plain in the southwest, and hills in the west. Mountains and plateau occupy two thirds of the whole territory. Plentiful rivers flow within Laos, among which the most prominent is the Meikong River and its tributaries. Most of the rivers run from north to south or from west to east. Forests cover 52% of Laotian territory, making it a famous country of forests. Endowed with abundant natural and water resources, Laos enjoys advantages in mining and developing water conservancy. The country is dedicated to become the "battery" of IndoChina Peninsula. In terms of its industrial development, Laos is an agrarian country where agriculture and forestry lay the foundation for its national economy. Beginning from the mid-1980s, Laos has put in place policies for reform and opening. After its accession to the WTO in 2013, Laos’ industries and services started to develop, gathering a positive momentum for economic development. With national income per capita of 1600 USD, Laos ranked 134th globally in terms of its ease of doing business, five notches higher than in 2015, as shown in the report Doing Business 2016 by the World Bank. The second meeting of Laos 8th National Congress set the target for economic growth in 2017 as 7%, the average growth rate by 2020 as 7.2%, and the GNP per capita by 2020 as 2978 USD.

China and Laos enjoy close bilateral economic and trade relations, as well as increasingly frequent communications between the governments and the public. On the one hand, Laos and China, both as socialist countries, have assisted and learned mutually during the course of development. The brotherhood-like relation added a dimension of kinship to the bilateral relationship. On the other hand, bilateral trade and investment have witnessed rather strong momentum in recent years, especially after China proposed the Belt and Road Initiative (BRI) in 2013, in which Laos is a major partner for cooperation. At present, China is Laos' largest source of aid and investment.

This report approaches Laos-China development cooperation from three perspectives:

Firstly, the report analyzes the role of China in Laos's development from a historical perspective. China has acted as a positive supporter and an equal partner in Laos' national independence, external relations, and economic development.  

Secondly, the report analyzes China's investment in Laos, assessing the facts and problems of Chinese investment in Laos as well as Laos' views on Chinese investment within the framework of BRI. Generally speaking, the government and the public of Laos hold a positive view on the investment of Chinese enterprises in Laos, arguing that Chinese enterprises have made positive contribution to local economic development, job creation, and improvement in livelihood. Nevertheless, problems exist, among which three stand out: the localization of employees in Chinese enterprises, legal issues caused by the utilization of land, and environmental problems caused by investment.

Lastly, the report systematically analyzes the history, features, and problems of Chinese aid to Laos, and the views on Chinese aid from the perspectives of the government, think tanks, and the public. Specifically, Laotian government view Chinese aid most positively, and hope that China can increase its aid to Laos. One of the reasons for this popularity is that China has helped alleviated infrastructure shortage, such as hospitals, roads, schools, and sports facilities, and Chinese aid projects are completed rather efficiently and on time. From the perspectives of academia and think tanks, Chinese aid is highly welcome rather than being seen as a threat. Laos can learn valuable lessons from Chinese aid and development model, which provide another option from that of the West. From the perspective of the public, views on Chinese aid projects are generally positive, especially for projects that bring benefits to the welfare of local people. However, criticism of Chinese aid is not absent. Some local non-governmental organizations have expressed their concerns. First, infrastructure aid and investment projectsare associated with such issues as the utilization of land, demolition of old infrastructure, relocation of affected population, and accompanying environmental protection. Second, in addition to grant, interest-free loans from China and especially the large volume of concessional loans have triggered debates and concerns on Laos' "debt sustainability". Third, there are also concerns on low transparency in Chinese aid. Local people and NGOs have limited knowledge of and participation in China’s aid projects, and the coverage and benefits of aid need to be broaden to engage more local population.

In consideration of the issues of Chinese investment and aid in Laos, this report proposes five policy recommendations. First, in the context of the implementation of the 2030 sustainable development agenda, China and Laos should explore the construction of Laos-China demonstration zones for sustainable development, and develop model project of Laos-China cooperation. Second, China and Laos should strengthen people-to-people exchanges with a long-term perspective. People-to-people connectivity is one of the five "connectivities" of the BRI as well as one of the three pillars of the Lancang-Mekong Cooperation Mechanism. The two nations should reinforce investment and aid in soft infrastructure, especially in education. Third, China and Laos should improve the visibility and impact of Chinese aid projects. The Chinese government and the Laotian government should strengthen evaluation and assessment on aid and investment projects, and publish reports regularly to the media and the public. Fourth, China should improve the communication and coordination with other major donors in Laos. Fifth, China should actively promote the involvement of Chinese NGOs in Laos to strengthen the communication with local people. China should establish platforms for trilateral cooperation among the government, enterprises, and civil societies. Civil society organizations should be engaged more in such sectors as humanitarian assistance, environmental protection and healthcare to help improve the resilience of Laos society and lay the social foundation for governmental cooperation between the two countries.  

This report is based on field study and a large number of interviews. We hope that it provides a relatively objective and overall picture of the achievements and problems of Laos-China development cooperation. The report also provides possible policy alternatives for future cooperation. We also hope that this report can increase understanding of the international community on Chinese investment and aid in Laos. We wish that Laos-China relationship continue to thrive as time goes by.