Laos Between Traditional Friendship With Vietnam and Economic Advancement With China

Monday, January 25, 2021

Paul Antonopoulos, independent geopolitical analyst

Earlier this month, the 11th Congress of the Lao People’s Revolutionary Party elected the new Party General. The party leader is also the country’s 75-year-old Prime Minister Thongloun Sisoulith. His election as party leader paves the way for his appointment as the country’s next President later this year.

The new General Secretary will prioritize taking Laos out of its status as one of the poorest countries in the world, something he hopes to achieve by 2024. The Congress approved a new 5-year socio-economic development plan, with an assumed annual GDP growth target of 4%. In recent years, this figure for Laos has been a very impressive 7%, but the COVID-19 pandemic has dealt a heavy blow to the country’s economy as foreign tourists cannot enter and Lao workers lost their jobs in Thailand and other neighboring countries due to border closures. According to the Asian Development Bank, Laos’ GDP in 2020 decreased by 2.5%. 

With a new leadership, Laos will likely lean towards China and away from its long-time partner Vietnam, which it is bound to by common ideology, geography and history. All of Laos’ top leaders are trained in communist theory and practice in Vietnam and/or the former Soviet Union. Sisoulith himself studied in the Soviet Union and graduated from the Leningrad State Pedagogical Institute and defended his Doctorate thesis at the Academy of Social Sciences of the Central Committee of the Communist Party of the Soviet Union in Moscow. This common education has ensured Laos and Vietnam have common ideologies.

Vietnam has always been a large investor in Laos and one of its main economic partners. But by 2020, China occupied the leading position in the economic field. Vietnam currently has 414 projects in Laos worth $4.22 billion. China has poured more than $12 billion to support 785 projects. The biggest of these Chinese projects is the high-speed rail line from China’s Yunnan province to the Laotian capital of Vientiane. The high-speed rail line is being built in the framework of the Belt and Road Initiative. The railway line is expected to finish later this year and will rapidly increase Chinese investments in Laos, as well as the transportation of Chinese tourists. 

China is also Laos’ largest creditor. Of Laos’ $12.6 billion foreign debt, $5.9 billion belongs to China. In the 2021-2024 period, Laos will have to pay an average of $1.1 billion in international debts per year despite the fact their total foreign reserves being an estimated $1.3 billion. The country faces a bankruptcy threat by default.

The party’s new Secretary General intends to change policy and, instead of falling into debt, he will centralize inefficient State-Owned Enterprises, selling some of the shares to foreign companies. But here again China comes first. Last year, the state-owned company China Southern Power Grid Co. received a controlling stake in the state-owned Electricite du Laos company, in fact, gaining effective control of the national energy system of Laos. 

Laos hopes to alleviate this embarrassment by building a hydroelectric plant on the Mekong River and then selling electricity to other Southeast Asian countries, thus becoming the region’s energy hub. Beijing supports Vientiane in this, but that initiative was met with stiff opposition from Cambodia and Vietnam as Laos’ dams would create great environmental difficulties and financial impacts. Therefore, the economic policy direction of Laos is at risk of exacerbating regional relations, and the new leadership will have to solve this problem. 

The new General Secretary and members of the Politburo pose very important tasks and issues, but the country’s leadership must have enough wisdom and political will to maintain a balance between ideology and economics – effectively between a historical and strong friendship with Vietnam and economic interests with China. 

Vietnam would not want to lose Laos, a neighboring country that has great geopolitical significance to Hanoi, but under economic pressure from Beijing, Laos will keep a cautious attitude towards Chinese projects, especially since they often harm the environment and impacts Laos’ massive rural population. 

In addition, large-scale Chinese projects do not consider creating jobs for Laotians, raising incomes and improving the lives of the local people. Most of the projects are being done by Chinese companies with Chinese materials and components. 

In the next five years, both Laos and Vietnam must strive to implement the policy and complete the programs set out in the XI Congress of the Lao People’s Revolution and the upcoming XIII Congress of the Vietnamese Communist Party. These programs also include the bilateral cooperation strategy between Vietnam and Laos, and the signed agreement for the period 2021–2025 with various directions and projects. Thus, the support from Vietnam’s rapidly growing strength will be very helpful to Laotians.

But Vietnam has historical animosity with China due to repeated efforts by the latter to invade the Southeast Asian country. Even today, China and Vietnam clash over sovereignty in the South China Sea. This has made their relations difficult and it could push Laos into choosing one or the other, something that Sisoulith will struggle to contend with as Laos’ prosperity lays with China, but its geopolitical interests and historical ties are with Vietnam.

Source: InfoBrics