Such competing leadership has emerged at a time when the country is transforming its foreign policy to cope with the new regional environment. 

Laos is a small country located amid historic enemies and regional hegemons. It embraced isolationism under the communist regime that has ruled the country since 1975. The reclusive policy has, however, led to economic stagnation—80 per cent of its 5.9 million people still live by subsistence farming. Laos is currently ranked 133rd in the United Nation's 2006 Human Development Index of 177 countries, re-confirming its status as one of the poorest countries in Asia.

Traditionally, Laos found its security in close ties with Vietnam. Their "special relationship" can be traced back to the 1930s when the Lao People's Revolutionary Party (LPRP) and the Vietnamese Communist Party (VCP) were fighting together against the French for their independence. These intimate links enabled Vietnam to exercise a controlling influence over the Lao communist movement, and put a strain on Lao-Chinese relations, particularly after Vientiane supported Hanoi's occupation of Cambodia in 1978.

Toward the end of the Cold War, Laos sought to reduce its dependence on Vietnam and reached out to more economically advanced countries to help rejuvenate the moribund economy. After diplomatic normalisation in 1988, China overwhelmed Laos with financial and technical assistance in an attempt to pull Vientiane into its orbit. The rise of China's soft power has compelled Vietnam to revise its strategy in order to maintain its influence in Laos. This was where China and Vietnam's tug of war over Laos began.

In October this year, Nong Duc Manh, secretary-general of the Communist Party of Vietnam, paid a visit to Vientiane ostensibly to strengthen bilateral ties and to offset growing Chinese influence. He reiterated his country's contribution to the Lao economy. Statistically, their two-way trade stood at US$2.2 billion from 1999-2005. In 2005 alone, it was valued at US$165 million, up 15.4 per cent from the previous year.

Vietnam is also one of the largest investors in Laos with 69 projects worth US$500 million, and continues to facilitate the transportation of Lao goods heading to other countries.

The Vietnamese leader also highlighted the traditional bond of solidarity between the two Parties, the LPRP and the VCP, by using terms such as "the victory of the struggle for national independence" and "security and development of the two countries" in his discussions with his Lao counterpart. This linguistic precision, of historical importance, was employed to remind elderly LPRP cadres not to forget Hanoi's place in Lao policy.

Later in November, the Chinese Communist Party general secretary and President Hu Jintao also visited Vientiane in more grandiose style - and with lots of goodies in the bag for the Lao leaders. For China, Laos is not just another outlying neighbour sullied by poverty. Laos represents strategic interests for China for a number of reasons.   

Beijing hopes to out-manoeuvre Vietnam, a country which has historically been wary of China and whose modern relations have been marked by territorial and political disputes. But China has also obtained timber and mineral resources like copper and gold from Laos to feed its booming economy, and the country gives China land access to the Thai market and ports.

Beijing has recently assisted in the improvement of Lao transportation infrastructure, particularly highways linking China with Thailand. This assistance has met with a favourable response from Laos, which is keen to promote itself as a "land-linked" country rather than a "landlocked" one.       

President Hu showered his counterpart with generous gifts such as a US$12.7 million economic-technical cooperation project, debt clearance for seven projects worth US$33 million, as well as Chinese support for low-interest loans in various joint programmes. China also launched a new radio service - the China Radio International (CRI) Vientiane 93.0 FM - to be broadcast in Lao, English and Mandarin Chinese. This is seen as a bold move to raise cultural cooperation to a new level.

In the competition for influence in Laos, China recognises that a long-term strategy is needed. Beijing is welcoming younger Lao officials, who nowadays prefer to further their studies in China rather than in Vietnam.

As it is with other countries in Southeast Asia, China is wining and dining these officials, bringing them over to China, and putting them through training. Such a strategy is born out of the fact that the present Lao elite has retained close connections with Vietnam. China is therefore working on strengthening influence on the next generation.  

But in this tug of war between China and Vietnam, Laos is not at all passive. Taking the costs and benefits into consideration, Laos is more than willing to play one power against the other. At the end of the day, Laos is opening up to the outside world. It needs foreign aid and investment to boost the economy, to create jobs and to raise living standards.

While international donations often come with attendant pressure to reform legal, financial and political systems, both China and Vietnam provide aid without calling for major transformations that would reduce the LPRP's control of the political and economic life of the country. China, in particular, has become a model of a successful economy without having to sacrifice political domination.         

Laos and China have touted their growing strategic alliance as being based on the mutual economic need of both sides. China is destined to become Laos's new best friend, major trading partner and source of external funding. Vietnam will have to step up its game just to remain in the shadows as Laos' mentor and emergency ally, as it has done so often in the past.

Dr Pavin Chachavalpongpun

Dr Pavin Chachavalpongpun is an independent writer based in Singapore.