CHINA'S foreign direct investment in Asean has been growing strongly and in Laos, it has been skyrocketing.
In 2003, Chinese investment contributed just under 1.5 per cent of Laos’ FDI. By 2013 China had become the biggest country investing in Laos, at over US$5 billion (Bt170 billion).
Until recently, most of China’s investments were in energy and raw materials, such as hydroelectric dams, mining and forestry, but now it is diversifying into areas such as real estate and transport.
The biggest planned investment is a rail link between Kunming in China and Vientiane and Thailand. This has been stalled for some years but received a boost last year
when Thailand signed an agreement with China to build the Thai section from the Eastern Seaboard to Nong Kai.
The idea is to connect Thailand’s major industrial region and ports with China, with part of the route running through Laos. However, how can Laos afford it?
The anticipated cost of the railroad is $7 billion, which is more than 60 per cent of Laos’ GDP, and $5 billion of the funds would come from a loan that would be secured by untapped minerals.
Servicing the loan would require about 20 per cent of Laos’ annual government spending, a huge burden for a tiny economy.
Clearly, there are still many questions that need to be answered before the Laos part of the railway goes ahead.
Aside from the railway, probably the most high profile project being undertaken by Chinese investors in Laos is the That Luang Marsh Special Economic Zone (SEZ), which is being built near the capital of Vientiane.
This development, with a budget of $1.6 billion, is taking place on 365 hectares that will host a large residential area, public parks and green spaces, a commercial centre, hotels, shopping centres and entertainment venues.
The government and the developer say it will be a showpiece for all SEZs in Laos, but this too has been controversial.
The villagers whose land was taken to give the developer a 99-year concession weren’t happy with the price and questions have been raised about other social and economic costs.
China’s investments in Laos will have a huge transformative effect on this small country. Given Thailand’s close connections with both Laos and China, perhaps we can play a supportive role that can help to overcome the challenges and ensure a smooth transition to the future.