China's Growing Foothold

BANGKOK—China is making new economic inroads into Southeast Asia, strengthening ties with impoverished neighbor Laos through a new mining venture and a key diplomatic visit.

As Lao President Choummaly Sayasone arrived in China's southwestern Yunnan province Sunday, official media heralded a new era of expanding ties.

"Bilateral relations are marching toward a new era of fast growth," Xinhua news agency quoted Politburo Standing Committee member He Guoqiang as saying.

"China is ready to further elevate the level of bilateral links by deepening strategic mutual trust and cooperation," He said.

Hong Kong meanwhile announced Wednesday a new agreement to establish direct air links with Laos, saying it would “boost tourism…and contribute to economic development.”

Experts said that China could eventually dislodge Vietnam as Laos' closest diplomatic ally.

Hong Kong meanwhile announced a new agreement to establish direct air links with Laos, saying it would “boost tourism…and contribute to economic development.”

"Laos's closest partner is Vietnam and has been since 1975, and that relationship is still pretty close politically," said Ian Storey, editor of the journal Contemporary Southeast Asia and Fellow of Singapore's Institute of Southeast Asian Studies.

"Over the past 10 years, China has become a much more important factor in Laos because of its economy," he said.

"China's main interests in Laos in fact are economic, and minerals and resources."

Mining cooperation

Just days ahead of the Lao president's week-long official visit, China also announced a new international industry initiative to promote cross-border cooperation in mining, highlighting one of Beijing's key areas of interest.

"The move will promote cooperation in mining sectors between the border province and adjacent Southeastern and Southern Asian nations, including Laos, Vietnam and [Burma]," the official Xinhua news agency reported, quoting local officials.

It also cited a research report produced by the Kunming University of Science and Technology which said China is in need of petroleum, natural gas, gems, salt, and nonferrous metal resources from its Southeast Asian neighbors.

The report added that Yunnan's iron, zinc, phosphorus, and tin resources would find a reciprocal market in Laos, Vietnam, and Burma.

Most investment in Southeast Asian mining has come from outside the region until now, but Lao and Chinese officials say that this is about to change.

Officials hope the Yunnan center will become an international institution focusing on consulting, information release, and trading services for mineral products in the region.

China's growing role

Experts say China's role in Laos is set to expand further as the latter seeks new sources of overseas aid and investment, notably from China and Japan and amid skyrocketing demand for mineral resources and raw materials in China.

China, they say, offers aid to Laos without calling for major reforms that would loosen the control of the ruling Party on the economy and on people's daily lives.

China's growing expansion in the region, partly through the economic cooperation spearheaded by the Asian Development Bank in the Mekong delta region, is causing concern in Vietnam, however.

"Laos has very good relations with China," Storey said.

"It is upsetting to the Vietnamese because Laos is their little brother."

"The Vietnamese used to have close relations with Cambodia, with Hun Sen, until in 1997 Hun Sen tilted towards China, and they don't want to see this happen again in Laos."

Hanoi has traditionally competed with Beijing for influence in the region.

While Laos has its strongest economic ties with Thailand, personal relationships between Communist Party elders in Hanoi and Vientiane have kept a "special relationship" between the two Southeast Asian neighbors alive, Storey added.

But analysts in Vietnam fear China's growing influence in the region.

Balance of power

Former U.S. ambassador to Vietnam Raymond Burghardt said last month that the United States and Vietnam had "a convergence of strategic interests," which included maintaining a balance of power in Southeast Asia.

A Congressional Research Service report dated July 29 said U.S. interests in ties with Vietnam included "shared concern over the rising strength of China."

Vietnamese journalist Bui Tin agreed.

"The risk from China is clear, and we must prevent the expansion of its political, military, cultural, and economic influence all over the world," he said.

He cited calls from the Vietnamese military for a renewal of ties with the United States, in tandem with a growing movement within the government towards democratization, as a way of balancing China's power.

"[Some] military people have said the politicians now need to solve the problem by developing in the direction of democratization," Bui Tin said.

"In the area of foreign policy, they must first seek to link with Southeast Asian countries, and take steps to build alliances with major countries in Asia, for example, Japan and India," he said.

China and Vietnam have clashed diplomatically in recent years over the disputed Spratly Island chain in the South China Sea, which is a target for oil exploration.

China has reportedly told international oil companies, including Exxon Mobil Corp., that they will be excluded from the Chinese market should they fulfill contracts to participate in Vietnamese exploration projects in or near disputed waters in the South China Sea.

Improved relations

China's investment projects in Laos include a ground station for receiving satellite television, the Namgao River Hydropower Station Transmission Project, the Vangvieng Cement Plant, and the Langprabang Hospital.

"Over the last 10 years and more, Sino-Laotian relations have seen comprehensive restoration and development," according to a Xinhua news agency analysis.

It said a visit by then president Jiang Zemin in November 2000 signaled a "milestone" in improving ties, heralding a series of cooperation agreements in military, economic, and educational spheres.

Laos is a growing market for Chinese goods, which are much cheaper than those it can produce itself. Imports of Chinese goods and services to Laos rose by 85 percent in 2008 to U.S. $318.3 million.

Meanwhile, Lao exports to China in 2008 stood at U.S. $140.4 million or 8.5 percent of the country's total exports, making China its third-largest export market.

By comparison, imports from Thailand reached U.S. $1.9 billion for the whole of 2008.

Thailand is also the largest export market for Lao goods and services, importing U.S. $5,68.7 million in 2008 or roughly one third of total Lao exports.

Vietnam imported U.S. $215.8 million of Lao exports in 2008.

Original reporting in Vietnamese by Thanh Quang and by RFA's Lao service. Vietnamese service director: Diem Nguyen. Lao service director: Viengsay Luangkhot. Written and reported for the Web in English by Luisetta Mudie. Edited by Sarah Jackson-Han.