China leveraging Laos to link up its Southeast Asian economic interests

China aims to scale up infrastructure construction in uniquely strategic Laos to accelerate trade and investment throughout Southeast Asia as Chinese businesses scout for space to grow offshore, analysts said.
Chinese Premier Li Qiang said during a four-day visit to the Southeast Asian nation earlier this month that he would work with Lao officials to turn Laos from landlocked to “land-linked”, according to the Chinese Foreign Ministry.
Laos, relatively undeveloped and small at just 7.4 million people, matters to Beijing because it shares borders not only with China, but also with the larger Southeast Asian economies of Cambodia, Myanmar, Thailand and Vietnam.
“Laos is seen as a transport hub for China to export Chinese products to the other countries in the subregion and import products from those countries to China,” said Supitcha Punya, an assistant professor of political science and public administration with Chiang Mai University in Thailand.
China would eventually add roads, airports and dry ports tethered to a 400km, US$5.9 billion railway that was finished in 2021, the Asean+3 Macroeconomic Research Office (Amro) in Singapore said in January last year.
The additions would boost China’s economic reach in Southeast Asia for its own landlocked western regions, said Naubahar Sharif, head of public policy at the Hong Kong University of Science and Technology.
The 10-member Association of Southeast Asian Nations bloc has a combined population of about 673 million, including several manufacturing hubs and some of the world’s fastest growing economies.
Laos is the only Asean nation with a direct railway route from its capital, Vientiane, to China, Sharif added.
A Bangkok-Nong Khai high-speed railway in Thailand is expected to link with the tracks in Laos to make it a “transit point”, giving China access to the Gulf of Thailand, while also offering a “boost for seaborne trade”, Sharif said.
China is building much of the Thai railway and will help operate it.
Japan was Southeast Asia’s biggest provider of financial, infrastructure and technical help until the 2000s.
But for Chinese investors, Southeast Asia offers a haven from rising wages and operating costs at home, the consultancy firm Dezan Shira & Associates said.
China-Asean trade and investment has grown steadily since 2010, spurred by free-trade agreements and, since 2018, Chinese investors’ use of Southeast Asian bases to avoid US tariffs on direct shipments of exports.
Two-way trade reached US$911.7 billion in 2023, while Chinese direct investment in Asean last year jumped by more than 34% from 2022 to US$25.12 billion.
This month, China and Laos signed a joint statement aimed at improving a “connectivity development corridor” between the two countries and Thailand, according to the official Lao News Agency.
China’s official Xinhua News Agency said the two sides had agreed to work toward syncing the China-Laos Railway with the Thai railway system just across the Lao border.
The Beijing-based Asian Infrastructure Investment Bank is separately lending US$10 million for the Thanaleng dry port, a cargo terminal on the Lao side of the Mekong River boundary with Thailand.
In February, Laos opened its third-largest airport, Bokeo International, which took funding from a Chinese developer.
And the Mekong River that runs from China to four Southeast Asian countries, including Laos, represents “vital waterway with significant untapped potential for enhancing regional trade and transport networks” for China, Amro economist Poh Lynn Ng said.
China could use Laos to transport goods or people into Cambodia, where Chinese have invested heavily in property, analysts said.
In neighbouring Vietnam, a prime destination for Chinese manufacturers keen to sidestep the US-China trade war, officials have approved a high-speed rail project to be synced with tracks in China.
China particularly values the potential for agriculture, energy and tourism in Laos, Supitcha said.
Laotians, meanwhile, see China as a means to economic growth and job opportunities, the assistant professor said.
In August, Lao durian growers met Chinese importers to discuss shipping the pricey, pungent fruit to the lucrative China market, the Lao News Agency said.
It said that by 2029, Laos expected to harvest 270,000 durian trees for a crop worth more than US$155.5 million.
China and Laos would seek more trade and investment deals, especially in mining and industry, Beijing’s Foreign Ministry said.
“Laos is rich in natural resources, which are attractive for many investors, including Chinese ones,” Supitcha added.