Hydropower investments
China is also a leading investor in hydropower, with several dams planned to be built on tributaries from the Mekong River with reports indicating China is preparing to sign contracts for up to nine new dams. Laos’ northern provinces rely on electricity from China, as most Laos hydropower power is exported to neighboring Thailand.
Analysts say China’s dominant position is raising fears over destruction of biodiversity, land eviction and unemployment among displaced farmers.
Chulalongkorn University political scientist, Thitinan Pongsudhirak, says China sees Laos as a key step in widening its influence in the region.
“Of the countries involved, Laos is most at risk of coming under China’s domination. Laos is a small country, small economy and China is not afraid to make the mainland South East Asia space into its own backyard. It is doing that now," he said. "Mainland South East Asia is completely in China’s orbit."
Laos’ economic growth is running at close to seven percent, but remains dependent on areas generating low employment, such as resource extraction and hydropower.
The World Bank has called on Laos to diversify its economy in order to generate employment for the more than 90,000 new entrants coming on to the labor market each year.
Laos’ financial state has also been weak. In July last year the government appointed a new finance minister amid a widening budget deficit with the government. A decree calls on the general public to tighten household budgets and curb spending.
Thitinan says the weak financial position adds to Laos’ vulnerability.
“Financial constraints have put Laos in a precarious position. The Laos macro economy is not in good shape. As a consequence it has had to rely on China and China plays this very well - by extending more loans and more projects into Laos. So Laos has to be very careful,” he said.