2023 Foreign Investment Opportunities in Laos
Following where China has been spending and investing its Belt & Road Initiative capital can provide FDI clues and reveal new opportunities in recipient countries. As infrastructure builds start to yield productive user cashflows and the need for subsequent support services arises, case studies for investment potential become apparent. In this new series, we will be examining where China has spent its money and where returns on investment exist for foreign investors in piggybacking onto opportunities created by the BRI build.
Laos has been a consistent recipient of Chinese investment for some time. But its position as a landlocked country creates its own set of trade development difficulties. The policy has been to turn the country into a ‘land-linked’ nation, which is being achieved with some spectacular results by the introduction of significant rail infrastructure and routes connecting Laos both to southwest China but also through Vietnam and Thailand. Consequently, light manufacturing zones are springing up while the tourism industry is booming.
These investments have been made in conjunction with the China-ASEAN Free Trade Agreement and the recent RCEP agreement – Laos is a member of both ASEAN and RCEP and shows how both China and Laos have been combining development with free trade and developing the countries manufacturing to allow it to become a China alternative.
While inbound FDI within ASEAN is diversified across USA, Japan, EU and China, one major exception is Laos. According to ASEAN’s investment report, in 2017 and 2018, China was the source of 77% and 79% of inbound FDI into Laos, up from only 1.5% of its 2003 FDI.
This has been driven by infrastructure investment, directly or indirectly linked to the BRI, some 815 projects totaling over US$16 billion since 1989.
Key projects enhancing the connectivity between Laos and other countries in the region include the completed Vientiane-Vang Vieng section of the Laos-China expressway, the flagship Laos-China railway project under the BRI, the Boten SEZ, and the Vientiane Saysettha Development Zone. China also plays a significant role in SEZ investments, with the Laos government having authorized 89 projects worth over US$215 million Despite the pandemic disruption, in 2020 China invested in 21 projects in Laos, with a total investment reaching US$2.5 billion.
Despite the pandemic disruption, in 2020 China invested in 21 projects in Laos, with a total investment reaching US$2.5 billion. Such projects spanned the mining, services, electricity, agriculture, and infrastructure sectors.
In 2021, China and Cambodia are carrying out nearly 20 projects related to the digital economy in Laos and other ASEAN countries including establishing the first cloud computing center in Laos jointly with the Laos Asia Pacific Satellite Co. The Chinese Foreign Ministry has stated “Through our partners in Laos, we have provided support in consultation and technology to the instant message system of the Lao government, improving its operation through digitalization.”
In August 2021, CCPIT’s Chair said direct investment by Chinese enterprises in Laos increased 8.9% y-o-y to US$1.24 billion in 2020. Bilateral trade between the two countries rose 48.1% from the previous year in the first half of 2021, reaching US$2.3 billion. Bilateral trade between the two countries rose 48.1% from the previous year in the first half of 2021, reaching US$2.3 billion. The Governor of China’s nearby Guangxi Province said that bilateral trade between Guangxi and Laos increased by 2.7 times in 2020 and 2.3 times in the first half of 2021, showing huge potential for growth. Bilateral trade for 2021 reached US$4.6 billion.
The China-Laos Railway
The US$6 billion China-Laos Railway began operations on 3rd December 2021, connecting Kunming, the capital of Yunnan, with Vientiane. The Boten-Vientiane railway section is a 414 km electrified HSR that runs between Vientiane and the town of Boten on the Laos-China border, reducing travel time from 15 hours by car to 3 hours. From Boten, the 595 km next section ends in Kunming. Regular trains will travel at up to 120 km/hour for commutes between Vientiane and Boten, a border city. Travelers can also take high-speed trains between the two cities that run at up to 160 km/hour, and more trains run during the Chinese and Lao holidays.
Eight bullet trains and two regular trains plan to operate daily in Laos, while 36 high-speed trains are operated in China.
Within the next 2-4 years, the line south from Vientiane will connect to Bangkok, in the process freeing up a previously landlocked country that was the least industrialized in ASEAN and converting it into a land-linked hub that connects to the wider region, and in the process substantially lowering logistics costs.
Usage since December 2021 launch
In early May 2022, it was reported that the China-Laos Railway has seen significant passenger and freight transportation growth since opening in early December. As of 5th May, the international rail corridor had handled more than 2.7 million passenger trips and 2.9 million metric tons of cargo in the five months since it opened. The line transported 1.1 million tons of cargo between April 4 and May 5, 2022 alone, being more than five times the volume transported in the first month of operation.
The Lancang-Mekong Express freight train has sent more than 1 million e-commerce products via the service. The line has transported cargo bound for more than 10 countries and regions including Thailand, Myanmar, Laos, Malaysia, Cambodia, and Singapore. The variety of cargo has been expanded to more than 100 categories, including rubber, fertilizer, electronics, automobiles, and flowers.
The section of railway in China handled nearly 2.39 million passenger trips, while the section in Laos handled 312,000. Cheaper services at a slower speed are offered in the Laos section.
Thanaleng Dry Port (TDP) and Vientiane Logistics Park (VLP)
On 4th December 2021, there was a grand opening of Laos’ Thanaleng Dry Port (TDP) and Vientiane Logistics Park (VLP) marking the start of streamlined services to facilitate and cut the cost of transport and related expenditure. Prime Minister Phankham Viphavanh was to officially launch the megaproject in Dongphosy village, Hadxaifong district, Vientiane. Soon afterward, the prime minister sent trucks loaded with freight to destinations in Cambodia, Thailand, and Vietnam.
Built on 382ha of land, the US$727 million TDP and VLP will offer comprehensive facilities relating to freight transport and cross-border transport logistics. The project, which comes with a 50-year concession period, is being developed in full by the Vientiane Logistics Park Co Ltd. Construction of the dry port and logistics hub began in December 2020 with the project expected to be fully complete in the next two years. Vientiane Logistics Park Co Ltd Chairman told the guests that the TDP and VLP facilities are part of efforts by the Lao People’s Revolutionary Party (LPRP) and government to transform Laos from being landlocked into a provider of ‘Land Link Transit Transport Services’ for the region and the world.
The Vientiane-Vangvieng Expressway, Vietnam’s first expressway, jointly developed by Yunnan Construction and Investment Holding Group (YCIH) and the Lao government is also Laos’ first smart expressway with Huawei technology. The Expressway is about 110 km long, designed as a two-way four-lane expressway with a design speed of 80 km – 100 km/ hour.
Huawei, cooperating with its Chinese partners has built a secure, stable, and intelligent ICT platform for this smart expressway based on the global-leading information ICT, cloud computing, IoT and security management system. Huawei data communication and transmission equipment deployed along the route builds a digital perception, interaction, transmission, and the application integrated solution that use big data analysis and other technical means to implement all-scenario solutions such as real-time intelligent monitoring, intelligent charging, emergency response, and decision analysis, the press release said.
In 2021, the 5G network to be built in Laos will be integrated with this smart expressway as well. The future of 5G+AI technology will further upgrade the intelligent level of the expressway and facilitate the development of infrastructure in Laos.
The opening of this expressway will greatly improve local transportation conditions, improve transportation efficiency, promote the development of the economy and tourism along the way, and effectively benefit the local people. A staff member of Tmark Resort Vangvieng, said, “There has been a significant increase in hotel bookings. Tourists also show admiration for the travel experience on the Vientiane-Vangvieng expressway which integrates high-tech and engineering construction, modern concepts, and cutting-edge technology to ensure driving safety.
A Vientiane citizen told us that the new road is wider, faster, and safer than the old one. It used to be a day of driving back and forth from Vientiane to Vangvieng, and it only takes more than an hour to reach Vangvieng now. Within the use of ETC, it will facilitate the rapid and orderly traffic, and ICT technologies will make the traffic smarter and more convenient.”
In December 2020, Huawei established its wholly-owned subsidiary, Huawei Technologies (Laos) Sole Co., Ltd. 1998. It employs 150 staff, 70% of whom are Laotians. By serving 75% of the population, Huawei plays a major role in helping transform Laos from a landlocked to a land-linked country.
Boten Special Economic Zone (SEZ)
The Boten Special Economic Zone (SEZ) is currently the most expensive infrastructure development project in Laos. Located in Luang Namtha Province across the border from the small town of Mohan in Yunnan, China, the SEZ spans 1,640 hectares. A border and frontier area, Boten has undergone dramatic changes over the past two decades. It has evolved from a remote border crossing (before 2000), to a booming casino town (2007–11), to a border town experiencing a ‘bust’ (2011–15), and is now an active construction site and city-in-the-making (2016 – present), and considered part of China’s Belt and Road Initiative.
The Mohan–Boten Cross-Border Economic Cooperation Zone
In recent years, Boten has been brought under the larger 3,430-hectare China–Laos (Mohan–Boten) Cross-Border Economic Cooperation Zone (ECZ), which is one of 20 zones certified by China’s Ministry of Commerce. The Mohan–Boten Cross-Border ECZ is a large transboundary free-trade zone that today encompasses Boten as well as Mohan on the Chinese side of the border. The relationship between the Boten SEZ and the Mohan–Boten ECZ deserves clarification as it has evolved over time and the two are not synonymous. The Boten SEZ is an enterprise-led private Chinese development, while the larger crossborder ECZ was designated through bilateral cooperation and is one of China’s Cross-Border Economic Cooperation Zones (CBECZs; 边境经济合作区). China first introduced CBECZs in 1992 to accelerate the country’s economic opening and develop networks of trade with neighboring countries.
The Mohan–Boten ECZ was announced in December 1993 as Laos–China relations warmed. In 2001, Yunnan Province established the Mohan Border Trade Zone on the Chinese side of the border and, in 2006, rebranded it as the Mohan Economic Development Zone. It was not until 2009 that a feasibility study prepared by Yunnan Province and reported to China’s Ministry of Commerce explored the possibility of a cross-border cooperative area. In 2010, China’s Mohan Economic Development Zone and Laos’s Boten SEZ signed the ‘China Mohan–Laos Boten Cross-Border Economic Cooperation Framework Agreement’. Development was slow, with little to no activity. On 31 August 2015, Chinese President Xi and Lao President Sayasone, along with the Chinese Minister of Commerce and the Lao Deputy Prime Minister signed the Agreement for Joint Construction of the ECZ. In 2016, with official approval by China’s State Council, the ECZ was elevated to the status of a second CBECZ in hopes of accelerating trade with other Southeast Asian countries via Laos.
Laos’s fiscal deficit declined in 2021, driven by higher domestic revenue and spending curbs. Domestic revenue rebounded to 12.4% of GDP in 2021 but remains below pre-pandemic levels and the regional average. However, economic growth is expected to reach 3.8 percent in 2022, close to double 2021’s figures. According to the World Bank, Laos is a low-income country and is expected to rise to middle-income status by 2030.
Laos Investment Intelligence
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