USAID Out, China Aid In: Is US Foreign Policy Pushing Laos Towards China? | China & The Global South

Key Concepts

• Secret War in Laos: US bombing campaign during the Vietnam War (1964-1973).
• Unexploded Ordnance (UXO): Unexploded bombs and munitions that continue to cause harm.
• US Aid Cuts: Reduction in US financial assistance to Laos, particularly for UXO clearance and victim support.
• Chinese Investment: Large-scale Chinese infrastructure projects and loans in Laos.
• Debt Trap Diplomacy: Concerns that Chinese loans are creating unsustainable debt burdens for Laos.
• Laos-China Railway: A Chinese-built railway connecting Vientiane with Yunnan province in China.
• Economic Vulnerabilities: High inflation, debt, and brain drain affecting Laos.
• Special Economic Zone (SEZ): The Boten SEZ, a Chinese-backed development project in northern Laos.

US Involvement and UXO Impact

• From 1964 to 1973, the US dropped over 2 million tons of bombs on Laos during a secret war aimed at disrupting North Vietnamese supply routes. This is more than the US dropped on Germany and Japan combined during World War II.
• Laos became the most bombed country in the world, and continues to suffer from unexploded ordnance (UXO).
• UXO claims lives and limbs every year.
• COPE Center, an NGO, provides rehabilitation services to UXO victims with funding from US aid.
• US aid cuts have reduced funding for prosthetics and physiotherapy, impacting UXO survivors.
• Since 1995, the US has invested over $390 million in UXO clearance, public safety education, and victim support.
• The scale of UXO contamination is so vast that current demining efforts are insufficient.

US Aid Cuts and Moral Obligation

• President Trump announced large cuts to US aid, reversing former President Obama's pledges to Laos.
• The US has a moral obligation to help Laos heal due to its history of bombing the country.
• The cut in US aid is seen as detrimental to UXO clearance and victim support efforts.
• The loss of US funding impacts the ability to clear land for farming and maintain demining networks.

Chinese Investment and Infrastructure

• China has significantly increased its investment in Laos, particularly in infrastructure projects.
• The Laos-China Railway, built at a cost of $6 billion with loans from Chinese banks, connects Vientiane with Yunnan province.
• The railway has improved connectivity, reduced transport costs, and facilitated trade between China, Laos, and Thailand.
• The railway has transformed landlocked Laos into a potential regional hub.

Debt Crisis and Economic Challenges

• Laos faces a debt crisis, with China being its largest creditor.
• Chinese loans for infrastructure projects, including the railway and hydropower, have contributed to Laos's debt burden.
• The Chinese overinvested and kept extending the repayments so that the debt is just built up it's irreoverable and not solvable.
• High inflation, driven by debt and external shocks like COVID-19 and the Ukraine war, has impacted food security and led to a brain drain.
• Average net salaries are around $250 USD a month, while the cost of food has doubled in the last 3 years.
• More than half of the government revenue was paid to debt servicing obligations in 2023.
• The government has renegotiated with China to reschedule some debt payments.

Perspectives on Chinese Influence

• Laos maintains a careful balancing act in its foreign policy, maintaining relations with both China and Western powers.
• Geography dictates a close relationship between Laos and China due to their proximity and economic interdependence.
• Some accuse China of "debt trap diplomacy," but others argue that China is filling a void left by Western countries that have not invested in Laos's development.
• "They have been fueling the conditions which result in abject poverty a lack of development of all kinds lack of connectivity for countries like laos and now they want to accuse china for a dead trap etc"

Boten Special Economic Zone

• The Boten Special Economic Zone (SEZ) is a Chinese-backed development project in northern Laos.
• A previous attempt to transform Boten into a casino town failed due to illegal activities.
• Hi-chung Holdings is now developing Boten as an industrial and processing zone.
• The SEZ is intended to be a model for Laos-China cooperation and development.
• The success of the Boten SEZ is a gamble with high stakes for Laos.

Conclusion

Laos faces a complex situation with the legacy of US bombing, ongoing UXO contamination, increasing Chinese investment, and a growing debt crisis. While Chinese infrastructure projects like the Laos-China Railway offer economic opportunities, Laos must navigate the challenges of debt sustainability and maintain a balanced foreign policy. The future success of projects like the Boten SEZ remains uncertain, but the stakes are high for Laos's economic development.