China’s overseas aid “bolsters [a] responsible image” according to a January 19 China Daily editorial that may herald greater transparency in China’s large—and still officially secret—aid portfolio. But there is every sign that, like other donors before it, China will use aid to promote its commercial and geopolitical interests. Here, Tina Qian reports on China’s aid to poor and landlocked Laos, where GDP per capita in 2004 was no more than USD 382, and where almost 20% of GDP comes from international donors.

In the centre of Laos’ leafy capital, Vientiane, just two blocks from where the Mekong marks the border with Thailand, stands the Lao National Cultural Hall, a gleaming, modern structure trimmed in gold. Outside, a banner portrait advertising a concert by South Korean pop star, Kangta, shows how the Lao People’s Democratic Republic, one of the world’s five remaining Communist countries, is quietly opening to the outside world.

The Cultural Hall was recently built with Chinese aid and is just one example of an extensive aid programme. Vientiane’s broad, thirteen-kilometre Central Avenue, a veritable marvel compared with other roads in the city, was financed entirely by China in 2003.

The Avenue leads to a Victory Arch that echoes Paris’ Arc de Triomphe and recalls French colonial influence on Laos. In 2004, China helped renovate the adjacent Victory Arch park, with a musical fountain as its centerpiece. A plaque in Lao, Chinese and English acknowledges this ‘grant aid from the government and people of China as a token of friendship and cooperation.’

Nearly 400 kilometres north, on the outskirts of the city of Luang Prabang, a Sino-Lao Friendship Hospital completed in 2003 is known locally as ‘the Chinese Hospital’. The red-roofed buildings are dotted in spacious grounds surrounded by jagged green mountains. The equipment and medical facilities were donated by the Chinese government and there are now plans to expand the facility to include a sanatorium for senior Lao officials. The road linking the hospital to Luang Prabang, a UNESCO-designated World Heritage Site, remains in terrible condition, but this year it will be upgraded with Chinese aid.

Chinese aid is even reflected in Laos’ currency. The highest denominated note, 5,000 kip, carries the image of the Vang Vieng cement works. The plant was built in 2002 with financial and technical support from China, reducing Laos’ previous dependence on imports from Thailand.

Aid dependency

Sino-Laos relations have not always been smooth and hit a low point in the late 1970s when Laos supported Vietnam’s invasion of Cambodia. Relations stabilised when Chinese Premier Li Peng visited Laos in 1990, and have since continued to improve with more frequent high-level visits between the two nations. Chinese aid has risen accordingly.

From 1988 to 2000, Chinese grant aid to Laos totalled CNY 600 million (USD 73 million), amounting to just 2% of all international aid that the country received during that period. Over the following four years, according to China’s Ministry of Commerce, China provided CNY 1 billion (USD 125 million) in aid, mostly directed to infrastructure, health and education projects.

Bilateral trade and Chinese investments in Laos have also seen rapid growth. By the end of 2001, Chinese enterprises had won contracts in Laos worth a total of USD 729 million, according to Chinese Ministry of Commerce figures. A growing share of that sum derived from Chinese government loans that appear not to be counted, either by China or by Laos, as part of the bilateral aid programme.

Before 1990, the former Soviet Union was Laos’ main international donor. Today the country remains highly dependent on foreign aid—which accounts for almost 20% of the country’s gross domestic product and up to 70% of public investments—but from a much wider range of donors. In 2001-2, according to Lao government sources, 18 bilateral donors contributed a total of USD 198 million. Japan was the largest donor, disbursing USD 100 million, followed by China, with around USD 20 million. France, Germany, Sweden and Australia provided around USD 11 million each. In the same period, USD 123 million in loans and USD 8 million in grants came from international financial institutions, led by the Asia Development Bank, which provided 58% of the total, and the World Bank, providing 34%.

Strategic competition

Although China has itself received substantial aid from Japan over the last decade, competition with Japan as a donor to Laos is becoming more and more visible.

Hospitals are a case in point. Japan provided a grant of JPY 1.6 billion (USD 12 million) for the Saitatila Hospital in central Vientiane, which opened in 2001. China responded the next year with aid for a 100-bed hospital—the largest in Laos’ seven, northern provinces—outside the ancient capital of Luang Prabang.

Japan recently pledged to set up a Japanese language training centre within the Laos Youth League headquarters, offering teachers, teaching materials and facilities. According to a source close to the Chinese Embassy in Vientiane, China is now planning to follow suit with a Chinese language centre in Vientiane.

Vietnam is another major competitor for regional influence and ‘soft power’ over Laos. Ten out of eleven members of the current Standing Committee of Laos’ Politburo speak Vietnamese fluently, having studied or worked in Vietnam. But Ian Storey of Asia Media recently argued that “Within the next decade or so, China seems destined to become the LPDR’s largest trade partner and source of external funding, and hence its new closest friend in Asia.”

Li Hui (李辉), a Chinese entrepreneur resident in Laos, agrees. Though Japan tops the donor list and Thailand has long-standing economic influence in Laos, he says, Communist-led Laos would rather keep some distance from those countries, for historical and ideological reasons. Yang Guowei (杨国威), head of China’s Youth Volunteers Team in Laos, describes Vietnam as the country’s “closest peer” and China as the “most reliable elderly brother.”

Increasingly, it is the economic rather than political relationship that matters to China. A report released in 2004 by Yunnan NGO, Green Watershed, concludes that from 1950s to 1991 Yunnan (and China)’s economic and trade relationship with sub-Mekong river countries was integrated into the framework of “politics first, economics second.” But over the last decade, the emphasis has switched, as China’s fast-growing and resource-hungry economy looks for timber, rubber and minerals that Laos is ready to exchange for cash and GDP growth.

Ms. Fang Yun (方芸), a Laos expert at the Yunnan Academy of Social Sciences’ Southeast Asia Research Institute, confirms that her research focuses mainly on economic and trade links between the two countries. The Institute’s Deputy Director, Liu Zhi (刘稚), notes that a set of books they have published on China’s economic and trade cooperation with five countries in the Mekong sub-region “sells surprisingly well.” A large proportion of buyers, she says, are Chinese business people looking for opportunities in the Southeast Asia market.

Human resources

As follow-up technical assistance to the Luang Prabang Friendship Hospital, a team of six doctors, an administrator and an engineer from Yunnan No.1 People’s Hospital arrived in Luang Prabang in March 2005. During the doctors’ one-year placement, they are expected to develop new medical services and train local staff.

In the hospital’s attached kiosk, thirty-something Dr. Li Zhi (李治) relaxes over a bottle of Beer Lao. “Chinese experts help them provide lots of medical services, which they couldn’t handle before,” he says. “As a result the number of patients and turnover soars. Take the Radiosurgery Department I serve, its turnover has tripled this year from two million Kip (about USD 185) to six million now.”

The hospital has more than two hundred staff, most of whom have only completed medical technical school. The most qualified staff member is Dr. Parotha, who took a Masters degree at southwest China’s Guangxi Medical University.

“I teach medical knowledge and surgical skills twice a week,” says Dr. Li, “but the extremely low pay—the hospital president earns the highest monthly wage of USD 50—drives most medical staff to do other businesses to earn more, and this naturally leads to low efficiency at work and training.” Language is another problem since most staff can barely speak English or Chinese.

“Once,” Dr. Li continues, “I found medicines worth several hundred thousand yuan, donated by China, untouched but already approaching their expiry date. All the descriptions are in Chinese, which none of them can understand.” Even more astonishingly, he once found some French manufactured barium meals that expired over thirty years ago. Nobody here knows what barium meals are or how to use them, he says.

It seems that both Lao and Chinese governments have begun to realise that human capacity building is essential to avoid wastage of aid efforts. Chinese experts and trainers were added to the Luang Prabang hospital project at the urging of the Lao side, who were especially keen, says Dr. Li, for expertise in herbal medicines. The Chinese experts remain on the payroll of their original work unit, but the Ministry of Commerce pays an additional monthly allowance of USD 800 for each.In addition to Chinese technical assistance in Luang Prabang, the Friendship Hospital sent 17 Lao doctors to receive on-hands training in Yunnan in 2004.

Training and study opportunities for Lao people are multiplying in China, especially in Yunnan Province. Some students pay their own way. For example, Saisaly and Pasouvong, both from Lao’s northern Phongsaly Province, are in their first year studying at Yunnan Finance and Trade College, majoring in international business. Their annual tuition fees and accommodation cost USD 2,500, and once they have graduated they hope to find management positions in Laos, preferably in the government.

At Yunnan University there are no less than fifty students from Laos studying language, tourism and economics. Some of them are supported by the government of China which now offers Laos 55 scholarships each year for study at some of China’s most prestigious Chinese universities.

Since 2001 the government of Laos has also provided scholarships to study Chinese, agriculture and forestry, at the Teacher’s Training School in Yunnan’s Mengla County, close to the border with Laos. Each student receives an annual allowance of CNY 5,400 (USD 670).

There are no detailed statistics on how many Lao officials and managerial staff have received training in China, but the Ministry of Commerce’s 2004 Yearbook shows that in 2003 the Chinese government trained 1,480 people from 107 countries in public management and technology.

Chinese expats

Aid is also bringing more and more Chinese citizens into Laos. Li Hui was dispatched in 1996 to work in the Lao office of China’s Broadcasting and Television International Technical Cooperation Corporation. This company had won an aid contract in 1991 to help Lao National Television set up a reception station, enabling Laos to receive CCTV transmissions. The company subsequently won other Laos government contracts, and Li also set up his own businesses.

He never imagined he would settle in Laos. “At that time, not many people were willing to come to Laos, which in most people’s eyes is a poor, small neighbour—even my mother, who lives in rural Yunnan, sees it that way.” Ten years later he is running a technology development company and a restaurant in Vientiane and driving a Japanese car, just like any successful entrepreneur in Beijing.

There are short-term visitors, too. China’s Central Youth League has deployed a youth volunteer team in Laos since 2000. In its fifth year the team now comprises fifteen members, mostly from Shanghai but including three from Yunnan. They live in a privately owned hostel in Vientiane, with two to four members sharing each room and washrooms.

Team leader Yang Guowei is a young Communist cadre from Shanghai Municipality Youth League Committee. He talks animatedly about his work teaching Chinese to a score of Lao university students and government officials. Soon realising that teaching language also involves teaching about culture, he abandoned Chinese character-based teaching methodologies in favour of real-life contexts like trips to the market. Other members teach English language, horticulture, information technology, sports and music. “We have strict rules for outings and sick leave,” says Yang. “We have the duty to maintain a good image of Chinese volunteers and to win local people’s recognition on our work.” This means, among other things, that they steer clear of Vientiane’s nightlife.

Their Japanese counterparts, who have been volunteering in Laos for 40 years, will usually act as unpaid staff working on various official and NGO aid projects.

Contentious dams

China Eastern Airline runs two direct flights from Kunming and Vientiane every week. Engineer Zhao Weiping (赵卫平) chanced to sit next to this correspondent during a packed flight in early December. He works for the Sinohydro Corporation, a major contractor that is now starting on a new hydropower station, Seset II.

According to Zhao, Sinohydro makes a gross profit of roughly 10% of the value of each contract. This is no small sum, given that a medium-sized project such as Nam Mang III Hydropower Station, which Sinohydro completed in 2004, cost hundreds of millions of dollars.

The ambitious plan of Laos’ government is to build 50 dams on the Mekong River and its tributaries. Kunming’s local daily, Spring City Evening News (春城晚报) quoted Lao Premier Boungnang Vorachit as saying last July that he hopes the country can earn more foreign currency by developing hydropower and exporting electricity to bordering countries. He urged enterprises from China, and especially from neighbouring Yunnan, to grasp the business opportunity.

Laos’ senior officials have in fact repeatedly expressed support for development of hydropower. From 1988 to 2000, this boom industry has attracted 63.6% of total, inward foreign investment of USD 7.07 billion, and hydroelectricity is becoming a major foreign exchange earner for the country.

However, there have been continuous protests against the ongoing Nam Theun II hydro project, jointly funded by the World Bank and Asian Development Bank. Critics point to the effects on local ecology and communities.

Kate Lazarus, Senior Programme Officer of the World Conservation Union (IUCN)
Mekong Region Water and Nature Initiative, is also concerned at the impact of dredging in the Mekong. This has been carried out upstream in Yunnan in order to increase cargo vessel trade. Governments on both sides of the border have also agreed to develop sightseeing tours on the river.

Conservationists like Lazarus fear that increased navigation may spoil the ecology of the river and threaten traditional fishing industries. However, local NGOs on both sides of the border are still young and weak, with little space for growth under current government policies.

Sinohydro’s Zhao Weiping says that all their projects have passed environmental impact assessments. He acknowledges that big hydropower projects unavoidably impact on the local environment, but says the company minimises the harm as much as possible. “After all it’s China’s official aid project. And we attach importance to the potential of Laos’ hydropower market.”

As part of the Nam Mang project, Sinohydro is also building six transformer substations. Visiting one construction site 17 kilometres north of Vientiane, I found a couple of Chinese labourers still at work as the sun set. A Sichuanese worker surnamed Zhu expressed contentment with his life in Laos. “It’s warm here, and Lao people are very friendly.” The Chinese workers, says Zhu, are often invited to attend wedding feasts of local villagers, in whose eyes the Chinese labourers are rich. Indeed, Chinese labourers employed abroad generally earn at least twice what they would make at home.

Dr. Yu Xiaogang (于晓刚), founding director of Yunnan’s Green Watershed, points to the downside of an influx of Chinese labour. During field trips to northern Laos he has seen many Chinese migrants coming from as far afield as Hunan and Hubei. This, he says, has sparked a commercial sex industry that is driven overwhelmingly by demand from the ‘rich’ Chinese.

At the end of 2005, the Laos government itself published new regulations in an effort to banish illegal migrants, mainly from China and Vietnam.

Another looming areas of contention is likely to be China’s impacts on rich forestry resources in northern Laos, as China’s booming automobile industry increases demand for rubber, and as furniture and construction material manufactures feel the pinch of China’s own, domestic logging ban.

During a Yunnan-Northern Laos Cooperation Working Meeting, held in Kunming in December 2005, Lao officials pledged to provide “favourable policies” for cooperation and “convenience” for private investment in agriculture and forestry. Environmental campaigners will likely regard this as an ominous development.

State secrets

Laos is by no means the only recipient of Chinese aid. According to Chinese government reports, in 2002 China signed aid agreements with 99 countries and organisations, rising to 105 in 2003.

The Chinese Academy of International Trade and Economic Cooperation (CAITEC), an official think-tank affiliated to the Ministry of Commerce, is located within a quiet, Beijing courtyard, several kilometres north of the grand Chang’an Avenue where the Ministry itself is situated. The Director of the Development Aid Research Department declined an interview request, claiming that all information related to China’s foreign aid is in principle a “state secret.”

Avoiding domestic criticism is one of the government’s main concerns. Despite two decades of rapid economic growth, many Chinese people still struggle to meet their basic needs, and some argue that the government should help them before sending aid abroad. Reports of aid packages for North Korea have aroused vigorous debate on websites.

But although consolidated information is hard to find, individual aid grants and contracts are now widely reported. For example, detailed information about the Vang Vieng cement plant, one of China’s ‘model’ aid projects, can be found on China Cement Web and in numerous trade magazines. The Ministry of Commerce’s annual Yearbook provides a summary of grants, loans and contracts, and the China Export and Import Bank reports statistics on credit and investments it has made abroad.

A researcher in the CAITEC Foreign Aid Research department, who prefers not to be named, feels that their research in fact has little influence on national aid policy. Nor does she think China yet has a clear aid strategy. Rather, decisions are announced by senior leaders, often to smooth official visits overseas.

Senior officials, such as Director General of the Ministry of Commerce’s Department of Foreign Aid, Wang Hanjiang (王汉江) have repeatedly stressed that Chinese aid is completely “’untied’’ and “sincere,” without any political reform agenda. Emergency humanitarian aid certainly appears to be growing: China donated USD 22.6 million to countries struck by last winter’s tsunami, and USD 26.7 million for relief efforts following the Pakistan earthquake in October 2005.

However, China’s large overseas loans, which the government appears not to count as part of its international aid programme, do appear clearly linked to China’s commercial interests and natural resource needs. These loans are beginning to attract international attention, arousing concerns over lack of transparency (see sidebar).

There have been some signs of change. In 2002, the Ministry of Commerce introduced a new evaluation system for its aid projects, and the following year it began to draft regulations on China’s aid.

Nevertheless, with the aid programme set to swell on the wave of China’s double-digit economic growth, Chinese and international civil society organisations are likely to start calling for more effective programming targeted to human development, for greater transparency and for greater accountability—both to China’s taxpayers and to aid recipients in poor countries like Laos.