Lao Preferential Policies Attract Chinese Investment

 

Laos Chinese Investment.png
The 230-kilovolt power grid project, a China-Laos “Belt and Road” joint project. went into operation in Luang Prabang in northern Laos on November 29, 2015.

 

By Wang Jiping

In recent years, Laos has implemented a series of reforms geared towards opening up the country’s economy, attracting foreign investment by offering preferential policies.

As close neighbors, China and Laos are connected both geographically and culturally. Bilateral relations have been friendly for years, which has proven to be an important foundation for Chinese and Lao enterprises to further cooperation efforts within the framework of the Belt and Road Initiative, along with the support of their respective governments. Mutually beneficial cooperation in infrastructure and other sectors will be upgraded and accelerated, bringing tangible benefits to the peoples of the two countries, as well as other nearby countries.

Special Economic Zones

In terms of attracting foreign investment, the special and specific economic zones of Laos have proven particularly successful. In April 2016, the Laos National Committee for Special and Specific Economic Zones Management (NCSEC) stated that 260 special and specific economic zones have begun operating in Laos, with total registered capital of US$6.4 billion. A total of US$1.27 billion has been spent on the development of the zones. The committee also noted that under the circumstances of a tight budget and the need for more capital to sustain economic growth, the Lao government has announced a series of positive measures to attract foreign investment, with foreign investment in the special and specific economic zones as a particular focus.

According to the China Council for the Promotion of International Trade (CCPIT), seeing a need to attract foreign investment, Laos began setting up special and specific economic zones in 2003. In 2010, Laos officially promulgated the new Law on Investment Promotion, which made amendments on preferential policies, investment on the development of specific economic zones and the division of central and local management functions. The special and specific economic zones have provided foreign investors with opportunities, while also leading the way for the manufacturing, logistics and service sectors to move toward a market economy management model.

The development model of the Golden Triangle Special Economic Zone (GT SEZ) is a typical example of the establishment of such a zone. Zhao Wei, chairman of the management committee of the GT SEZ, explained that the zone has mainly focused on two things in recent years:

First, it has focused on infrastructure construction to attract businesses and investment.

Second, it has communicated with government departments at different levels to establish proper preferential policies for the zone.

Zhao said that a strong foundation for the development of tourism and foreign investment has already been established. At the same time, he believes that under the Belt and Road vision, the atmosphere and preferential policies of the special economic zones will help Chinese enterprises adapt to the Lao business environment.

In 2007, the Lao central government signed a contract with the Golden Kapok International (Hong Kong) Group to jointly plan and construct the ASEAN Economic Tourism Development Zone. In 2010, with the implementation of the policy of reform and opening up, Lao Prime Minister Somposon Bouphavanh signed a Prime Ministerial Decree to list the zone as a national special economic zone. The Golden Triangle Special Economic Zone Management Committee was established, authorized with the independent rights of economic development and executive administration of the zone.

In order to promote the development of the Boten-Mohan Cross-Border Economic Cooperation Zone (between Luang Namtha Province of Laos and Yunnan Province of China), Laos promulgated a series of preferential policies. These included granting right of entry visas to third country nationals at the port of Boten, withdrawing the Boten customs area to five kilometers behind the border (so that the cooperation zone fits between the border line and customs control line) and setting up the Channel for Boten at the Boten border crossing.

As a major bilateral cooperation project, the China-Laos railway will be built with Chinese technology and equipment, and will be connected with the Chinese railway network.

Practical Cooperation Projects

According to The Global Competitiveness Report 2015-2016 of the World Economic Forum, infrastructure in Laos lies in 98th place out of 140 countries listed, with transport facilities ranking 103rd. Power and communication facilities rank 93rd, which indicates that infrastructure in Laos is still lagging behind other developing nations.

In 2005, China’s non-financial direct investment flows to Laos exceeded US$1 billion for the first time, reaching US$1.36 billion, a year-on-year increase of 36.2 percent, according to China’s Ministry of Commerce. Laos surged past Indonesia into second place among all ASEAN countries in terms of non-financial direct investment, with Singapore retaining the top spot. In the same year, the value of China’s project contracts in Laos reached US$5.16 billion, a year-on-year increase of 39.8 percent compared to 2014, ranking China 3rd among all ASEAN countries (behind just Indonesia and Malaysia) and 4th among all Asian countries.

Wolters Kluwer, a Dutch-based information services company, and the China Going Global Think Tank (CGGT) jointly compiled a report entitled Laos Country Guide (focusing on investment), which pointed out that Chinese and Lao enterprises have invested substantially in energy, power and transportation. The two sides can accomplish great things in infrastructure construction, the report concluded.

Experts have quoted the northern Laos power grid project and the ChinaLaos railway project as typical examples.

The northern Laos power grid project – a 230 kv project jointly developed by the China Southern Power Grid (CSG) and the Lao government – broke ground in November 2014 and began operations in September 2015, resulting in a complete 230 kv power grid in the relatively backward northern regions of Laos. In the short term, this grid will help with the transmission of the power produced by the Nam Ou cascade hydropower plants. In the long term, the grid has laid a foundation for the interconnectivity of high voltage power grids between China and Laos.

As a major bilateral cooperation project, the China-Laos railway will be built with Chinese technology and equipment, and will be connected with the Chinese railway network. The completion of the project will promote the economic and social development of Laos, which is a pivotal Belt and Road country. It will also improve the efficiency of local transport, and create a large number of job opportunities for locals in Laos. It is also set to infuse new momentum into economic cooperation between the two countries.

What’s more, at the end of 2015, the Lao Ministry of Planning and Investment presented the draft of the 8th Five-Year Plan for National Economic and Social Development (2016-2020), which sets an average GDP growth target of 7.5 percent over the next five years, and per capita GDP of US$3,100. To achieve the goals, the Lao government will strive for:

– 3.2 percent growth in the agro-forestry industry, accounting for 19 percent of GDP;

– 9.3 percent growth in general industry, accounting for 32 percent of GDP;

– Services growth of 8.9 percent, accounting for 41 percent of GDP;

– Exports growth of 15 percent, enabling foreign reserves to cover at least five months of import costs.

For the goals of the different sectors to be achieved, large-scale investment is needed. However, the Lao government faces various limitations in terms of its financial resources, so it has no choice but to make full use of foreign investment, which has led it to offer various incentives and opportunities to potential overseas investors.

 

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