CHINA'S DOMINANT INVESTMENT PRESENCE IN NORTHERN

C O N F I D E N T I A L SECTION 01 OF 03 VIENTIANE 000112

SIPDIS

STATE FOR EAP/MLS
STATE PASS COMMERCE FOR HPPHO

E.O. 12958: DECL: 02/11/2019
TAGS: CN ECON ETRD LA PREL EINV
SUBJECT: CHINA'S DOMINANT INVESTMENT PRESENCE IN NORTHERN
LAOS

REF: A. 08 VIENTIANE 444

B. 08 VIENTIANE 202

C. 07 VIENTIANE 288

D. 08 VIENTIANE 226

E. VIENTIANE 88

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Classified By: Ambassador Ravic Huso for reasons 1.4 (b) and (d)


1. (C) Summary: Chinese investment, and often demographic
presence, in the northern Lao provinces of Oudomxay, Luang
Namtha, and Bokeo dominates visitors' impressions and still
appears to be growing rapidly. While many local government
officials are clearly sensitive to the appearance of being
overwhelmed by the large Chinese presence, they are also
pleased with the investment and want to see more. According
to Government of Laos (GOL) statistics, in 2007-2008 China
provided all foreign direct investment (FDI) in Luang Namtha,
seventy-five percent in Oudomxay, and over fifty percent in
Bokeo. The Chinese concession on the Lao side of the Luang
Namtha-China border at Boten is a small extra slice of China,
centered on a smoky and somewhat seedy casino offering only
table games. Agricultural plantation investments, primarily
rubber, are the majority of larger investments, although
there is also a huge new casino under construction in Bokeo
as well as many smaller Chinese businesses selling hardware,
dry goods, and filling a variety of retail niches. As GOL
statistics themselves are notoriously inaccurate, and
provinces are highly autonomous, it is likely that the Lao
themselves do not fully grasp the extent of Chinese
investment and the numbers of Chinese moving into the
country. End Summary.

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Oudomxay-The Crossroads between Vietnam, China, & Thailand?
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2. (C) Econoff and visiting EAP/MLS desk officer visited
three northern Lao provinces January 22-26 on a
familiarization tour. The Chinese presence dominated
impressions. The Vice-Governor of Oudomxay province, Mr.
Bounpone Vannachith, told us that China provided most of the
province's FDI, with Vietnam a distant second. According to
the provincial department for planning and investment (DPI)
office, in 2007-2008 Chinese investment was $4,417,425,
seventy-five percent of the province's $5,919,425 in
registered FDI. Mr. Bounpone said that the majority of
provincial FDI flows to rubber plantations and contract
farming, although the provincial government has also granted
permission for companies to search for minerals -
particularly copper, iron, coal, and bauxite. Additional
Chinese investments include a motorcycle assembly factory, a
battery factory, and a new cement plant, which according to
Mr. Bounpone will produce 200,000 tons of cement in 2009.
The head of the provincial DPI office, Mr. Houmpheng
Southivong, told us that few of the people who approach the
government with plans for investments actually follow
through, and he expects the current economic crisis to slow
actual investment even more. Mr. Houmpheng was especially
interested in the Pak Bang hydropower project on the Mekong
(ref A). This is a 1320 megawatt run of the river dam
currently in the feasibility study phase with the Hong-Kong
based power company Datang International. Mr. Houmpheng
stated that the dam, once completed, would generate $3
million a day for the province. (Note: We are skeptical
that the dam would generate royalties this high for the
province. End note.)


3. (C) Both the Vice-Governor and the head of DPI stated
that Oudomxay is considered by the GOL as a transit point for
goods coming from China and Vietnam. Mr. Bounpone said that
the Chinese government is paying to improve Route 13 north,
Laos' main north-south artery which quickly deteriorates as
one heads north from Oudomxay city, while the Vietnamese are
building a new highway from Dieng Bien Phu in Vietnam, via
Phongsali, Oudomxay, and Sayabouly provinces in Laos, to
Thailand. Both officials were reluctant to address the issue
of China's growing demographic presence, perhaps aware of
rumors which place the Chinese at about 25% of Oudomxay
city's population. Mr. Houmpheng told us that Chinese
investors were allowed to fill only 10% of the positions with

VIENTIANE 00000112 002.2 OF 003


foreign workers, while the rest needed to be Lao. While this
statement tracks Lao law, it does not appear to reflect
reality.


4. (C) A Malaysian Chinese investor owns the newest hotel in
town, as well as the Yarnsin Furniture and Tea Factory. On
January 23rd the factory was almost completely empty of
workers. The Malaysian assistant manager, William Ho, a
three-month veteran of Laos, gave us a tour. According to
Mr. Ho, the factory, which produces high quality furniture
(much of it rosewood) for export to China and Malaysia,
normally employs about 50 people. However, about half of the
staff, all Vietnamese and Chinese, had gone home for the
Lunar New Year. The foreign staff at the factory provide the
skilled labor -- Vietnamese shape the wood while the Chinese
in general do the detailed carving. Lao staff finish the
products: sanding, sealing, and painting are their primary
role. The foreign staff also live on the factory grounds in
a compound. Chinese companies are notorious for bringing
their own workers for projects in Laos, a practice which has
on at least one occasion helped spark a backlash against a
planned investment in Vientiane (ref B).

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Luang Namtha's Surprising Chinese Neighborhood
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5. (C) Driving north on Road 13 from Oudomxay, one-third of
the cars headed south had Chinese plates. The road, which
runs to Luang Namtha and the Chinese "Boten Golden City
Project" concession (ref C),is in poor condition. At the
heart of the concession is the Jin Loon hotel and casino,
aimed at a purely Chinese clientele. Despite a renewed GOL
campaign to use the Lao Kip, only Chinese yuan and U.S.
dollars are accepted in the casino. English speakers were
rare, and emboffs did not see any Lao workers. Although
nominally responsible for security within the concession,
there was also no Lao police or military presence. The
official Lao border crossing has now been moved to a series
of small temporary buildings about 1 km inside Laos from the
border with China. Previously, Lao immigration was located
after the turnoff to the casino, which allowed patrons from
China to visit the casino without passing through Lao
immigration or customs formalities. Located across from the
hotel is a small outdoor mall of purely Chinese businesses.
Large dormitories for the Chinese workers at the casino march
up an adjacent hill. The casino itself is an acquired taste
-- smoky, scuffed, seedy, and containing only card games, it
is surprisingly utilitarian. Only about half of the gaming
rooms were open during our visit, and outside of one possible
apartment building, the planned development (ref C) appears
to be behind schedule. Leaving Boten towards Luang Namtha
city the R3 roadway, the opening of which was celebrated at
last years Asian Development Bank (ADB) Greater Mekong
Subregion (GMS) summit in Vientiane (ref D),is smooth but
marked by sections needing to be rebuilt. At one point an
entire lane has fallen into a ravine for about 100 meters,
while in numerous other locations the road has cracked and
subsided (ref E).


6. (C) The town of Luang Namtha itself appears to be
undergoing a quiet investment boom. Luang Namtha's
provincial DPI provided FDI figures for 2007-2008 showing 14
large investments totaling $15,537,650, all of which were
from China. Eleven of the investments were for rubber
plantations. A six story, modern Chinese hotel, the "Hong
Chin", has recently opened. Quoting prices in yuan, and
surrounded by still unfinished dormitories for its workers,
the hotel is staffed and built by Chinese labor. The Chinese
presence in Luang Namtha is unmistakeable--many of the new
businesses in town are emblazoned with Chinese lanterns, and
numerous small shops play Chinese TV and contain employees
who speak little or no Lao. At least half of the new
buildings in town appeared to be Chinese-owned. Many new
houses also appear under construction for Chinese investors,
based on cars with Chinese license plates and signs for
Chinese New Year.

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Rubber and Burmese in Bokeo

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7. (C) Houy Xay, the capital of Bokeo province set on a
series of hills above the Mekong River, is some 229
kilometers south of the Chinese border. It does not yet
appear to have the same small-scale Chinese commercial
presence in the downtown area as the cities of Oudomxay and
Luang Namtha. Bokeo province has also seen large influxes of
Chinese FDI in recent years, led by an $86 million casino
complex and nine rubber plantations, but this investment was
not as visible to emboffs. Over fifty percent of the
provincial FDI in 2007-2008 was from China. If it were not
for a planned Korean investment, AAC Green City, Chinese
money would represent about 95% of the registered foreign
investment in Bokeo. A number of local Embassy contacts
mentioned the rising number of Chinese agricultural
investments and expressed concerns that Chinese firms will
begin to import Chinese labor to work the rubber plantations.
The Deputy Director of Bokeo's DPI, Ms. Phouangphanh
Phumsavanh, was less concerned with a possible influx of
Chinese workers. She explained that Bokeo has a shortage of
workers, and noted that the new casino, located near the
Thailand and Burma borders in the "Golden Triangle", was
using many Burmese construction workers.

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COMMENT
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8. (C) The GOL statistics we received showed China to be the
dominant provider of FDI in Oudomxay, Luang Namtha, and Bokeo
provinces. Because smaller Chinese investments, primarily in
retail services, are nominally recorded at the district and
village level, it is difficult to gather a complete picture
of Chinese investment and immigration. As GOL statistics are
notoriously inaccurate, and provinces are highly autonomous,
it is likely that the Lao themselves do not fully grasp the
extent of Chinese investment and the numbers of Chinese
slowly moving into the country. End Comment.
HUSO