IN A REMOTE part of northern Laos, the bamboo forest gives way to cranes. A city takes shape in the jungle: towers covered with scaffolding hover over restaurants, karaoke bars and massage parlors. The beating heart of the Golden Triangle special economic zone (so called because it is at the meeting point of Laos, Myanmar and Thailand) is the casino, a sumptuous confection featuring statues and false Roman ceilings covered with frescoes. “Laos Vegas” is not intended for Laos, however. The dealers only accept Chinese yuan or Thai baht. The street signs are in Chinese and English. City clocks are set to Chinese time, one hour ahead of the rest of Laos.
Over the past decade, China has become one of the largest investors in the countries of Southeast Asia: in 2018, it was responsible for almost 80% of foreign direct investment in Laos. Part of this capital flows along heavily used routes to places like Mandalay, a city in Myanmar with a long-standing Chinese community. But much of this flooding occurs in “special economic zones” (SEZ(s) take advantage of assorted incentives such as faster authorizations, reduced taxes or duties, and more flexible controls over the movement of goods and capital.
Chinese companies don’t need a lot of evidence. The Chinese government started encouraging them to invest abroad in the 2000s. The Belt and Road Initiative, China’s giant plan to develop infrastructure abroad, accelerated the trend. Besides railways, highways and pipelines, it promotes SEZs, which “are now a preferred mode of economic expansion for China,” said Brian Eyler of the Stimson Center, an American think tank. Under the belt and road banner, 160 Chinese companies have invested more than $ 1.5 billion in SEZs Laos, according to Land Watch Thai, a watchdog. Between 2016 and 2018, China invested $ 1 billion in a SEZ alone: Sihanoukville, a city on the coast of Cambodia.
Where Chinese capital goes, work follows. In Mandalay, the Chinese have gone from 1% of the population in 1983 to 30% -50% today. In places with SEZs the change was even more marked. In 2019, the governor of the surrounding province told the Straits Times newspaper that the number of Chinese in Sihanoukville had skyrocketed in the past two years for nearly a third of the population. The economic weight of Chinese migrants increases with their number. In Mandalay, 80% of hotels, more than 70% of restaurants and 45% of jewelry stores are owned and operated by ethnic Chinese, according to a market study carried out in 2017.
The influx of migrants has fueled anti-Chinese sentiment in the region. But poor governments in Southeast Asia are courting Chinese investors anyway because they hope Chinese money will boost their economies. In some ways, the investment has paid off. In Laos, foreign investment has contributed to the excitement GDP average annual growth of 7.7% over the past decade.
But in a study by SEZs in 2017 Focus on the Global South, a think tank based in Bangkok, concluded that “legislative and governance structures” SEZs in Cambodia and Myanmar “are biased towards the interests of investors and against those of residents and the environment”. Alfredo Perdiguero of the Asian Development Bank agrees that SEZs in Laos, Cambodia and Myanmar “have not yet been able to distribute the benefits” across the economy.
This is partly due to the fact that Chinese companies tend not to hire locals. In 2018, Laotian workers had obtained only 34% of the jobs created by the 11 SEZs in Laos, far from the 90% promised by the government. Chinese companies say local workers lack skills, but civil society groups in Myanmar respond by designating a technical college near Kyaukpyu, a SEZ and port; no one from the college has been hired to work there, according to a report released last year.
There is also no local source of other inputs. Garment factories of Sihanoukville SEZ, for example, import their fabric, buttons and thread. Chinese workers and visitors to Southeast Asia SEZs often go to Chinese stores and restaurants and get around sales taxes by paying for goods and services through Chinese apps like Alipay. “Money doesn’t even leave China essentially,” says Sebastian Strangio, author of a forthcoming book on China’s growing influence in Southeast Asia. This, combined with tax breaks, means that there are few benefits for host governments: in 2017, the Laotian treasury raised only $ 20 million from its SEZs – less than 1% of its revenues.
Extraterritorial and unreasonable
As is common with major developments in the poorest countries of Southeast Asia, residents are rarely consulted on the construction of SEZs. Golden Triangle SEZ was built on rice fields in the village of Ban Kwan; more than 100 households have been forced to move against their will. And then there is the question of law enforcement within the SEZs, whose light regulation can be as attractive to criminals as it is to legitimate businesses. In 2018, US authorities declared that the Golden Triangle SEZ was a hotbed of “drug trafficking, human trafficking, money laundering, corruption and wildlife trafficking”. They called the company that operates the SEZ a “transnational criminal organization” and imposed sanctions on its president, Zhao Wei. He denied the accusations, calling the decision “unilateral, extraterritorial, unreasonable and hegemonic.” Many Southeast Asians could say something similar about how SEZs are executed. ■
This article appeared in the Asia section of the print edition under the title “Viva Laos Vegas”
