VZCZCXRO8556
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHVC
DE RUEHVN #0238/01 1390207
ZNY CCCCC ZZH
R 190207Z MAY 09
FM AMEMBASSY VIENTIANE
TO RUEHC/SECSTATE WASHDC 2586
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHOO/CHINA POSTS COLLECTIVE
RUEHKO/AMEMBASSY TOKYO 1283
RUEHCHI/AMCONSUL CHIANG MAI 0667
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 04 VIENTIANE 000238 
 
SIPDIS 
 
STATE PASS TO USTDA AND CUSTOMS AND BORDER PATROL 
COMMERCE FOR HPPHO 
TREASURY FOR SCHUN 
 
E.O. 12958: DECL: 05/09/2019 
TAGS: ECON EFIN EINV ETRD ELTN EWWT CH LA TH
SUBJECT: GMS:PROXIMITY AND POLITICS FOCUSES CHINESE 
INVESTMENT ON NORTHERN LAOS 
 
REF: A. CHIANG MAI 57 (GMS: POOR INFRASTRUCTURE) 
     ¶B. VIENTIANE 112 (CHINA,S INVESTMENT IN NORTHERN 
        LAOS) 
     ¶C. 07 VIENTIANE 228 
 
VIENTIANE 00000238  001.2 OF 004 
 
 
Classified By: Ambassador Ravic R. Huso for reasons 1.4 (b) and (d) 
 
¶1. This is the second in a series of cables from Consulate 
General Chiang Mai and Embassy Vientiane on the Greater 
Mekong Subregion's (GMS) R3A highway (ref a).  These cables 
have been coordinated with Consulate General Chengdu.  This 
cable was co-drafted by econ officers at both Vientiane and 
Chiang Mai. 
 
------------------- 
Summary and Comment 
------------------- 
 
¶2.  (C) Two Special Economic Zones (SEZ), what Laotians 
disparagingly call "Chinese concessions," anchored by 
casino-hotels and run by Chinese firms, bookend the Laos 
portion of the GMS's recently opened R3A highway.  These 
modern Chinatowns appear to offer little in the way of 
employment for the local population and are aimed at a 
Chinese clientele.  The concessions and Chinese-financed 
rubber plantations compose the largest share of foreign 
direct investment (FDI) in northern Laos.  While geography 
and demography are likely the main drivers of FDI in the 
northern GMS, political compatibility with the Lao government 
gives Chinese investors another useful edge in northern Laos. 
 
¶3.  (C) Comment:  China's dominant role in FDI across 
northern Laos is unsurprising, considering geography, the 
size of the Chinese economy, and its demand for resources. 
However, the lack of Chinese FDI in northern Thailand 
suggests that politics as well as proximity play a role in 
where the Chinese choose to invest.  Moreover, many Lao and 
Thai who live along the R3A profess a dislike of Chinese 
investments, believing them of little local benefit. 
Cultural affinity between Laos and Thailand, relatively 
inexpensive Lao labor, and abundant Lao natural resources 
make Laos a natural destination for Thai investment.  The R3A 
now offers Thai investors easier access to neighboring Bokeo 
province in 
Laos, and also to previously difficult to reach Luang Namtha 
province, as well as to southern China's Yunnan province 
(whose ethnically similar Dai region already hosts large Thai 
investments).  Although Chinese firms currently provide the 
majority of FDI in Bokeo and Luang Namtha, provincial Lao 
officials and the local population would welcome a more 
balanced mix.  End summary and comment. 
 
------------------------- 
The New Chinatowns: Boten 
------------------------- 
 
¶4.  (C) China is establishing its economic presence in the 
upper Mekong region, primarily in Laos, along the R3A highway 
of the GMS,s North-South Economic Corridor.  Adjacent to 
China's Yunnan province, Luang Namtha province in Laos 
exemplifies China's expanding GMS investment presence.  At 
Boten, the Chinese-Lao border town where the R3A enters Laos 
from China, the government of Yunnan province in the People's 
Republic of China (PRC) has underwritten the establishment of 
a seven square-kilometer 
special economic zone (SEZ), which it describes as an 
opportunity for foreign investors from any country to invest 
and export duty-free from Laos (ref a and b).  This is 
commonly referred to by the Lao as a "Chinese concession." 
Although Luang Namtha province hosts the SEZ, provincial 
planning and investment department officials said that they 
do not count the SEZ as part of their provincial investment 
stock as it is a "special arrangement by the central Lao 
government."  Ref C discusses the 
establishment of the concession in more detail.  About 20 
kilometers from the international border at Boten, where Laos 
is constructing a new customs check-point, a GOL public works 
official said that "We (Laotians) cannot do anything there. 
We cannot even cut down the trees."  The official said he did 
not know the price China paid for the land, but reported that 
two Lao villages were forced to relocate just outside the 
 
VIENTIANE 00000238  002.2 OF 004 
 
 
zone.  According to Houmpheng Souralay, Director General in 
the Department of Direct and Foreign Investment in the 
Ministry of Planning and Investment, the concession agreement 
runs for 30 years. 
 
¶5.  (C) A report on the GMS from the Royal Thai Government's 
(RTG) consulate in Chengdu said that $29.4 million of the 
SEZ's construction costs came from Chinese government 
sources.  The report praised the zone as "a space that will 
help expand various foreign investments in Laos."  The basis 
for the Consulate's analysis is unclear -- the Boten SEZ is a 
modern Chinatown, lacking non-Chinese firms and workers.  The 
anchor location is a dingy Chinese casino, whose patrons are 
middle-class Chinese tourists and whose employees are 
Yunnanese laborers.  In the casino and at most of the 
businesses that 
surround it, Mandarin is the language of choice and the RMB 
is the preferred currency.  U.S. dollars may be used upon 
negotiation, but merchants prefer RMB over Lao kip; by 
company policy, the casino does not accept kip.  There is no 
indication that the zone welcomes any non-Chinese investment. 
 
¶6.  (C) The Customs Director in Luang Namtha stated that he 
believes Chinese officials would like the zone to develop 
into a garment warehouse and production center.  This 
objective makes sense, as Chinese firms currently export 
garments to Thailand via northern Thai ports, often using 
smuggling routes via Burma (septel).  Yunnan provincial 
officials also hope that agro-industry and commodity 
processing will take place in the SEZ.  The Lao customs 
director was optimistic about the zone, saying that it "is 
good for the Lao people."  While some tax revenue is flowing 
to the GOL, repeated visits to the zone indicate that almost 
all employment in the zone is reserved, at least 
unofficially, for Chinese laborers.  DG Souralay told Embassy 
Vientiane that the GOL and the Boten investor have agreed to 
negotiate a new tax rate for the casino in 2009, to replace 
the flat $700,000 paid to the GOL yearly.  The surrounding 
Chinese shops supposedly pay taxes according to Lao law, 
although provincial authorities have previously indicated 
they do not have access to the SEZ to check the companies, 
books. 
 
--------------------------------------- 
The New Chinatowns: The Golden Triangle 
--------------------------------------- 
 
¶7.  (C) At the southern end of the R3A in Laos, about one 
hour from the Thai-Lao border town of Huay Sai in Bokeo 
province, the Chinese company Dokngiewkhan (aka Kingsromans 
Group; www.kingsromans.com with Chinese web pages that appear 
to have additional information) is investing in a similar SEZ 
or "concession" in Ton Pheung district, building a casino and 
a 689 room hotel.  The zone is situated on the banks of the 
Mekong River at the heart of the Golden Triangle, opposite 
the Thai river port of Chiang Saen and a Wa-controlled area 
of Burma.  This zone is over twice the size of the Boten SEZ, 
reportedly measuring 20 square-kilometers.  While merchants 
at the nearby market say that China,s lease on the land has 
a term of 100 years, central government officials say the 
concession agreement 
runs 50 years, starting from its signing in 2007. 
 
¶8.  (C) An immediate similarity with the Boten SEZ is the 
lack of Lao laborers at the site.  During our visit, skilled 
and semi-skilled workers -- such as engineers, welders, and 
supervisors -- were all Chinese.  Low-skilled construction 
workers were either Chinese or Burmese.  According to our 
driver, who takes potential Chinese investors to the site 
regularly, these low-skilled Chinese and Burmese workers are 
illegal.  One Chinese merchant estimated that about 2,000 
Chinese are working at the 
site.  Signage, such as safety policies for workers, was 
exclusively in Chinese.  Similar to Boten, the central 
building being constructed in Ton Pheung is a massive casino 
resort.  Several other buildings, apparently future hotels, 
shopping centers, and warehouses, are also under 
construction; unlike Boten, none of the planned businesses 
are yet open.  At the riverbank, Chinese workers are also 
building a new customs and immigration checkpoint. 
Presumably, the checkpoint will support boat transport 
 
VIENTIANE 00000238  003.2 OF 004 
 
 
between Laos and neighboring Thailand and Burma.  Local 
merchants expect that China will supply a new wave of 
tourists.  Thai immigration officials told us they are 
starting to see increasing numbers of Chinese entering 
Thailand via northern ports, purportedly intending to visit 
relatives who live and work in Mae Sai, the northern border 
town adjacent to Burma.  They also reported that China is 
planning to establish a consulate in Chiang Rai province to 
handle the growing number of Chinese visitors.  (NOTE: China 
already has a Consulate General in nearby Chiang Mai.  END 
NOTE.) 
 
----------------------------------------- 
Chinese Contract Investment Along the R3A 
----------------------------------------- 
 
¶9.  (C) Connecting the two new "Chinatowns," the R3A highway 
is surrounded by FDI, mostly Chinese and in the form of 
contract rubber farming.  According to the Luang Namtha 
planning and investment department, rubber plantations cover 
21,647 acres of land in the province, the vast majority 
financed by Chinese investors.  Of the twenty-one companies 
presently investing in Luang Namtha rubber plantations, only 
three are non-Chinese.  The standard contract, referred to as 
"Three   Two," requires the investing company to provide 
technical advice, seeds, and branding for the rubber, while 
the Lao farmer provides land for the rubber trees and labor 
to raise and tap the rubber.  The deputy director of the 
investment department praised the program for its opium crop 
substitution and poverty reduction mission.  When asked why 
the GOL chose to support rubber as a crop substitute for 
opium versus other 
high-value crops with shorter harvest periods (it takes seven 
years to grow rubber before it can be harvested), the deputy 
director said that the investment in rubber was an order from 
the central GOL and was based on negotiations between the PRC 
and GOL.  The deputy director also indicated he feared that 
local Lao labor would not be sufficient to tap all the rubber 
when it matures.  A German 
citizen, serving as advisor to the investment department, 
expects that in the annual nine months of rubber harvesting, 
beginning in 2011 or 2012, the population of Luang Namtha 
(estimated at 145,00) will double from a flood of Chinese 
labor. 
 
¶10.  (C) The main town on the R3A within Laos is the 
provincial capital city of Luang Namtha.  The city is host to 
other forms of Chinese investment which are also indicators 
of the predominance of the Chinese business presence in 
northern Laos.  The recently constructed Hong Chin hotel and 
adjacent market are both Chinese investments, which locals 
refer to as the "Chinese hotel" and "Chinese market." 
Chinese language signage, the use of RMB for hotel 
transactions, and a "Ni hao" greeting upon arrival suggest 
that Chinese are the expected hotel guests.  At the market, 
most of the goods sold are Chinese produced and several of 
the merchants were Yunnanese. 
 
--------------------------------------------- -------------- 
Thai Investment in Northern Laos: Wanted, But Still Minimal 
--------------------------------------------- -------------- 
 
¶11.  (C) Most Laotians along the R3A with whom we spoke had 
disapproving attitudes toward Chinese investors, considering 
them untrustworthy and cunning in their business techniques. 
The Lao seemed eager for more Thai investors in northern 
Laos.  Along the southernmost Thai-financed portion of the 
R3A highway, a large Thai-owned coal mine serves as the 
exemplary case of a "good foreign investor" in northern Laos. 
 The mine began in 1994 and has 300 employees.  Unlike the 
two SEZs at Boten and Ton Pheung, the workers are Lao.  In 
addition to providing work to locals, the mine company also 
engages in community outreach, including the donation of a 
new school, medical services, and new equipment for local Lao 
government agencies.  One Lao employee praised the company 
for providing job opportunities for local people and raising 
incomes. 
 
¶12.  (C) A Lao mine representative said that the mine and 
some agricultural contract farming funded by CP, a Thai 
agro-industry firm, are the predominant Thai investments in 
 
VIENTIANE 00000238  004.2 OF 004 
 
 
northern Laos.  He also said that the investment market in 
northern Laos is ripe for more Thai participation, especially 
given the linguistic and cultural similarities between Laos 
and Thailand, the local desire for Thai investment, and the 
ease of developing strong trust relationships between 
culturally similar business partners.  He believes the reason 
Chinese investors dominate northern Laos is that they begin 
their investment 
at the central government level, whereas Thai investors 
explore opportunities on an individual basis and work 
directly with local land owners and governments. 
 
--------------------------------------------- - 
Little Chinese Investment in Northern Thailand 
--------------------------------------------- - 
 
¶13.  (C) If geographic and political proximity facilitates 
China,s investment into Laos, the cooler political 
relationship between the PRC and RTG, and the lack of a 
contiguous border, help explain low levels of Chinese 
investment in northern Thailand.  While China,s investment 
dominates northern Laos, only nine Chinese investment 
projects have been declared to the Board of Investment in 
northern Thailand, which covers the eight northernmost 
provinces.  The value of these nine projects is only about 
$4.6 million, which is concentrated in agriculture and light 
industry.  Thai immigration and customs officials claim 
Chinese investment is likely larger, but that it is hidden as 
domestic investment because male Chinese investors often 
marry Thai women (many of whom are of ethnic Chinese origin) 
and classify their investment under the wife's name. 
 
¶14.  (C) While China,s investment interest in northern 
Thailand remains low, Thai investors see promise in the 44 
million people located in China's Yunnan province.  According 
to the Thai MFA, at the end of 2007 140 Thai investment 
projects were declared in Yunnan, with a total value of $77.4 
million.  The two most notable projects are the Xishuangbanna 
Jing Hong Industrial Estate and agricultural investment by 
the Thai agro-industry firm CP.  The dominant ethnic group in 
Xishuangbanna is the Dai, 
ethnically and culturally similar to the Thai and Lao, a 
factor that has facilitated Thai investment.  According to 
the Government Relations Director of the industrial estate, 
other Thai companies are actively expressing interest in 
investment projects in Yunnan, including frozen foods and 
energy drink firms.  The Director told us by phone that he 
also sees investment opportunities in electronic parts 
production, food processing, and rubber production for Thai 
firms in Yunnan. 
HUSO