Much has been written on the competition for influence in Southeast Asia among the Great Powers, particularly the United States and China, and how Beijing has made significant inroads in this respect over the past few years. However, in at least one Southeast Asian country – Laos – the competition for influence is not between the U.S. and China, but between historic rivals China and Vietnam. The United States is not a major player in Laos – its interests are narrowly focused on resolving Prisoner of War/Missing in Action (POW/MIA) issues left over from the Vietnam War, and securing Laotian cooperation in the “war on terrorism.” In fact, until December 2004 Laos was one of only three countries (the other two being North Korea and Cuba) denied Normal Trade Relations (NTR) with the United States. Although Japan is the largest provider of aid to Laos, it has not translated this largesse into political influence.
The Lao People’s Democratic Republic (LPDR) is a small, underdeveloped country situated in the heart of mainland Southeast Asia. As the only landlocked country in the region, it is bordered by China, Vietnam, Thailand, Burma, and Cambodia. Subsistence farming employs more than 80 percent of its 5.7 million people, reducing Laos to the status of one of the poorest countries in Asia. Laos is ranked 135th in the United Nation’s 2004 Human Development Index of 177 countries, the lowest of any member of the Association of Southeast Asian Nations (ASEAN), which Laos joined in 1997. The LPDR has a per capita income of around $300.
Laos is one of only five remaining communist countries in the world. Since its foundation in December 1975, the LPDR has been ruled by the Lao People’s Revolutionary Party (LPRP). For the first decade of its existence, Laos had a “special relationship” with Vietnam which was built on the close links forged between the LPRP and Vietnamese Communist Party (VCP) in the 1930s. These links enabled Hanoi to exercise a controlling influence over the Lao communist movement during the “thirty years struggle” (1945-1975), despite the fact that Beijing essentially underwrote the Pathet Lao’s (the LPRP’s military wing) war effort.  In 1977, Laos and Vietnam entered an alliance which caused severe strains in Lao-PRC relations. These strains were exacerbated in 1978 when Laos supported Vietnam’s occupation of Cambodia.
From the mid-1980s, however, Laos sought to decrease its dependence on Vietnam by reaching out to the United States, China, and ASEAN countries. Vientiane’s motive was primarily economic: aid from the USSR and Vietnam was drying up, and Laos looked to more economically advanced countries to help rejuvenate the moribund economy. In the post-Cold War era, three countries dominate Lao foreign relations: Vietnam, Thailand, and China.
Although Vietnam is no longer the cornerstone of Lao foreign policy, close personal relations between Laotian and Vietnamese leaders have ensured the survival of the “special relationship.” It was Hanoi that enabled the LPRP to achieve power, something elderly LPRP cadres are not apt to forget. Although the 1977 alliance was allowed to lapse in 2002, the two countries continue to maintain close security links. Vietnam is also Laos’ second biggest trading partner.
Thailand’s interests in Laos are predominantly economic. Prior to the 1997 Asian Financial Crisis, cultural and linguistic advantages enabled Thailand to establish itself as Laos’ primary economic partner. However, this situation was not met with unbridled enthusiasm by the Lao government, which feared becoming over-dependent on the Thai economy. These fears proved prescient; when the Thai economy buckled in mid-1997, the ripple effect on Laos in terms of lost trade and investment was severe. Nevertheless, Thailand remains Laos’ leading trade partner, taking nearly 50 percent of its exports. But Bangkok’s political influence is limited since Laotians perceive Thais to be overbearing and arrogant, and Lao nationalism tends to orient itself against Thailand.
In 1988, Beijing and Vientiane normalized relations, and since the Asian Financial Crisis China’s profile in the LPDR has increased considerably. China’s interests in Laos are threefold. The first is China’s strategic imperative of fostering close relations with all countries along its borders. Beijing’s ultimate aim is to displace the political influence of other countries in Laos, primarily Vietnam but also Thailand. Second, Laos’ geographic position makes it a useful conduit through which Chinese goods from its Southwest provinces can flow into the Thai market. Since 2000, Beijing has paid special attention to the development of Laos’ transportation infrastructure, particularly highways linking China with Thailand. Vientiane itself has been keen to promote itself as a “landlinked” country rather than a landlocked one, though it recognizes that China and Thailand stand to gain the most. Third, the PRC has expressed a strong desire to increase imports of natural resources from Laos, including timber, iron ore, copper, gold, and gemstones.
In 1997, Laos urged China to help bail out the economy by increasing aid, trade, and investment. China – largely insulated from the effects of the economic crisis – saw its chance to increase its influence over Vientiane and responded positively with a series of bilateral agreements covering economic and technical cooperation, investment and banking, and infrastructure development. Generous export subsidies and interest-free loans provided by Beijing enabled Laos to stabilize the value of its currency during a crisis in 1998-1999. President Jiang Zemin’s visit to Laos in November 2000, the first by a Chinese head of state, was emblematic of China’s newfound relationship with the LPDR. Since then, the two countries have regularly exchanged high-level visits.
According to the Asian Development Bank (ADB), Lao-China two-way trade grew from $33.1 million in 1990 to $118.3 million in 2003, much of it in China’s favor.  This makes China Laos’ third biggest trade partner, though these figures almost certainly underestimate the large and lucrative cross border trade which remains off the books. According to China’s Xinhua News Agency, Beijing’s financial assistance to Laos during 1988-2001 amounted to $1.7 billion.  In June 2003, Beijing agreed to cancel much of this debt. In 2004, the government controlled Vientiane Times put total PRC investment in Laos since 1988 at $342 million, placing it among the top three foreign investors.  The economic importance of China to Laos was underlined at the LPRP’s Seventh Party Congress in 2001 when Prime Minister Boungnang Vorachit pledged to halve the number of people below the poverty line from two to one million and triple per capita income to $1,200-1,500 by 2020 – in order to achieve these targets Boungnang highlighted the need to expand economic ties with China. 
China’s future economic role in Laos will expand for three reasons. Firstly, China’s voracious appetite for Laos’ natural resources. Secondly, Lao goods cannot compete with cheaper Chinese goods in the domestic market. Thirdly, since Laos’ opening up to the outside world, it has relied heavily on economic aid from countries like Japan, Sweden, France, and Australia, as well as multilateral agencies such as the World Bank, IMF, and ADB. Donor fatigue is beginning to set in as the Lao government resists pressure to fundamentally reform the country’s legal, financial and, most sensitively, political systems. The PRC, on the other hand, provides aid to Laos without calling for major reforms that would loosen the LPRP’s control over the political and economic life of the country.
China and Vietnam are strategic competitors for influence over Laos. For the present, the personal ties between senior LPRP and VCP leaders ensure that Hanoi maintains the upper hand in terms of political influence. But this situation will not last forever. Once senior LPRP leaders pass from the scene, Vietnam’s influence will diminish accordingly. The next generation of LPRP cadres has little direct experience of the revolutionary period that brought the party to power, and the crucial role Vietnam played in its success. The beginnings of a generational shift are already underway, and the Eighth Party Congress scheduled for 2006 may see the retirement of a cohort of elderly leaders. While talk of “pro-China” and “pro-Vietnam” factions within the party is almost certainly overplayed (the LPRP looks to both countries for aid, trade, and investment), it is true to say that fraternal feelings toward Vietnam are much stronger among the older generation than the younger generation.
China can offer Laos everything Vietnam currently provides plus much more. Obviously China’s economy is much larger than Vietnam’s, and its gravitational pull on Laos is enormous. China’s “soft power” is also growing. Increasingly, LPRP cadres are traveling to China to attend seminars on how to transition from a command to “socialist market” economy – something China has much more experience with than Vietnam. The Chinese government has substantially increased the number of scholarships available to Laotians to study at Chinese universities. Lao-PRC military-to-military ties are also expanding, with more Laotians undertaking officer training in the PRC, and China is in a much better position than Vietnam to help modernize the cash-strapped Lao armed forces.
In the competition for influence over Laos, China has adopted a long-term strategy. Beijing is prepared to wait until the older generation of LPRP leaders with strong fraternal bonds to Vietnam fade from the political scene. In the meantime, China nurtures younger LPRP cadres through its large diplomatic presence in Vientiane and by bringing members of the Lao elite to the PRC to undertake ideological, vocational, and military education. At the same time, Beijing carefully targets its aid programs in Laos to achieve maximum effect with minimum resources. Thus, China has financed high-profile initiatives such as civic beautification projects in central Vientiane and a $7 million cultural center. Perhaps it is no coincidence that this lavish building now hosts LPRP party congresses.
Laos’ failure to achieve economic self-sufficiency since colonial times has reduced it to the status of perpetual mendicancy. 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.