Under colonial rule, the French had a policy of keeping Chinese immigrants out, bringing in Vietnamese instead to run the shops and make the economy tick.
When Laos went communist in 1975, the few Chinese residents there fled the country for greener pastures. And during the Cold War, when Laos was a Soviet satellite, relations with mainland China were cool.
Since 1986, with the crumbling of the Soviet bloc and the forced opening of the Lao economy, Sino-Lao relations have warmed considerably.
China's development aid to Laos now amounts to more than 280 million dollars. Beijing built the Cultural Centre for Vientiane a few years ago and is currently putting up the Sports Stadium (employing 3,000 Chinese workers) in preparation for the South-East Asian Games, which Vientiane will host in 2009.
China is also building the highway that will eventually link Yunnan province to Thailand via Laos.
More than just Chinese aid money is flowing into Laos, a country half the size of France with only 6.5 million people.
Between 2001 to August 2007, Chinese foreign direct investment in projects approved by Laos' Committee for Planning and Investment (CPI) amounted to 1.1 billion dollars, second only to Thailand's projects worth 1.3 billion.
Last fiscal year, ending on September 30, Chinese companies accounted for the lion's share of the 1.1 billion dollars worth of FDI approved. Of the 117 projects approved by the Committee of Planning and Investment, 45 were Chinese projects worth 462 million dollars. About 32 per cent of the Chinese investment was in hydropower.
Besides investments in hydro-electric plants, Chinese companies are also investing in mining, rubber plantations, telecommunications, construction materials, hotels and restaurants.
On August 8, Chinese investors opened the "China Market" near the airport, now one of the biggest shopping malls in the capital. Chinese merchants man the stalls and Chinese goods are on sale.
The huge increase of investments in mining and hydro-power plants by Chinese and other companies has led to a two-year moratorium on new concessions.
"We have stopped handing out new mining licenses for the past year," said CPI vice president Bounthavy Sisouphanthong. "That was out of concern for the environment, and also a feeling that the government needed to negotiate better."
Laos has handed out more than 140 mining concessions in recent years, many to Chinese looking for gold, copper, iron, potassium and bauxite.
Some of the proposed projects are massive.
For instance, Australia's ORD Rivers Resources has joint ventured with China's Nonferrous Metals International Mining Co., Ltd (CNMIM) to develop a 727-square-kilometre concession on the Bolaven Plateau in southern Laos into one of the world's largest bauxite mines.
Such concessions are hard to secure in Laos without a Chinese partner.
"It's political," said Vinay Inthavong, a Lao entrepreneur and chairman of the Vico Group. "If the leadership wants to stay in power they have to support China and Vietnam."
It may also be monetary.
There are rumours of considerable "leakage" at Chinese government-financed projects.
For example, the EXIM Bank of China provided a 75-million-dollar loan to one hydro-power plant, a joint venture between a Chinese enterprise and the Lao government, that allegedly only cost 45 million dollars to construct, according to a consultant who worked on the project. Nobody knows where the remaining 30 million got to.
More worrisome are the vast tracks of land Laos has farmed out to China on its northern border and Vietnam on its eastern border for rubber plantations.
"The border provinces are not Laos anymore," said one European businessman who travels to the north frequently. "They are under foreign economic control."
There is an element of Chinese migration in the investment surge. According to Chinese embassy sources in Vientiane the number of Chinese officially living in Laos is 30,000. The unofficial number is estimated at ten times that.
Beijing has asked Laos to allow another 2,000 to 3,000 Chinese families to live and work in the country, informed sources said.
Such is the plight of a land-locked, sparsely populated country, surrounded by three bigger neighbours - China with 1.3 billion people, Vietnam with 80 million and Thailand with 65 million.
"Of course we are concerned," said CPI's Bounthavy. "I compare us with a small boat in a rough sea."//Peter Jansen - DPA
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