Trade
What next for Laos’ growth strategy?
Author: Souknilanh Keola, IDE-JETRO
The economic growth trend in Laos started when it first opened to foreign trade and investment in the early 1990s. Three major economic crises have hit Laos since, profoundly affecting the country’s growth strategies.
Laos is a landlocked country whose substantial interaction with the outside world is carried out through Thailand, one of its immediate neighbours. Trading with or through Thailand to the west had long been the most economically efficient route for geographic and historical reasons. Most cities in Laos are also distributed along the western border with Thailand, making trading westward simply more efficient. The formalisation of trade and investment westwards in 1989 was a pragmatic reverse of the stagnant attempts to establish an alternative connectivity eastward via Vietnam since 1975.
Trade westward brought sustained economic growth to Laos until the Asian financial crisis hit the country in 1998. Laos was struck much harder than neighbouring Thailand. The heavy impacts came from the drastic drop in investment from Thailand and high inflation caused by a steeper depreciation of the Lao Kip against the Thai Baht compared to the US dollar, sharply reducing its capacity to import. Laos realised it needed to secure alternative linkages with the world.
Laos quickly wrapped up preferential trade agreements with Vietnam and China in the early 2000s that aggressively slashed tariff and non-tariff barriers. This move paid off, coinciding with the rise of China. Both exports and imports with China increased from less than 1 per cent in 2000 to about 10 per cent in 2008. Investment from China quickly constituted a major portfolio of foreign direct investment (FDI) into Laos. The economy remained almost unaffected by the global financial crisis in 2008. China’s Belt and Road Initiative accelerated the development partnership.
COVID-19 has become the third crisis. Before 2020 foreign tourists and remittances accounted for about US$1 billion in annual foreign exchange revenue. The statistics reveal a mixed reality for cross-border movements of goods. While imports from Thailand between January and November 2020 declined by 13 per cent compared to 2019, exports increased by 6 per cent. Transit goods from Thailand to Vietnam decreased by about 20 per cent but increased by around 13 per cent from Vietnam to Thailand. Transit goods from Thailand to and from China increased by about 8 per cent and 34 per cent, respectively.
Construction rail and motorways continued almost without disruption. A 109-kilometre long dual-carriage highway linking the capital Vientiane and Vang Vieng began in 2019 and was completed under lockdown ahead of schedule. Construction of a further 137 kilometres linking to the former capital of Luang Prabang was approved in December 2020. This construction will boost tourism. The completion of a 200-kilometre highway to Boten, the border with China, will secure another linkage in addition to the current one via Thailand.
The heavy debt surrounding the development partnership with China is still a source of concern. The scale of some projects is so large that parts of them may put unmanageable pressure on Laos’ financial position, especially during economic crises. Laos still decided to take the risk because of its high growth target within a fixed time frame. In its 2030 vision, Laos aims to quadruple per capita GDP between 2016 and 2030. An annual investment of around 30 per cent of GDP is required to achieve this target.
But economically profitable investment opportunities are limited given the size and distribution of the population. Labour-intensive FDI in the garment industry levelled out quickly because of the low population density, scattered over a relatively large and difficult landscape. The relatively high growth since 2000 has been mostly propelled by a rapid expansion of natural resources and hydroelectric power exports, as well as steady increases in foreign tourist arrivals. Attracting FDI into these sectors in Laos was not easy. The impact on the environment and local communities are major concerns accompanying natural resources and hydropower developments, while dependency on foreign tourists and accessibility are the challenges of the tourism industry. China is currently the only country with the capacity and willingness to fill present supply and demand gaps needed for continued rapid growth in Laos.
The annual growth target has been revised down substantially, from around 8 per cent to 4 per cent, in the next five-year plan…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
- Gordonstoun Severs Connections with Business Led by Individual Accused of Espionage for China
- China Dismantles Prominent Uyghur Business Landmark in Xinjiang – Shia Waves
- China Expands Nationwide Private Pension Scheme After Two-Year Pilot Program
- How a scandal over sanitary pads is shaping feminist activism in China
- Yakult Unveils Restructuring Plans for Its China Operations | ESM Magazine
- Italy’s Strategic Shift Towards China After Exiting the Belt and Road Initiative