Good neighborly ties usher in sea changes

Landlocked countries, which account for half of the least developed countries in Asia and nearly 40 percent in Africa, face a formidable obstacle in their economic development: the lack of maritime connectivity. Access to the sea is crucial as many landlocked countries rely on overseas markets. Since they can access the ocean only through other countries, friendly relations with neighbors and efficient transportation routes to the sea are essential for economic progress.

Although the Lao People's Democratic Republic has maintained friendly relations with all its neighbors, the only maritime access route that provided tangible economic benefits until recently was the one through Thailand, thanks to its favorable geographic conditions.

Access to China and Vietnam is blocked by mountainous regions that stretch for hundreds of kilometers. The Mekong River route through Cambodia, which holds great promise, is blocked by an impassable 10-kilometer-long waterfall.

Even the European powers that colonized Laos found it difficult to overcome these natural obstacles.

Dependence on the Thailand route led to rapid urban development near the Thai border, while other regions of the country struggled, posing a persistent challenge for the Lao economy.

However, China's economic growth helped break through these major natural barriers to connectivity. Driven by China's rapidly growing economic power, trade across the mountainous regions gradually picked up in the 1990s.

The China-Laos Railway, inaugurated in December 2021, was the gamechanger that ushered in a new phase in overcoming Laos's landlocked status.

Despite predictions by many experts that it would be of little use, the China-Laos Railway has achieved its targets for both passenger and freight trains well ahead of schedule.

For landlocked Laos, China's rise and improved connectivity with the country offer three major advantages. First, with a major global market now available next door, Laos can engage in trade without taking the maritime route.

Although it may be an upper-middle-income country in many people's eyes, China has become a major global market due to its sheer scale. If China becomes a high-income country in the near future, as widely predicted, it will present unprecedented opportunities for the Lao economy.

Second, improving connectivity with China, often referred to as the "world's factory", presents a significant opportunity for Laos to gain a foothold in global supply chains. Laos' relationship with global supply chains till now has centered primarily on the "plus-one" model, which involves indirect participation through neighboring countries.

The transport costs of shipping semi-finished goods back and forth to landlocked Laos further diminished the country's appeal as an industrial location. But the China-Laos Railway network has changed the situation for the country.

Third, improved connectivity between China and Laos has implications that extend beyond bilateral relations. Laos is the only country among the five Mekong countries that has land access to all of them as well as to China.

Improving connectivity with China and other neighboring countries will enhance Laos' position in connectivity networks between the Mekong region, ASEAN and China.

However, the "peer effect" — the idea that a landlocked country will grow faster if its transit neighbor experiences rapid growth — does not automatically apply.

Unless people communicate, exchange information, and make efforts to learn through the physical connections they have established, the peer effect is unlikely to occur.

In other words, people-to-people connectivity, such as cultural, educational, and professional exchanges, is essential.

Although evidence of peer effects has begun to emerge, with higher-than-average growth rates in many northern provinces closer to China or along the railway, greater efforts are necessary for these regions to fully capitalize on their potential.

The author is a senior economist at the Research Institute for ASEAN and East Asia.

The views don't necessarily reflect those of China Daily.

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