Written by Mekong Institute

Luang Namtha, a province of Lao PDR, shares borders with China. Hence, Chinese investment has been expanding to Luang Namtha province in agricultural sector and service sector. Even though, there are five districts in Luang Namtha province, Namtha district is enjoying the most active investment and was chosen to be the bureaucratic center. Hence, this article focuses on investment in service sector especially Chinese investment in Namtha district and on determining the response of Lao government on both central and local government to Chinese investment. The data was collected through participant observation by being a customer in Chinese investment places, by semi-structural interview, and by reviewing involved documentaries and researches.  

The result showed that there are key factors that considerably affect the investment decision of the Chinese investors in Namtha district. These factors are as follows: first, the political factor that is the Chinese government policy to northern Lao PDR as the opium replacement policy; second, the economic factor that is higher income from the investment and cost reduction because of changes in location; third, social factor that is infrastructure development and peaceful community in Namtha district; fourth, geographical factor that is the distance between Namtha district and China where Chinese investors can import products from China to Namtha district through international checkpoint and local checkpoint; and lastly, the fact that import products from China are exempted from tax. Since Chinese investment in service sectors have been expanding in Namtha district, this has positive and negative effects. There are more income resources for local people but it has changed their way of life, especially that of teenagers in local community. Teenagers, even younger than 18 years old were allowed entry to the clubs which generated a lot of noise pollution affecting residential areas.

From these impacts, the response of Lao’s government is a strategic plan formulated through the 5th Socio-Economic plan and an investment law. It also allowed the local government to make a decision on general investment in order to lower difficulties. The roles of local governments allow Chinese investment in general business, registering legal entities, supporting one-door policy in provincial level, and withholding the general business. For the future trend on Chinese investment in service sector, there will be a continuing expansion as long as Lao’s government supports Chinese investment in agricultural sector and tourism.

However, Lao’s government faces some challenges such as the lack of budget to divide land between Chinese investors. This is also a negative impact towards natural resources and in the preservation of Lao culture from globalization.

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