Development and Infrastructure

Stephen DeAngelis

April 10, 2008

In my discussions about Development-in-a-Box™, I have stressed the importance of infrastructure in critical areas such as transportation, telecommunications, healthcare, and finance. China, who as everyone knows is frantically building its own infrastructure, is helping its neighbors build infrastructure that connects them with China [“In Isolated Hills of Asia, New Roads to Speed Trade,” by Thomas Fuller, New York Times, 31 March 2008]. Normally when people think about international connectivity they think about telephones, fiber-optic cables, satellites, etc. But connectivity of all sorts, including simple things like good roads, can make a big difference to a country’s future. Fuller begins his article in Laos.

“The newly refurbished Route 3 that cuts through this remote town [of Luang Namtha, Laos] is an ordinary strip of pavement, the type of two-lane road you might find winding through the backwoods of Vermont or sunflower fields in the French provinces. But On Leusa, 70, who lives near the road, calls it ‘deluxe.’ As a young woman she traded opium and tiger bones along the road, then nothing more than a horse trail. On [31 March], the prime ministers of Cambodia, China, Laos, Myanmar, Thailand and Vietnam … officially inaugurate[d] the former opium smuggling route as the final link of what they call the “’north-south economic corridor,’ a 1,150-mile network of roads linking the southern Chinese city of Kunming to Bangkok.”

To appreciate the significance of this advance, one must understand the historical tension that has existed for centuries (possibly millennia] between the countries of Southeast Asia and their colossal neighbor to the north. In the past, political leaders would have been concerned with constructing barriers between China and countries in the region instead of with new roads.

“The network, several sections of which were still unpaved as late as December, is a major milestone for China and its southern neighbors. The low-lying mountains here, the foothills of the Himalayas, served for centuries as a natural defensive boundary between Southeast Asian civilizations and the giant empire to the north. The road rarely follows a straight line as it meanders through terraced rice fields and tea plantations. Today, those same Southeast Asian civilizations alternately crave closer integration with that empire and fear its sway as an emerging economic giant. China, in turn, covets the land, markets and natural resources of one of Asia’s least developed and most pristine regions. With trade across these borders increasing by double digits every year, China has helped construct a series of roads inside the territory of its southern neighbors. The Chinese government is paying half the cost of a bridge over the Mekong River between Laos and Thailand, due for completion in 2011.”

As Fuller notes, China is not assisting its neighbors in Southeast Asia out of a sense of altruism. China’s leaders foresee a good return on investment for their support.

“[China] financed parts of Route 3 in Laos and refurbished roads in northern Myanmar, including the storied Burma Road used by the Allies in World War II to supply troops fighting the Japanese. China is also building an oil and gas pipeline from the Bay of Bengal through Myanmar to Kunming. Taken together, these roads are breaking the isolation of the thinly inhabited upper reaches of Laos, Myanmar and Vietnam, areas that in recent decades languished because of wars, ethnic rivalries and heroin trafficking. The roads run through the heart of the Golden Triangle, the region that once produced 70 percent of the world’s opium crop.”

Clearly, Chinese leaders are not opening these roads with the anticipation that they will mainly carry drugs into the country. According to Fuller, they are actively monitoring the road to ensure that doesn’t happen.

“The Chinese spent $4 billion building the highway from Kunming to the border. One particularly difficult stretch of road required the construction of 430 bridges and 15 tunnels. That portion of the road is also monitored by 168 cameras centrally controlled by highway department officials who watch for elephants — there are an estimated 275 in the area — and other stray animals. The cameras also assist the police in catching suspected criminals. ‘We’ve helped solve 130 cases of drug smuggling, robberies and murder,’ boasted Zhang Zhulin, director of the Chinese segment of the expressway, which opened in April 2006.”

What China hopes to seeing flowing along the road is raw material coming into China and manufactured goods flowing out of China into Southeast Asia. The infrastructure, Fuller reports, is already having an impact in the area.

“The new roads, as well as upgraded ports along the Mekong River, are changing the diets and spending habits of people on both sides of the border. China is selling fruit and green vegetables that favor temperate climates to its southern neighbors, and is buying tropical fruit, rubber, sugar cane, palm oil and seafood. ‘You never used to see apples in the traditional markets,’ said Ruth Banomyong, an expert in logistics who teaches at Thammasat University in Bangkok. China has blasted shallow sections of the Mekong to make it more easily navigable for cargo barges, allowing traders to ship apples, pears and lettuce downriver. The price of apples in Thailand has fallen to the equivalent of about 20 cents apiece from more than a dollar a decade ago. Roses and other cut flowers from China have displaced flowers flown in from the Netherlands, making Valentine’s Day easier on the wallet for Thais. Traders now have the choice of shipping by barge, truck or both. Overall, even before the completion of the road, trade between China and the upland Southeast Asian countries Cambodia, Laos, Myanmar, Thailand and Vietnam had risen impressively, to $53 billion in 2007 from just over $1 billion a decade ago. People are on the move as well. Wang Suqin, the director of express services at the Kunming bus terminal, says Chinese tourists are eager to travel overland to Thailand.”

That pretty well demonstrates the benefits of globalization (the movement of goods, capital, and people). As elsewhere when globalization gains purchase in a area, not everyone is pleased.

“The road also excites old fears of the monolith to the north. Preecha Kamolbutr, the governor of Chiang Rai Province, in northern Thailand, said it might exacerbate what he calls a ‘Chinese invasion.’ He is particularly concerned for Laos, he said, an impoverished country the size of Britain but with a population of just 6.5 million. ‘Chinese businessmen come in with their own capital, their own workers and their own construction materials,’ the governor said. ‘I fear that in the future the Lao people might feel that they’ve been exploited. They will feel they’ve been invaded.’ For now, those fears do not appear to be shared by many Laotians. Residents of the sparsely populated Luang Namtha Province said they welcomed visitors and were counting on an influx of Chinese, Thais and others to help raise their incomes. Alinda Phengsawat, the head of tourism planning in the province, said the road would bring visitors to what has been a very remote part of the country.”

Some Laotians are concerned that political leaders who are encouraging the Chinese “invasion” are mortgaging the country’s future instead of developing it.

“Cash-strapped Laos is encouraging Chinese investment by handing out what it has plenty of: land. Deputy Prime Minister Somsavat Lengsavad has said the government will trade ‘land for capital.’ The government recently gave a Chinese company a 50-year renewable lease for a large swath of prime land outside the capital, Vientiane, in exchange for the building of a sports stadium. Here in Luang Namtha, a Chinese company has been given 30-year rights to build and operate what is being called, perhaps euphemistically, the Bo Ten Economic Development Zone. The main draw so far is not the factories or warehouses typically associated with these zones but a casino, which is off limits to Laotian gamblers, according to Ms. Alinda.”

Of course, Laotian politicians are hoping that long-term investment by Chinese companies will ultimately result in job creation and improved wages. They want to see manufactured goods, not just raw materials, heading north into China. The initial metrics look promising. They will need to remain good because the road will require maintenance and law enforcement and both take money. Fuller reports that the road is like a human magnet. People who have been long isolated in the interior of Laos now bring their agricultural products to the roadside to sell. For them the road is not just a way to market, it is the market. It provides them with opportunities to improve their lives that never before existed. It may well change their traditional way of life — for good and ill. On the whole, however, I believe that connectivity improves lives and increases opportunities.