How a Chinese company took control of an entire nation’s electrical grid

Sep 30, 2020

It’s hardly surprising that Laos is under China’s sway.

The former is a mountainous nation of 7 million people, mostly farmers, with an economy smaller than that of Mobile, Alabama. It sits next to a superpower soon to possess the largest economy in human history.

In the past decade or so, China, via its vast network of state-run companies, has brought a development blitz to Laos. Think highways and train lines, gold mines and rubber plantations, and hydropower dams tapping the flow of the Mekong River.

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Now, add to that — control of the entire nation’s electrical grid. Under a new deal, majority control of the grid will belong to a state-run firm called China Southern Power Grid.

Even for economists used to tracking China’s rising influence, this is a startling turn.

“If you allow a foreign country to control your national grid, that will be a serious problem. If anything happens to the national grid, for example, the whole country will be blacked out.”

 Le Hong Hiep, Institute of Southeast Asian Studies, scholar

“If you allow a foreign country to control your national grid, that will be a serious problem,” said Le Hong Hiep, a scholar with the Institute of Southeast Asian Studies in Singapore. “If anything happens to the national grid, for example, the whole country will be blacked out.”

That is the specter raised by this deal: that Chinese apparatchiks will hold ultimate leverage over its comparatively tiny neighbor. It is certainly hard to negotiate fairly with a party who can dim the lights in all of your villages and cities, not to mention your military bases.

Laos, like China, is run by a single authoritarian party that is communist, at least in name. At the very least, Hiep says, Lao officials are placing an incredible amount of trust in its patron. He said this deal signals that “for Laos, they value development over security.”

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Laos is already deeply entangled with China. The country owes a staggering debt to Beijing — nearly half of its gross domestic product, according to one estimate — and this is something “something that’s very worrying,” Hiep said. “If this trend continues, I think Laos will definitely become the next victim of China’s debt trap.”

The concept behind China’s “debt trap,” a popular notion among Western analysts, is this: China offers to build a megaproject in a foreign country, plunging its government into horrible debt until it must degrade its sovereignty by, say, selling off a critical piece of the country.

These fears swirl around China’s Belt and Road mission, purporting to pour some $1 trillion into building overseas ports, train lines and more — all to stitch together countries around the world.

China hails it as a civilizational breakthrough while critics call it “loan sharking." (Other analysts say this development spree is actually too chaotically executed to constitute some sinister plot.)

What China is doing in Laos is certainly not some malicious scheme, says Toshiro Nishizawa, a policy scholar at the University of Tokyo.

He says it’s just business.

“It is very easy for people who do not know much about Laos or other countries in Asia to say, ‘Oh, China is the bad guy.' But that is too simple.”

Toshiro Nishizawa, University of Tokyo, scholar

“It is very easy for people who do not know much about Laos or other countries in Asia to say, ‘Oh, China is the bad guy,’” he said. “But that is too simple.”

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Nishizawa has worked as a policy adviser to the Lao government, namely offering guidance on fiscal stability. Peer into the finer details, he says, and you will understand why Lao politicians gave up so much control over their national grid.

The Lao government has long touted itself as a potential “battery” for Southeast Asia and allowed its prime river, the Mekong, to take on dams that generate electricity.

Its larger vision is not well-loved by environmentalists. But it imagines Laos, with up to nine operational dams in the future, selling loads of electricity to neighboring countries — such as China, Thailand and Vietnam — and raking in foreign cash. (Several dams are already up and running, enough to radically alter the flow of the river.)

But Laos is currently a battery without enough extension cords. It needs more transmission lines running from its power grid over hilly borders to those more affluent countries, which crave more energy to fuel their rising economies.

Building those transmission lines requires financing and expertise — and China has both. Nishizawa scoffs at the notion that China would ever cut off the lights in Laos.

“Why would they do that? What is the benefit?” he said. Shaking down Laos like a mafia don would only poison China’s image in every other country with which Beijing does business.

“I don’t think China is stupid enough to create that sort of tension. Their approach is more pragmatic.”

Toshiro Nishizawa, University of Tokyo, scholar

“I don’t think China is stupid enough to create that sort of tension,” Nishizawa said. “Their approach is more pragmatic.”

Chinese firms would prefer the Lao power grid to make lots of money — money that can pay down the country’s whopping debt to Beijing.

Even Hiep, who is more skeptical of China’s motives, conceded that “there are not many good options for Laos.” No other nation is willing to match China’s investments. Certainly not the United States, which currently has a “weak commitment to the region” of Southeast Asia, Hiep said.

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The last time America was focused on Laos, it brought unimaginable terror and violence. Laos is the most heavily bombed nation, per capita, in the world. This grim superlative is owed to a US bombing campaign during the 1960s and ’70s that sought to prevent Laos from becoming a communist state.

The mission failed. Laos is a communist state. And its citizens are still getting maimed by unexploded American bomblets buried in the mud.

Lao politicians are indeed quite worried about paying off their debts, Nishizawa says, though they also realize the heavy presence of China is inevitable.

This may explain why they’re willing to cede more autonomy over their power grid, banking on hopes that it will churn up more money and burn off some of that debt. But no matter what, there is almost no realistic scenario in which China has little sway in Laos — especially with so many expensive, state-backed projects already under construction.

The deals have been inked. The debt is there. “No one can stop it,” Nishizawa said. “We cannot change the course of action.”

From The World ©2019