Will Laos’ economic zones boost growth or bring in criminals?


BOTEN, Laos — Lae joked with her 12-year-old daughter, feeding her sticky rice with chili paste aboard a high-speed train barreling through northern Laos’ rugged landscape on its way to the Chinese border. The cheery conversation took a darker turn when they’re asked about their destination – Boten.

“The town belongs to them,” Lae said, referring to the Chinese investors running a special economic zone (SEZ) at the train’s final stop, where she was visiting a childhood friend for the day.

“Boten is famous for child trafficking,” her daughter Ellie warned. “They take young Lao girls to China.”

The Boten SEZ, nestled next to China’s Yunnan province, has cycled through periods of boom and bust over the past two decades, enjoying a heady period in the late 2000s as a lawless casino town before Chinese authorities forced its closure.

Today, with its location on Laos’ new China-funded $5.9 billion railway, investors are seeking to reinvent the town of a few thousand, which runs on Beijing time, as a cross-border commerce hub. Experts, however, say the project is built on shaky economic foundations and vulnerable to another criminal pivot.

It’s one of several Chinese-run SEZs carved out of the landlocked country’s borderlands, some of which have earned reputations for unchecked criminality. The most infamous is the Golden Triangle SEZ, a self-governing enclave built around the Kings Romans Casino on the banks of the Mekong River in northern Laos, 280 kilometers from Boten.

With the Laotian government unable, or unwilling, to control what occurs inside some of its SEZs, concern is growing about their role in facilitating transnational crimes like money laundering, drug trafficking and online scams.

Seeing plans for dozens more SEZs – notably a mega-casino in the Sithandone area in Laos’ remote south bordering Cambodia – experts fear the government is courting questionable actors to fill them, including unregulated online gaming companies, to pull the country out of a severe economic slump.

“The doors are open,” Jeremy Douglas, the regional representative for Southeast Asia and the Pacific at the United Nations Office on Drugs and Crime, told Nikkei Asia. “Laos is seeking any foreign investment, and they’ll take what comes in terms of investment into these SEZs.”

The government of Laos could not be reached for comment.

‘Golden City’

Laos’ SEZ experiment began in 2003 with the Savan-Seno zone, centered around the Savan Vegas casino near the town of Savannakhet on the Thai border. Today, it has 14 officially approved SEZs, and while some offer much-needed foreign investment, Douglas warns most are “under-utilized” and “vulnerable to misuse.”

Boten was designated an SEZ in 2003, with Chinese businessman Huang Minxuan handed a 30-year lease for a $500 million development centered around the Boten Golden City casino.

Catering to Chinese gamblers, it became known for sex and drug trafficking. Reports also emerged in Chinese press of indebted casino-goers being held hostage and tortured.

In 2011, Chinese authorities successfully pushed for the casino to be closed. A revised SEZ agreement was signed in 2013, with construction resuming in 2016, as the city remodeled itself as the “first stop of China’s Belt and Road Initiative in Southeast Asia” with the inauguration in December 2021 of the Lao-China railway, operated by China Railway Kunming Group.

“The town has huge potential even without a casino,” Siphone Kongchampa, the head of the Boten SEZ, told Nikkei Asia last year. The SEZ is expected to expand to more than 16 square kilometres to host businesses from financial services to healthcare, Siphone said. The official conceded the town’s fate lies at the mercy of China, saying investors’ interests will dictate the agenda for Boten.

The zone’s developer, the Yunnan-based Hai Cheng Group, says it will invest $10 billion to turn Boten into a city of 300,000 people. That vision is a long way off, with the town’s main hub today consisting of about three square kilometers of Chinese restaurants, gambling halls, hotels and tower blocks.

In the town market vendors sell products labeled as viagra alongside what they say are wildlife parts to boost libido – including pangolin scales, bear teeth and elephant skin, trading in all of which is illegal.

The Chinese yuan is the currency of choice, though the kip, Laos’ legal tender, is reluctantly accepted.

The town is expanding, and construction is ongoing. But Jason Tower, an expert on transnational crime and security issues in Southeast Asia at the United States Institute of Peace, said the SEZ’s “outlook is much bleaker than it was five years ago.

“There are major questions about the viability of the (Boten) project,” he told Nikkei Asia. “Given the economic changes post-pandemic, given the slowdown in the Chinese economy, I don’t see how Boten is going to be successful unless it starts veering towards illicit businesses.”

‘Red flags’

Boten risks joining a trend across the Mekong region of SEZs metastasizing into hubs of illegal activity. Zones in Cambodia and Myanmar have also become infamous for hosting criminal syndicates, notably online scam groups — part of what experts say is a Chinese-run industry operating across the region, responsible for the theft of billions of dollars worldwide, and sustained by trafficked and abused workers.

UN official Douglas pointed to the growing “attractiveness of Laos” for illicit actors like these as it “never gets attention.”

“That’s something that criminals are looking for,” he said. “They’re looking for anonymity and a quiet place to operate.”

Few places are quieter than Laos’ most recently approved SEZ in the sparsely populated Sithandone area.

Under construction on the Cambodian border 15 hours drive from the capital Vientiane, the SEZ’s promotional materials say the $9 billion project is “possibly” the “largest investment venture” in Laos’ history, with its Hong Kong-registered developer, the Laos Maha Nathi Sithandone (Hong Kong) Investment Co. Ltd, outlining plans for a mega-casino and airport.

The first construction phase is slated to finish in 2025. Douglas said the project has a “number of red flags” – not least its location near a porous border and known drug smuggling routes.

The same question was asked of the Golden Triangle SEZ when it was carved out of the jungle in Laos’ remote Bokeo province in 2007.

The zone is 20%-owned by the Laotian government and 80%-owned by the Kings Romans Group, a Hong Kong-registered company headed by gambling kingpin Zhao Wei.

In 2018, the U.S. Treasury Department sanctioned Zhao Wei’s business, calling it the “Zhao Wei Transnational Criminal Organization,” for “drug trafficking, human trafficking, money laundering, bribery and wildlife trafficking” within the Golden Triangle SEZ. Zhao Wei rejected the accusations as “malicious rumor-mongering.”

The 10,000-hectare SEZ now boasts all the trappings of a small city – taxis, public squares, malls, restaurants and coffee shops set amid high-rise apartment blocks. But beneath this veneer of normalcy, the zone’s criminal core is barely disguised.

“Scam companies are everywhere. In this building, in that building,” said a security guard from Myanmar who has worked in the Golden Triangle SEZ for a year, declining to be named because of risks to his safety.

The SEZ is also flooded with drugs, the guard added, saying 20 ‘yaba’ – methamphetamine and caffeine – tablets could be bought for 100 yuan ($13.50). Business cards advertising sex worker services are slipped under hotel doors. Prices vary according to the worker’s nationality, according to messages received from numbers on the cards – Chinese being the most expensive, Laotian the cheapest.

Even trusted name brands may not be what they seem in the Golden Triangle SEZ.

While Nikkei Asia found two fried chicken stores using KFC branding, Asia-Pacific company officials told Nikkei Asia they were not legitimate KFC outlets. Meanwhile, a Starbucks representative confirmed that a fake branch of the coffee shop chain in the zone has been shut down, though another coffee shop was still using its branding in August.

Richard Horsey, a political analyst and Myanmar adviser to the Crisis Group, who visited the Golden Triangle SEZ for a report published in August on the region’s transnational criminal groups, says a functioning city has blossomed in the zone.

“It isn’t that everything that goes on there is criminal, but the criminal part produces cash flow for the rest,” he told Nikkei Asia. “If the [Kings Romans] casino was shut down, the scam centers were shut down, the trafficking routes were closed, the whole place would quickly wither because there’s no economic logic to it other than the criminal stuff.”

The Laos Maha Nathi Sithandone (Hong Kong) Investment Co. Ltd, the Hai Cheng Group, and the Kings Romans Group could not be reached for comment via phone or email.

Online gaming

In the south, how the Sithandone SEZ’s economy will take shape remains to be seen. One way it could turn a profit, according to Douglas, is online gambling – an industry being courted by the Laotian government.

Last year, the Lao Offshore Gaming Authority (LOGA) was awarded a license by the national government to attract online gambling companies to the country. The scheme is modeled on the Philippines’ system of POGOs (Philippine Offshore Gaming Operators), private companies that inject an estimated $3.2 billion into the country’s economy annually by catering to mostly Chinese online gamblers. POGOs have also been linked to human trafficking, forced labor and scams, and moves by legislators to ban them are gathering pace.

UN official Douglas said an area described as a “digital economy zone” in Sithandone SEZ plans could be an “ideal location for online gaming.”

That industry, he said, has proven to be “hugely attractive for money laundering.”

“With online gaming, you can have global reach,” he said. “Your customer base is not confined to Sithandone or the Mekong, your customers can be in China, Canada, Japan, Australia or the U.K. – wherever. Your ability to commingle funds that are global in nature is amazing.”

Right now, with the SEZ in its formative stages, these concerns remain hypothetical. But Douglas emphasized the importance of not allowing illicit elements to take root, saying the UNODC is “ready to help advise [the government] to ensure criminal risks are minimized.”

At the Golden Triangle SEZ, that ship has sailed, according to Laotian law enforcement authorities.

A Lao law enforcement source who requested anonymity said police “can’t just go in there.”

“Police know there’s nothing they can do,” he said. “You have to be at (the) ministerial level to do anything. Their (police) hands are tied.”

Political analyst Horsey described the Golden Triangle SEZ as a “thriving economy” in “expansion mode,” set to get another boost in the coming months with the opening of the $175 million Bokeo International Airport, built by the Kings Romans Group.

The airport also signals the SEZ’s growing autonomy; visitors must pass through checkpoints to enter the zone, which is policed by its own security forces and has its own prison.
With the Golden Triangle SEZ a law unto itself,

Back in Boten, walking the town’s half-finished streets with her daughter, Lae said people in Laos are similarly worried about the way SEZs are transforming the country around them.

“Chinese people are coming to Laos and affecting Buddhist culture,” she said.

“They hire girls to do things like TikTok, dancing on camera, prostitution. Lao people go to work for them (in these SEZs) — but you can’t get out (once you’re there), you can’t go back home.”