Tapping into the Rubber Market

Opium Replacement and the Role of Rubber in Developing Laos
18 May 2015

Development cooperation is an increasingly prominent focus in Chinese foreign diplomacy, and a central justification for Chinese firms’ engagement in large-scale land acquisitions (LSLAs) across the global South.

China claims itself a success story of developing country industrialization and economic growth, and models its development interventions abroad after its own experience. This is exemplified by China’s Opium Replacement Program (ORP), which aims to reduce opium production in Northern Myanmar and Laos by incentivizing Chinese companies to invest in agribusiness in those areas. Since its establishment in 2004, the ORP has catalysed a wave of Chinese investments in these areas, predominantly in the form of rubber plantations.

This paper examines the ORP’s implementation in Laos as a lens through which to understand the role Chinese firms play in China’s vision for development cooperation. It compares the conditions under which rubber emerged in Yunnan, China to those of northern Laos, and demonstrates how incongruities between the two contexts complicate efforts to translate the Yunnan rubber model abroad. It then explores the political economy of ORP supported rubber investments in northern Laos, with specific focus on the growing commercial power and market access the ORP affords Chinese companies.

The study finds that the ORP goes far beyond just incentivizing individual companies; it establishes a system that privileges Chinese firms to the point of their effective monopoly in the rubber industry in northern Laos.

Since the drop in global rubber prices in 2011, ORP quotas for import tariff exemptions have made participating companies the only firms able to profitably process and export raw latex back to China. This may allow them to outcompete smallholders, contract farmers, and unsubsidized companies for land and inputs as well as to dominate processing and export – the most profitable activities in the sector. This case therefore questions the idea, central to China’s development cooperation approach, of translating China’s unique development experience into other country contexts, and the ability of Chinese companies to act as effective agents of development when investing in LSLAs.