As Obama heads to Laos, signs of a tilt away from China

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VIENTIANE, Aug 28 (Reuters) - The secretive communist government of Laos, a country with a population of less than 7 million, rarely causes a ripple on the diplomatic circuit. And yet its sleepy capital will spring to life next week when global leaders arrive for an Asian summit.

Barack Obama will be among them, making the last push of his presidency to 'rebalance' Washington's foreign policy towards Asia, a strategy widely seen as a response to China's economic and military muscle-flexing across the region.

The might of Laos' giant neighbor to the north is hard to miss in Vientiane: wealthy Chinese driving SUVs overtake tuk-tuks sputtering along the roads and Chinese-backed hotels sprout from noisy construction sites in one of Asia's most low-rise cities.

But diplomats say Obama could be pushing on an open door in Laos, thanks to a change of government there in April.

They say the country's new leaders appear ready to tilt away from Beijing and lean more closely towards another neighbor, Vietnam, whose dispute with China over the South China Sea has pushed it into a deepening alliance with the United States.

"The new government is more influenced by the Vietnamese than the Chinese," said a Western diplomat in Southeast Asia." "It's never too late for a U.S. president to visit."

Obama will become the first sitting U.S. president to visit landlocked Laos, where the United States waged a "secret war" while fighting in Vietnam, dropping an estimated two million tonnes of bombs on the country. About 30 percent of the ordnance failed to explode, leaving a dangerous and costly legacy.

Laos has strategic importance to both Vietnam and China. Vietnam has a long land border with Laos that gives it access to markets in Thailand and beyond. For China, Laos is a key gateway to Southeast Asia in its "new Silk Road" trade strategy.

Laos, which is developing a series of hydropower plants along one of the world's longest rivers, the Mekong, aims to become "the battery of Asia" by selling power to its neighbors.

A look back at Obama's first 100 days in office:

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President Obama's first 100 days in the White House
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President Obama's first 100 days in the White House

White House photographer Pete Souza took this photo of President-elect Barack Obama moments before Obama took the oath of office.

(White House Photo/Pete Souza)

President Obama and first lady Michelle Obama shared a moment at the Inaugural Ball on January 20, 2009.

(White House Photo/Pete Souza)

The next day, Obama entered the Oval Office to begin his first full day as America's 44th president.

(White House Photo/Pete Souza)

Obama reads a letter that former President George W. Bush left for him in the Oval Office's resolute desk. Leaving a letter for the incoming president has become a White House tradition.

(White House Photo/Pete Souza)

Obama toured the White House grounds with curator William Allman, chief usher Adm. Stephen Rochon, and presidential personal aide Reggie Love.

(White House Photo/Pete Souza)

Obama toured the White House grounds with curator William Allman, chief usher Adm. Stephen Rochon, and presidential personal aide Reggie Love.

(White House Photo/Pete Souza)

The Obamas and staff wear 3-D glasses while watching a TV commercial during Super Bowl 43, Arizona Cardinals vs. Pittsburgh Steelers, in the family theater of the White House.

(White House Photo/Pete Souza)

Here's a photo of Obama meeting with senior advisers in the Oval Office during the third week of his presidency.

(White House Photo/Pete Souza)

President Obama walks to the Oval Office along the Colonnade with Vice President Joe Biden, Feb. 3, 2009.

(White House Photo/Pete Souza)

Wearing an embroidered crew jacket, Obama waited for the first of many flights aboard Air Force One.

(White House Photo/Pete Souza)

Close-up detail of President Obama's signature on a bill, and a pen used for the signing, aboard Air Force One on a flight from Buckley Air Force Base, Denver to Phoenix, Arizona.

(White House Photo/Pete Souza)

Obama gave his first State of the Union address on February 24, 2009.

(White House Photo/Pete Souza)

Before giving a policy speech on Iraq, Obama places his hand on his heart as the national anthem is played backstage at the Field House in Camp Lejeune, North Carolina, Feb. 27, 2009.

(White House Photo/Pete Souza)

Obama arrives at Port Columbus International Airport with Sen. Sherrod Brown, Rep. Mary Jo Kilroy, and Secret Service on March 6, 2009.

(White House Photo/Pete Souza)

Obama takes a break to shoot hoops on the White House South Lawn basketball court.

(White House Photo/Pete Souza)

The Obamas walked to Marine One on the South Lawn before heading off on one of their first trips to Camp David.

(White House Photo/Pete Souza)

Obama runs down the East Colonnade with family dog, Bo, on March 15, 2009.

(White House Photo/Pete Souza)

President Obama reflects during an economic meeting with advisors in the Roosevelt Room of the White House, March 15, 2009. He is seated between Senior Advisor David Axelrod, left, and Chief of Staff Rahm Emanuel.

(White House Photo/Pete Souza)

Obama meets with Senate Budget Committee Chairman Sen. Kent Conrad (D-ND), House Budget Committee Chairman Rep. John Spratt Jr. (D-SC), Office of Management and Budget Director Peter Orszag, and Assistant to the President for Legislative Affairs Phil Schiliro, March 17, 2009.

(White House Photo/Pete Souza)

Obama shares a moment with Jay Leno off set of the Tonight Show at NBC Studios, Burbank, California.

(White House Photo/Pete Souza)

Obama hugs First Lady Michelle Obama in the Red Room of the White House while Senior Advisor Valerie Jarrett smiles prior to the National Newspaper Publishers Association reception, March 20, 2009.

(White House Photo/Pete Souza)

Obama with Press Secretary Robert Gibbs, Senior Advisor David Axelrod and Chief of Staff Rahm Emanuel in the Red Room of the White House prior to a live prime time press conference in the East Room.

(White House Photo/Pete Souza)

Obama rests his foot on a football during the Domestic Policy Council Meeting in the Oval Office.

(White House Photo/Pete Souza)

Obama looks out the Green Room window prior to the "Open for Questions" virtual town hall meeting on the economy in the East Room of the White House, March 26, 2009.

(White House Photo/Pete Souza)

BlackBerry's, cell phones and communications devices are tagged with post-its during a briefing on Afghanistan and Pakistan in the Cabinet Room of the White House.

(White House Photo/Pete Souza)

Obama makes a point during an interview in the Roosevelt Room of the White House, March 27, 2009.

(White House Photo/Pete Souza)

Obama conducts interviews in the Map Room of the White House on March 30, 2009.

(White House Photo/Pete Souza)

Obama walks to a podium in the Grand Foyer of the White House before making a statement regarding the American auto industry in March 2009.

(White House Photo/Pete Souza)

The Obamas were welcomed by Queen Elizabeth II to Buckingham Palace in London while in town for the G20 summit.

(White House Photo/Pete Souza)

Obama confers with US Treasury Secretary Timothy Geithner during the G-20 Summit April 2, 2009, at the ExCel Centre in London, England.

(White House Photo/Pete Souza)

Obama and First Lady Michelle Obama join staff aboard Air Force One during their flight from Stansted Airport in Essex, England, en route to Strasbourg, France.

(White House Photo/Pete Souza)

Obama, joined by French President Nicolas Sarkozy, receives an enthusiastic welcome to Palais Rohan in Strausbourg, France.

(White House Photo/Pete Souza)

Obama walks and Sarkozy leave the Palais Rohan following their meeting.

(White House Photo/Pete Souza)

Obama, NATO Secretary General Jaap de Hoop Scheffer and fellow NATO leaders step down from a photo platform April 4, 2009.

(White House Photo/Pete Souza)

Obama makes remarks at a press conference following the NATO Summit in Strasbourg, France.

(White House Photo/Pete Souza)

President Obama lifts up a baby April 4, 2009, during the U.S. Embassy greeting at a Prague hotel.

(White House Photo/Pete Souza)

First Lady Michelle Obama waits as President Barack Obama, background, signs the guestbook upon their arrival to Prague Castle, April 5, 2009.

(White House Photo/Pete Souza)

Obama gave a fist bump to a US soldier while visiting troops at Camp Victory in Iraq on April 7, 2009.

(White House Photo/Pete Souza)

President Obama and Michelle smiled at each other inside a White House elevator after a Cinco de Mayo celebration.

(White House Photo/Pete Souza)

Obama makes his way down the stairs of Air Force One April 8, 2009, upon his arrival to Andrews Air Force Base returning from Baghdad, Iraq.

(White House Photo/Pete Souza)

Obama and Secretary of State Hillary Rodham Clinton speak together sitting at a picnic table April 9, 2009, on the South Lawn of the White House.

(White House Photo/Pete Souza)

Obama meets with members of his Cabinet in the Cabinet Room at the White House.

(White House Photo/Pete Souza)

Obama plays with a football in the Oval Office on April 23, 2009.

(White House Photo/Pete Souza)

Obama and Vice President Joe Biden practiced their putting skills on the White House green.

(White House Photo/Pete Souza)

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SHIFTING POLICY

It is difficult to read policy in Laos because its leaders are so uncommunicative, but Western diplomats have detected some shifts.

First, deputy Prime Minister Somsavat Lengsavad - who ran the steering panel for a $7 billion Chinese rail project - retired. The project is now believed to be on hold because Laos is unhappy with the terms of the deal.

Officials of Prime Minister Thongloun Sisoulith's new government, many of them educated in Vietnam, have visited Hanoi en masse in recent weeks, their first foreign trip.

At two of the past meetings of the Association of Southeast Asian Nations (ASEAN), which is currently chaired by Laos, Vientiane has taken a more nuanced stance on Beijing than neighboring Cambodia, which is increasingly seen as a Chinese satellite.

"The U.S. strategic interest in Laos is to see the country be able to exert a certain degree of strategic autonomy because you don't want ... (to) have something akin to the relationship between China and Cambodia," said Phuong Nguyen of the Washington-based Center for Strategic and International Studies think-tank.

A defense official in Washington did not comment on wider strategic issues but described Laos as "an important partner."

A China foreign ministry spokesman said "we welcome any country, including those inside and outside this region, developing constructive relations, as long as these ties are really beneficial to regional peace, stability and prosperity."

LONG-TERM BATTLE

Beijing has invested around $1 billion annually in Laos in 2014 and 2015, a step up from the $4.5 billion invested historically before 2014, according to figures from China's Ministry of Commerce and state-run media.

For the United States, impoverished Laos is not a strong investment draw.

"In Laos, we bring 7-8 companies to the table compared with 30-40 companies that Vietnam brings. But China- that's a totally different ball game," said Anthony Nelson, director of the U.S.-ASEAN business council.

"So there's no coincidence that the countries with the lowest levels of development, Laos and Cambodia, are the most willing to advocate for China's position in international discussions."

But the Lao are closer culturally to Vietnam than they are to China. Their businesses use Lao language signs and mixed Lao-Vietnamese families incorporate local customs, while Lao-Chinese families tend to be isolated.

"We are a bit frustrated with (China). They create their own eco-system," a Lao businessman said.


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