Landlocked Southeast Asian nation Laos is at the forefront of shifting dynamics in Asia, as the decarbonization strategies of various countries — including Japan — collide with China’s Belt and Road Initiative to create a struggle for influence.

The Mekong River originates in the Tibetan Plateau in China, runs through mainland Southeast Asia and empties into the South China Sea in Vietnam. Tracing one of the tributaries in Laos leads to the Nam Ngiep 1 hydroelectric power plant, built and operated by Japan’s Kansai Electric Power and others.

“The reservoir has a capacity of 2.2 billion cubic meters and stretches out 70 kilometers,” a representative from the 167-meter-high dam said.

The Kurobe River No. 4 Power Station in central Japan’s Toyama prefecture, built by Kansai Electric, supported Japan’s postwar reconstruction. Nam Ngiep 1’s reservoir capacity is more than 10 times that of the Kurobe plant, and the height and power output of the dam are on par with Kurobe’s.

Nam Ngiep 1 sends 95% of its electricity to Thailand. The country as a whole exports more than 80% of its generated electricity to neighboring countries like Thailand and Vietnam.

Electricity is Laos’ largest export, accounting for about 30% of total exports. The country is also a renewable energy powerhouse, with more than 70% of its power coming from hydroelectric sources.

Calling itself the “battery of Southeast Asia,” Laos is expanding its electricity exports. Other Association of Southeast Asian Nations member countries are keeping a close eye on this small country, as its renewable energy holds the key to decarbonization.

Countries in the region are rushing to decarbonize to tackle climate change, but many have limited locations suitable for renewable energy plants. Fossil-fuel power generation rates are high, and governments also need to think about meeting growing energy demand to support economic growth.

When Singapore moved to import electricity from Laos via Thailand, Thai Prime Minister Srettha Thavisin took exception, telling Laos that it would buy any electricity sent through Thailand to Singapore.

As ASEAN countries compete for renewable energy, the shadow of a greater power is looming — China. Electricite du Laos, the country’s state-owned power company, effectively sold the entire power grid to a Chinese company.

To expand its power exports, Laos needed to strengthen its power grid, an effort where China took the lead. Additionally, an international 1,000-kilometer railway that opened in 2021 linking China’s Yunnan province and the Laotian capital of Vientiane was apparently paid for by China.

China and Laos, which share a border and socialist governments, have a strong historical relationship. The administration of President Xi Jinping is deepening that bond through infrastructure, inflating Laos’ debt to China in the process.

Thailand has its own energy concerns, centered on natural gas.

About 90 km north of Bangkok stands the Nong Saeng power plant, one of 13 power plants in Thailand operated by Japan’s J-Power. The 10-year-old plant has an output of 1,600 megawatts.

Around 2022, the Electricity Generating Authority of Thailand, which is the wholesale buyer for this plant, instructed it to use petroleum-based fuels instead of natural gas. Natural gas prices were soaring due to Russia’s invasion of Ukraine, and Asian prices for liquefied natural gas jumped.

The Thai agency’s move was a desperate attempt to suppress the resulting jump in electricity prices, if only a little.

Domestic gas production, which accounts for 60% of Thailand’s natural gas consumption, has decreased while LNG imports have gone up. Another source of procurement is imports via pipeline from neighboring Myanmar, whose gas accounted for 16% of domestic consumption in 2022.

Thailand has continued to import gas from Myanmar even after the military took over the country. With its eyes on decarbonization, Thailand can’t readily cut off this important energy source.

China, meanwhile, is approaching the Myanmar military regime that Japan and the West are taking a tough stance against. It places the country as a key point in its Belt and Road infrastructure initiative, aiding in the development of Kyaukpyu Port on the Indian Ocean and the planning and construction of oil and natural gas pipelines and railway networks.

In December, China invited the foreign ministers of the five Mekong countries to Beijing. Foreign Minister Wang Yi, who served as co-chair with his Myanmar counterpart, emphasized unity by proclaiming that the Mekong would be a model for the Belt and Road Initiative.

Southeast Asian countries want to take advantage of China’s abundant funds and technology, but are wary of being swallowed up by its influence.

Even as a territorial dispute between China and the Philippines over the South China Sea is intensifying, one survey showed that more than half of ASEAN countries would choose China over the U.S. if they had to take sides between the two geopolitical heavyweights.

What is China’s aim in rushing to connect its infrastructure with neighboring countries? “China does not consider sea lanes to be safe,” points out Mika Takehara, research director at the Japan Organization for Metals and Energy Security.

With an eye on the strategically important shipping lanes in the Strait of Malacca, South China Sea and Taiwan Strait, China is making a number of moves to secure its supply chain.

In the Mekong region, power plants that Japan helped build during those countries’ nation-building processes after gaining independence, such as Nam Ngum in Laos and Baluchaung in Myanmar, are still in use today. Up through Laos’ Nam Ngiep 1, Japan has supported the region’s growth through infrastructure development and built strong relationships based on track record and trust.

Japan’s foreign direct investment balance to ASEAN was around 38 trillion yen ($243 billion at current rates) as of the end of 2022, about twice the balance for China.

However, it is better not to assume that Japan’s first-mover advantage will continue. The structural changes that are looming due to decarbonization present both opportunity and risk.

Who will Southeast Asia choose as its partner? As China continues to strengthen its presence, a strategy is needed to convince the region that it’s better to partner with Japan.