For decades, China has been the dominant force in hydropower development across the Mekong subregion, financing, and constructing massive dam projects that have transformed Southeast Asia’s economic and environmental landscape. Many analysts have framed this expansion as a meticulously orchestrated strategy to extend Beijing’s economic and geopolitical influence. But this narrative obscures a more complex reality—one in which China’s dam-building in the Mekong has been shaped by trial and error, reactive policy shifts driven by external shocks, local resistance, and intensifying geopolitical competition.

Our recent study, “Damming the River by Feeling the Stones,” challenges the conventional view that China’s hydropower expansion in the Mekong follows a grand strategic blueprint. Our research reveals that Beijing recalibrates its approach to hydropower development abroad in real time in response to the challenges it experiences.

A Learning-by-Doing Approach

Contrary to a common perception that China’s foreign economic policy is strategically premeditated and meticulously crafted, its engagement in Mekong hydropower development follows a learning-by-doing approach. This process mirrors China’s broader governance style—flexible and adaptive rather than rigidly planned. 

In the early 2000s, Chinese state-owned enterprises (SOEs) were encouraged to expand abroad with minimal oversight, operating under an incentive-driven model that prioritized rapid project acquisition over due diligence or risk management. The assumption was simple: securing large- scale dam contracts on downstream rivers in Southeast Asia—especially in economically lagging Cambodia, Laos, and Myanmar— would strengthen China’s economic ties and expand its influence in the region.

But as these projects unfolded, it became clear that this laissez-faire approach carried serious risks.

The Myitsone Dam Wake-Up Call

One of the most dramatic turning points came in 2011 with the suspension of the massive Myitsone dam project in Myanmar. Opposition to Myitsone at the local and national level in Myanmar was rooted in anger about the project’s socio-environmental impacts, its disruption of the headwaters of the Irrawaddy River—considered sacred to many— as well as the share of the generated electricity to be exported to Yunnan. China’s push for the Myitsone dam cemented rising resentment in Myanmar about its growing influence in the country. The abrupt suspension blindsided both Chinese policymakers and SOEs, exposing a major flaw in Beijing’s hands-off approach and catalyzing a critical look at SOEs’ conduct abroad in the name of “dam diplomacy.”

For years, Beijing had relied on SOEs to manage their own overseas ventures, assuming its deluge of financial support for the projects ensured that host governments would implement them smoothly. But the Myitsone crisis shattered this illusion. Local politics, public backlash, and shifting leadership priorities in host countries could derail long-planned, largescale, and expensive projects even after they were begun.

For China, Myitsone was not just a business setback—it was a diplomatic embarrassment. The fallout forced Beijing to confront a critical question: How could it sustain its ambitions for hydropower development beyond its borders while avoiding diplomatic, financial, and reputational disasters?

From Hands-Off to Hands-On

In response to the Myitsone debacle, China’s leadership implemented policy changes to tighten oversight over Chinese SOEs operating abroad. New regulations emphasized risk assessment, corporate social responsibility, and due diligence.

Yet, even as China sought to impose more control, it remained reluctant to fundamentally alter the incentives driving SOEs in overseas projects. Hydropower development was still a central piece of China’s foreign economic strategy, and firms were still expected to secure contracts and advance Beijing’s regional footprint. The lesson from Myitsone wasn’t to scale back, but rather to proceed more cautiously—without losing momentum.

Geopolitical Competition and the Securitization of Hydropower

While China was adjusting its policies, external pressures were also mounting. The mid-2010s saw the United States and Japan ramp up their engagement in the Mekong, increasing their investments in regional water governance and infrastructure to counterbalance China’s influence.

China’s leadership interpreted these moves in the subregion as part of a broader strategy to contain China’s rise. This prompted it to more tightly regulate SOE activities abroad and further integrate national security considerations into hydropower policies. They also authorized their own security agencies to become involved in project oversight, urged host governments to increase their own support for projects’ security, and sought to expand bilateral and subregional security cooperation. 

Since 2016, while the number of new Chinese hydropower contracts in the Mekong has declined, the rate of successful project implementation has increased compared to the period before China introduced its securitized policies. Our data shows between 2000 and 2011, Chinese SOEs completed approximately 36% of their hydropower contracts in Cambodia, Laos, and Myanmar. After 2011, the completion rate increased to around 43%, and since 2016, it has risen further to nearly 70%. This trend also reflects the success of this more risk-sensitive project selection approach that prioritizes completion over acquisition.

The 2015 launch of the Lancang-Mekong Cooperation (LMC) initiative was emblematic of the emphasis by Beijing to recast its investment activities in the Mekong subregion as regional public goods. Beijing has used the LMC to counter Western criticism of its hydropower projects by framing them as part of a sustainable and mutually beneficial development strategy for the region. China’s goal has been clear: to consolidate China’s influence in the Mekong while deflecting growing geopolitical pushback. 

The Road Ahead: Uncertainty and Adaptation

Despite China’s policy adjustments, the future of its Mekong hydropower ambitions remains uncertain. Resistance from local communities across the subregion is growing, as environmental concerns and displacement issues fuel opposition to largescale dam projects. At the same time, shifting global trade policies, evolving energy markets, the rise of renewable energy alternatives are leading even non-Chinese financiers to question the economic viability of mega-dams and intensifying scrutiny of their environmental and social impacts. Complicating matters further, China’s own domestic economic landscape is changing. Mounting financial pressures, a slowing domestic economy, and rising SOE debt could limit Beijing’s ability to sustain its aggressive hydropower expansion. 

For Beijing, sustaining its influence in the Mekong requires more than adjusting its policies in response to challenges and crises. It demands a more adaptive and forward-looking strategy that accounts for the shifting realities of local governance, environmental sustainability, and regional geopolitics.

What This Means for the Future of China’s Economic Statecraft

The Myitsone crisis triggered substantial policy change by Beijing, demonstrating that China’s ambitions in the region remain strong and it will adjust its policies for infrastructure abroad to realize them.

As U.S.-China competition intensifies and the geopolitics of infrastructure investment grow more complex, understanding how China is adapting its policies will be critical for policymakers, investors, and scholars alike. The story of China’s Mekong hydropower development is far from over. The question is not if Beijing will continue adjusting its strategy—but how and to what effect.