For centuries Laos was a buffer state, wedged between a pair of bigger neighbours, Thailand and Vietnam, and busy paying tribute to one, the other or both. Forty years ago this balancing act came undone in spectacular fashion when, split down the middle in its role as a Cold War proxy for both American and communist forces, Laos became the most bombed country in history.

But three decades after the end of the Second Indochina War, Laos is finally growing out of its role as buffer state and becoming a crossroads k an increasingly globalised region.

Western governments, financial institutions such as the World Bank and Asian Development Bank, and NGOs still contribute a large proportion of the money spent on development in this country where poverty is the norm for a huge number of people. For better or worse, however, these contributors are increasingly being replaced by private enterprise and the world's newest superdonor - the People's Republic of China.

The physical signs are increasingly apparent. Just over a decade ago Laos’s colonial-era network of roads was a sorry collection of potholed dirt tracks Today almost all major roads are sealed, and the Chinese are busy finishing off a new highway linking Yunnan with Thailand. Laos will make some incidental money from the traffic on these roads, but the greater effect is in making its long ignored natural resources more accessible, and thus more open to development most notably by the mining and energy sectors. If all goes to plan the money expected from a dizzying number of hydroelectric dams will allow Laos to help relieve poverty by itself and break the reliance on foreign aid.

The Lao government has recognised that tourism, particularly ecotourism, has grown into a primary source of income and helps channel money to some of the poorest parts of society. And many small-scale projects, such as the Jhai fair-trade coffee cooperative on the Bolaven Plateau, an improving the deal for the rural poor.

There are, however, a lot of real and potential downsides to this “progress”. Having China as a major source of funding and as a political role model is unlikely to encourage the Lao government, which is already fearful of the effect opening up to the world will have on its culture and control, to adopt democratic reforms. In short, don't expect basic freedoms like speech, assembly or even uncensored song lyrics any time soon.

The environment faces alarming threats. Unplanned or illegal logging has been a serious problem for years. But it's the dozens of hydroelectric dam due to be built in the next decade, many by companies with poor reputations for looking after the environment or local communities, that have the potential to change ecosystems dramatically, rapidly and permanently.

The Second Indochina War continues to take its toll. Unexploded ordnance (UXO) claims scores of lives every year. And many Hmong who have been fighting with or, more often, running from the Lao military since their American sponsors fled three decades ago, continue to be persecuted. The “insurgency” appears to finally be petering out, though reports of atrocities committed by the Lao military continue to emerge.

The challenge for Laos is to balance all these competing interests, to make the most of its opportunities as a conduit of trade without being overwhelmed by the interests of others. For a country with much experience of being squeezed by outsiders, but little in the way of successful outcomes, it wonk be an easy road.