VIENTIANE (Reuters) - In the eyes of Laos' Communist rulers, trading Vientiane's biggest wetland for a new sports stadium seemed like a good bargain.
But the handover of the That Luang marsh to a Chinese-led joint venture has been the talk of this sleepy capital, fuelling rumors and resentment of Beijing's growing influence over its impoverished, landlocked neighbor.
More surprisingly, the discontent has forced the Lao government, one of Asia's most secretive, to publicly explain the swap of a prime piece of land for a new sports complex that will host the Southeast Asian Games in 2009.
"Many people are angry with the government," said Lin, whose home sits near the marsh on the outskirts of the city of 460,000.
Rumors about a Chinese takeover of the 20 square km (7.7 square miles) wetland -- home to 20 species of fish, rice paddies and ringed by 17 villages -- began to swirl last September.
"We heard that 4,500 families would come from China. Many people were worried," he said of fears they would be evicted.
"My feeling is 'why do we have to give this land to China'? If we are not ready to host the SEA Games, why do we need it? The government just wants to improve its image."
Resource-hungry China is one of the biggest foreign investors in Laos, which dropped central planning for market reforms in 1986, more than a decade after the Pathet Lao seized power.
Beijing has poured money into rubber plantations, energy and infrastructure projects in remote corners of the mountainous nation of 5.8 million. An influx of newly-rich Chinese visitors has helped make tourism a key source of foreign exchange.
But rumors of a Chinatown rising from the marsh located near the Buddhist monument of That Luang, the country's national symbol, struck many residents as too close to home.
In a bid to defuse the controversy, Deputy Prime Minister Somsavat Lengsavad held a rare news conference in February where he denied plans "to bring 50,000 Chinese families to live in the area," according the Lao news agency KPL.
He confirmed a Chinese-Lao joint venture was given a 50-year concession on 1,600 hectares (3,950 acres) of land in exchange for Beijing's financing and construction of the sports complex, which includes two indoor stadiums, swimming pools and tennis courts.
The joint venture, 95-percent held by the Chinese, could sell industrial and residential units to Lao and foreigners, but he insisted Chinese buyers would get no special privileges.
Privately, government officials have warned foreigners about the sensitivity of the marsh development.
"The first thing they said was 'don't call it Chinatown,"' one NGO worker said of a meeting with government officials.
Talk of a Chinese enclave has probably been overblown, analysts say, but the government's rare PR campaign may also be aimed at internal critics of the plan.
"I think it's more likely due to some opposition coming from within the party. They're not going to worry about the streets," said Martin Stuart-Fox, a retired professor and Laos expert.
"If one member of the politburo cleared all this and the kickbacks were extensive to him and his patronage network, others may not be happy. They can simply use the China card and say this is not a good thing," he said.
Vientiane's mayor has said That Luang will be a model of good urban and environmental planning that will vault his city into the ranks of other regional capitals.
"Many people have raised questions about whether the development of the marsh could damage the environment, but in fact it has already been polluted by local residents," Sinlavong Khoutphaythoune said last month.
Human activity has shrunk the marsh over the years, but it still provides valuable agricultural land, flood control and natural treatment of city waste water, environmentalists say.
A World Wildlife Fund study has valued the goods and services from the marsh at nearly $5 million, of which 40 percent directly benefited people in the area.
"There are ways you could develop the area and keep many of the wetlands services it provides," said Pauline Gerrard, advisor on a project piloting the use of artificial wetlands to treat waste water flowing into the marsh.
The government has said the concession area will include a 450-hectare (1,110-acre) holding pond for flood control, but it's not clear how it would work within the marsh.
Meanwhile, authorities have promised "reasonable" compensation for affected residents. But that has sparked more rumors that any payments would be a fraction of the value of the land, which some estimates put at $120 a square meter.
Complicating any compensation effort is the fact that although families have lived around the marsh for decades, many do not have proper land certificates.
"The government says bad people are spreading rumors, but we hear nothing about what will happen to our land," one man told Reuters from his two-room wooden home on the edge of the marsh.
Editing by Megan Goldin