老 is a common colloquial prefix of respect (partly out of the value of seniority conferred), its use dating back to some of the earliest Mandarin vernacular records.
Other examples include 老天爷; 老天爺 lǎotiānyé "(Lord of) Heavens", 老乡; 老鄉 lǎoxiāng "fellow townspeople", 老虎 lǎohǔ "tiger", and even 老鼠 lǎoshǔ "mouse", an animal traditionally despised for its cultural character as well as its significant damages to humans.
This is often contrasted to another prefix 小 xiǎo "small; little; young", which, added to surnames, shows closeness and friendly affection in informal registers towards anyone more junior and at least slightly younger than the speaker.
This usage is reserved exclusively for adults, but implies familiarity rather than seniority, and is often attached to specific individuals as a nickname rather than being freely used.
[6] The character has come to be used for specific nationality as well, with lǎo- functioning as a colloquial equivalent for -guórén: lǎoměi (老美; 'American'), lǎomò (老墨; 'Mexican'); even lǎozhōng (老中) to refer to Chinese (中國人; 中国人; Zhōngguórén) themselves.
[10] Mark Rowswell, known under the stage name Dashan, is one of the most famous Western nationals in China's media industry and has admitted a place for the term.