Railroading debt into Laos

The construction of an ambitious rail link between Kunming and Vientiane reflects China's growing economic clout in Southeast Asia

by Nick Walker

Special To The Japan Times

The first time I decided to fly to Vientiane, I was faced with a tossup between a Lao Airlines twin-prop or Aeroflot Soviet Airlines.

During the Cold War, when Laos was Southeast Asia’s “hermit kingdom,” these alternatives were literally the only two ways in. Today, a dozen carriers fly to the capital from all over Asia.

Within the next few years, however, an exotic overland option may be available to visitors heading from China for this verdant nation. Work is reportedly about to start on the Kunming-Vientiane rail link.

At present, the landlocked nation only has 6 km of railways on top of a fairly dilapidated highway network, consisting mainly of dirt roads that are often unusable during the rainy season.

However, the main driver for this rail project seems to be the transportation of goods rather than passengers — exports from mainland China to Southeast Asia and beyond, as well as imports from resource-rich ASEAN nations.

It’s long been a tantalizing dream for policymakers in Beijing. The proposal was first aired seriously about five years ago, with construction originally slated for 2015.

However, the plan sparked surprisingly vocal protests from Lao villagers whose rural communities would be at threat of being bulldozed away.

Now, both governments involved have become more determined in their bid to push ahead, and one-party states are not known for being listening for too long to the voices of those opposing bureaucratically ordained projects.

In September last year, Lao President Choummaly Saygnasone jetted to Beijing for four days of talks with Chinese Premier Li Keqiang and other Communist Party bigwigs. Here they reaffirmed their shared desire to proceed with the construction of the railway as soon as possible.

It was something of a fait accompli, as prior to those talks, Chinese surveyors were observed in Laos last summer, working along the railway’s proposed route.

This engineering undertaking over mainly mountainous terrain will be expensive as well as gargantuan.

However, despite the fact that Laos one of is the poorest countries in Asia, and mainland China is today’s global economic giant, the costs are to be borne by the ASEAN economic minnow, rather that its more affluent neighbor to the north.

The Lao Politburo has approved the negotiation of a $7.2 billion loan from the state-owned Export-Import Bank of China, a sum that amounts to 86 percent of Laos’ annual $8.3 billion gross domestic product.

The deal does not appear to be fair for Laos. The Lao minister for energy and mines said the business arrangement would involve 5 million tons of minerals, mainly potash, being transported from Laos to China per annum until 2020, as well as timber and agricultural concessions.

China has struck a hard bargain, but knows it can rely on Laos, which remains a virtual police state.

With the firming up of the deal, the anti-railway lobby has become noticeably less vocal.

Regional economists fear the rail link will burden an already desperately poor nation with an insurmountable debt and other obligations.

In a worst-case scenario, it could even become something of a vassal state of China.

“In political terms, no country that owes 86 per cent of its GDP to another can be said to have a truly unfettered foreign policy,” says Jonah Blank, an observer specializing in Southeast Asia for the Los Angeles-based Rand Corp.

However, there is an unexpected twist to this story of economic clout prevailing against minds urging caution. Before ratifying the loan, Beijing said it was waiting for the Thai parliament to approve an infrastructure upgrade, which will crucially include a high-speed rail line from the Lao border to Bangkok.

Thanks to all the political unrest currently raging in Laos’ southern neighbor, Thailand, those Chinese state bankers could be in for a longer wait than they had expected.