China’s Belt squeezes so tight, Laos is choking

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I’m writing to you from a train on the Laos-China railway as it hurtles through a tunnel in the mountains between Vientiane and the ancient town of Luang Prabang.

The Laos-China Railway’s Lane Xang EMU train at Vientiane Railway Station on December 3, 2021, when the line officially became operational. Credit: Getty

I’ve been meaning to take a ride on the line − built under Beijing’s Belt and Road Initiative − since it opened in late 2021.

At 1000 kilometres in total, including the 418-kilometre stretch from the Lao capital to the Chinese border, the line has improved connectivity between key centres within the land-locked South-east Asian nation and its superpower neighbour.

The journey is not rapid when compared to the high-speed trains of Europe or Japan or the 350km/h, Chinese-backed one launched in Indonesia in October. But even with a top speed of 160km/h, it reduces a gruelling, all-day drive between Vientiane and Luang Prabang to a touch under two hours, albeit with a 30-minute taxi ride to get to the station.

China-Laos Railway’s Luang Prabang bridge across the Mekong River.Credit: Xinhua News Agency

Laos is in one of the region’s poorest countries, and the new travel artery has opened up fresh tourism and cross-border trade possibilities. State-owned China Railway freight trains now transport iron ore, rubber and other cargo to the northern end of the line at Kunming, in China’s southern Yunnan province.

But the $US6 billion ($9 billion) section in Laos is also an expensive symbol of just how tightly its economic wellbeing is tethered to Beijing. Given their proximity and single-party communist political systems, it is hardly surprising the two have deep ties.

It’s not a shock either to see that inside the shiny new Vientiane train terminal, there is a separate zone for passengers travelling all the way to China, complete with cushioned chairs. Outside that exclusive zone − no cushions.

And special treatment in the rail line’s pre-departure area isn’t all Laos owes the Chinese.

Laos is weighed down by about $US10.4 billion in debt to China, the equivalent of almost 55 per cent of its GDP, according to the newly published Belt and Road Reboot report by the AidData research lab at William & Mary, a public university in the US state of Virginia.

China’s President Xi Jinping at the opening ceremony of the Belt and Road Forum in Beijing in October. Xi said the initiative was looking towards a “golden decade”.Credit: Bloomberg

“However, if you add in potential or ‘hidden’ sources of public debt exposure to China, this figure increases to roughly $US17 billion, which is equivalent to 88.9 per cent of Laos’ GDP,” said AidData executive director Bradley Parks.

In all, the country is burdened with a debt-to-GDP ratio estimated to have passed 110 per cent last year, the World Bank said in an economic health check in May.

The extent of foreign debt exposure, principally to China, has raised grim forecasts about Laos’ outlook, with credit-rating agencies having assessed it as at a very high risk of defaulting.

I made two trips to Sri Lanka last year as it succumbed to that very fate. It wasn’t pretty: there were days-long queues for fuel, crippling shortages of food and life-saving medical supplies and an uprising in which thousands stormed the presidential palace.

For Laos, the railway, in which Chinese state-owned companies have a 70 per cent stake, is responsible for $US3.5 billion of its debt alone.

There have been more than 800 other Chinese-funded projects in Laos in the past quarter of a century, according to the ISEAS-Yusof Ishak Institute, a Singapore think tank. Notably, that includes many of the 80 hydroelectric dams constructed on the Mekong River, the mighty waterway that runs from Tibet to southern Vietnam, and its tributaries.

The financing of those has served Laos’ ambition to become the so-called battery of South-East Asia.

Last year, it began exporting renewable energy to Singapore via Thailand and Malaysia, the pilot project of a long-envisioned, interconnected regional power network that Australia’s Sun Cable − which wants to sell solar power to Singapore − may one day plug into.

There are questions, however, about the sustainability of hydropower on the Mekong River system, upon which more than 50 million people are directly reliant. There has been fallout for villagers who have been relocated and NGOs have raised alarms about dams reducing fish stocks and affecting the flow of nutrients and, in turn, the production of rice.

While the industry is seen as a path to prosperity by leaders in Laos, its destiny is also inextricably linked to China. With the debt piling up, a state-owned Chinese electricity giant in 2021 acquired a majority share in Laos’ power grid, securing a deal to manage the nation’s electricity exports and domestic transmission for 25 years.

There is disgruntlement in Laos over the extent to which it is in thrall to China and the sentiment isn’t improved by a national currency, the kip, that has careered off a cliff. It lost half its value against the US dollar in 2022 and another 16 per cent this year, contributing to soaring inflation and cost-of-living pressures.

China has taken “extraordinary measures” to keep Laos afloat and able to service at least some of its debt, said Parks, the AidData director, pointing to a $US300 million emergency loan in 2020 and deferred repayments estimated by the International Monetary Fund to have totalled $US1.28 billion over the past three years.

But for how long will it be afforded such relief?

We’ll be hearing more about Laos in 2024 as it occupies the rotating stewardship of ASEAN and hosts South-East Asia’s annual meeting of world leaders, including Prime Minister Anthony Albanese.

Chances are Albanese won’t be catching the train. If he did, he’d find it a comfortable, functional ride through rural scenery that, as a visitor, is a game changer for getting around in Laos. But it has not come without a cost.

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