Laos’ Mammoth Train Project a Fast Track to Debt and Despair

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HOANG DINH NAM / AFP / Getty Images

Chinese workers man a drilling machine in preparation for the building of a railway linking China and Laos at Bopiat village in the northern province of Luang Namtha, Laos, on Mar. 11, 2011

Change is coming to sleepy Laos in the form of a $7.2 billion railway, set to carve its way through this war-ravaged nation. The costs are to be borne by the Laotian government, courtesy of a Chinese loan amounting to a staggering 86% of Laos’ annual $8.3 billion GDP. The level of indebtedness has led some to condemn the scheme as the latest example of Beijing’s inexorable expansion into Southeast Asia. Aghast economists fear that such exorbitant spending could saddle an already impoverished nation with an insurmountable deficit. Moreover, in Laos’ shadowy police state, where even household-name dissidents are “disappeared” without a murmur of explanation, there are serious doubts on whether ordinary Lao could influence the course of a deal inked by their communist government, however unfavorable it may prove.

Pockmarked by decades of war in the 20th century (per capita, it is the most bombed nation on the planet, according to the U.N.), Laos remains caught in a time warp, and by almost every indicator it is one of the world’s poorest countries. Some progress is being made — Laos finally sealed World Trade Organization membership in February, and is eagerly awaiting the launch of the Association of Southeast Asian Nations Economic Community, expected by 2015 — but most people live on less than $5 a day. Agriculture, generally subsistence rice farming, dominates the economy, employing four-fifths of the population and taking up half of GDP. “Laos is perhaps more than ever before looking for ways to increase its foreign direct investment and strengthen its economic standing in the region and beyond,” Gretchen A. Kunze, Laos representative for the nonprofit Asia Foundation, tells TIME.

(PHOTOS: China’s High-Speed Rail)

Lack of infrastructure remains a massive headache, however. The country has only ever boasted 6.5 km of antiquated railway, and so its population of 6 million makes do with a dilapidated road network that is little more than a chain of muddy potholes. To remedy this, a train route linking Kunming, in China’s southwestern Yunnan province, with the Laotian capital Vientiane, and then going south through Thailand to Singapore, was first touted three years ago. As Laos is a landlocked country with a jagged mountainous terrain, facilitating the movement of goods and reducing transportation costs are seen as key components toward future prosperity. Construction was originally due to be completed by 2015.

However, Beijing pulled out from funding the project directly last year after a series of feasibility studies showed the numbers just did not add up. It is little secret why. The 420-km track would require burrowing 76 tunnels and constructing 152 bridges — representing two-thirds of the entire route — plus two extra crossings to traverse the mighty Mekong River. Twenty stations would initially be opened with an additional 11 to be added at a later date. By any stretch of the imagination it is a colossal feat of engineering, and so China decided to instead make do with a new road skirting the Mekong as it forms the border between Laos and Burma and entering Thailand farther south. This, however, offers little benefit for Laos itself.

And so to achieve a miraculous transformation from landlocked backwoods to globally linked manufacturing hub, Laos was left to push forward with the project alone — albeit with borrowed Chinese cash. Buoyed by talk of a new Thai express railway to link Nong Khai, by the Laos border, with Bangkok, Laos’ 11-member Politburo unanimously approved negotiating the $7.2 billion loan from the state-owned Export-Import Bank of China. Chinese state media quoted the Laos Minister for Energy and Mines in October saying the deal would involve 5 million metric tons of minerals, mainly potash, being imported from Laos every year until 2020, as well as timber and agricultural concessions.

(MORE: Can Damming the Mekong Power a Better Life to Laos?)

The state’s view is that the deal represents the dawn of Laos’ economic transformation. “Lao people consider the high-speed railway as a symbol of the modernization as they see on foreign TV,” says Ekaphone Phouthonesy, deputy editor of the government-owned Vientiane Times. “The business sector has also welcomed the development project as they believe cheap transportation will make cost of production low.” Beijing, unsurprisingly, has also been vocal at rebutting disapproval of the railway deal. A recent article in the Global Times, an English-language newspaper published by the People’s Daily, the official mouthpiece of the Chinese Communist Party, bemoaned Western criticism of the project, and argued that Laos had an estimated GDP of $17.4 billion in 2011 when calculated by purchasing-power parity, thereby making the total bill appear slightly more palatable.

Observers remain unconvinced. “No Chinese investment deal comes without strings,” says Jonah Blank, a senior political scientist specializing in Southeast Asia for the Rand Corp., a global-policy think tank. “In political terms, no country that owes 86% of its GDP to another can be said to have a truly unfettered foreign policy.” Meanwhile, a Laos Finance Ministry official was quoted by Radio Free Asia in December estimating that his government would have to stump up a whopping $3 billion in interest payments alone (calculated by 2% per annum compounded over 30 years). And there are question marks over what benefits the railway would bring in the short term. “At present, Laos is not manufacturing much, in large part because of its low human-resource development and lack of skilled workers,” explains Kunze. “So the idea of Laos utilizing a rail system to export its own goods is still a way off.”

Why would the Laos government bank on such a scheme? “It seems like a gamble on rising commodity prices,” says Tim Forsyth, a lecturer on international development at the London School of Economics who specializes in Southeast Asia. The idea is that Laos’ mineral wealth will rise in value over the payment period, thus enabling the debt to be paid off more quickly than it presently appears. “It also sounds like an indirect form of landgrabbing because China gets access in return for its financial resources,” he adds. Beijing’s record in this regard is hardly exemplary. Comparable developments in Burma, Indonesia and Sri Lanka using vast quantities of imported labor have all met fierce local opposition. The Laos railway project would likely follow a similar pattern with 50,000 workers brought in for the five-year construction.

(PHOTOS: In Laos, Turning Bombs Into Scrap Has Become a Lucrative but Dangerous Business)

Aside from potentially crippling national debt for a white-elephant project, there are other serious objections. Railway construction would require, at minimum, a 50-m-wide section of land cleared on both sides of the entire route, as well as 100-m sections for tunnels and 3,000-by-250-m plots for station developments. There would also have to be additional space for construction equipment, storage and worker habitations. Laos is already notorious for illegal landgrabs made in support of local and foreign investments, and local NGOs have few doubts that the railway would gravely exacerbate this problem.

Many Lao, even in government, feel an aversion to dealing with the Middle Kingdom, with some preferring to protectively cement long-established relations with the Vietnamese. “I know that the Lao are not of one mind when it comes to how far to go with the Chinese,” Ernie Bower, head of the Southeast Asia program for the Center for Strategic and International Studies, tells TIME. “And Vietnam has been fighting tooth and nail for the hearts and minds of the Lao over the last decade.”

Lao who disagree with the project likely face grave risks. On Dec. 15, Sombath Somphone, an award-winning civil-society activist and land-rights campaigner, vanished without a trace. Security-camera footage shows him seemingly being detained by security officials in Vientiane. His whereabouts remain a mystery. Even more shocking is that, unlike other disappeared activists, Sombath was never considered a particularly divisive figure, and generally worked in a conciliatory manner with local officials to negotiate the best possible deal for farmers and the rural poor.

Phil Robertson, deputy director of Human Rights Watch’s Asia division, tells TIME that he has “no doubt whatsoever” that the Laotian authorities are behind Sombath’s disappearance and continued detention. “They are warning other people: ‘Look what we can do — if we can take down someone of his repute, then what are we going to do with smaller land activists?’” he says. “It has had a chilling effect on the ground, and people are very scared to speak out.” It looks like Laos’ grandiose train project could be very costly in human as well as financial terms.

MORE: China Opens World’s Longest High-Speed Rail Route

29 comments
PrabuddhaGhosh
PrabuddhaGhosh

Why is it bad when China does development and good when Western countries do the same. Interstate Highway System anyone? TGV anyone?  The entire American west got developed because railroads came. Maybe if the level of living increases in Laos it wont be so cheap anymore for western tourists (and I am not talking about family groups) Maybe the author and some commentators are worried about the cost of the annual fantasy trip going up.

YuliPawn
YuliPawn

The biggest winner here is China and top Communist leaders of Lao. Big commission here for sealing the deal. China will drown Lao with all their cheap, defective and low quality products that they don't want to throw out (good for consumers price wise and nothing else); therefore canceling out any possible productive gain through increase deficits. Unless Lao communist govnt is dedicated to develop their human resources (which will be a double edged sword for them. The most underrated resource seen by Lao govnt as they know intelligent, educated population is hard to keep in check.) So, without the developed and skilled human resource, which the country obviously lacks, to drawn in manufacture (which is the govnt ultimate goal)

YuliPawn
YuliPawn

The biggest winner here is China and top Communist leaders of Lao. Big commission here for sealing the deal. China will drown Lao with all their cheap, defective and low quality products that they don't want to throw out (good for consumers price wise and nothing else); therefore canceling out any possible productive gain through increase deficits. Unless Lao communist govnt is dedicated to develop their human resources (which will be a double edged sword for them. The most underrated resource seen by Lao govnt as they know intelligent, educated population is hard to keep in check.) So, without the developed and skilled human resource, which the country obviously lacks, to drawn in manufacture (which is the govnt ultimate goal), railway is just a crap shoot and another way for communist big wigs to make money.

phhrnd
phhrnd

The rail link will benefit the country a lot but at a very high price and I do not mean just financially.

SasperVong
SasperVong

People did not know or see the good parts of Laos. Business point of view. 

Laos has the second highest GDP next to Burma, over 7.5 percent.

Laos is one of the top gold mine in Asia and other mineral. 

Laos has one of the biggest hydro power in Asia. They can sale electricity to all South Asia Nation. 

Laos has three World Heritage sites. Laungprabang Laos is the best place to visit according to UNESCO. Tourism is boom in Laos. 

Laos currency, at the peak times $100 per 1,200,000 kip per U.S dollar. Now $100 per 780,000 kip per U.S dollar. Laos currency has gain almost 40% of it value against U.S currency. 

Trade between China and South Asia Nation is about $350 billion U.S dollar per/year and expect to grown to $500 billion U.S dollar  per/year. This rail line is the key for China, but Laos will gain the most. 

China has over one billion people in population. They can use 20% of their land for argiculture. Farming is for summer times only in China. Laos is all year round farming. China import alot of their foods from other country. 

Laos according to geography location. The country is connected to six other Asia Nation. The major of the trade with six other Nation some times have to pass through Laos. 


shiroomiai
shiroomiai

CORRECTION - You, Man  of little faith , not "mean"

shiroomiai
shiroomiai

Tell me what had US done for Laos?

Ask the Ethnic Hmong to betray Laos with the pretext of winning them over and then spray Agent Orange on their fertile land?

And when the Laotian government found out, up-root them and grant the Hmong refuge in some God-forsaken place in the middle of America? Is this called "human right, freedom of speech and democracy at its best"?

At least China is giving Laos a true option - plug in to China, and when China grows. Laos will surely grows. Further the fast rail also will attracts both investment,. movement of trade and industry, open new areas, industries, tourism and so on.

Why only looked at the negative ..... you mean of little faith .....


SasperVong
SasperVong

This is good for Laos, the article is only looking into one side of the story. Laos has full control of the railroad and it is a major link to Thailand, Singapore and many other South Asia Nation. All good and services pass through there will pay to the Laos government. This rail line is a major  network that link China to other South Asia Country. All import and export from China to other South Asia Nation will benefit Laos. Laos has one of the high GDP in Asia next to Burma. Laos has alot of hydro power that they can sale electric to many South Asia Nation including China. Laos is a country that is good for argiculture and have alot of resource. 

JohninOz
JohninOz

The Lao people are the nicest people you could ever meet. It is a tragedy that they are destined to be the next Tibet.

madeux
madeux

I wouldn't be so quick to judge this negatively... it kind of reminds me of a handful of cities around the turn of the century going into massive amounts of debts to build subways.  As it turned out, it allowed for growth and economic expansion and was a great investment.

How much would it cost for Laos to provide enough roads, cars, infrastructure, etc. to match what this train will provide?  In the long run, couldn't this prove to be ultimately beneficial for the country and it's people?

thomasvesely
thomasvesely

laos is being led into economic bondage.

shame as they are really nice people.

they do not need the GNP/GDP mindset.

paoligarcy
paoligarcy

@SasperVong  Sasper, the  main value of the rail line should also be pointed out: Tourism.

Thailand gets 15 million foreign tourists per year.  Laos gets a bit over one million.  If Laos could get even just one million more foreign tourists to visit, it would mean a huge boost to tourism, maybe a billion dollars a year. So if the rail brings in tourism, then it would be a major success.

SasperVong
SasperVong

Correction,  Laos is connected to 5 Asia nation not six. 

madeux
madeux

@SasperVong I honestly don't know a lot about Laos, but I agree completely about the obvious bias in this article. 

thomasvesely
thomasvesely

@madeux 

they need to buy used trains, lay down their own tracks.

no billionaire solution, please.

it will enslave them.

paoligarcy
paoligarcy

@madeux @SasperVong  The real bias is because the USA hates it whenever any country signs a deal with China, they will try to badmouth the deal and do anything they can to sabotage it.

The USA is moving troops to the Pacific for a reason, namely containment.

madeux
madeux

@tomxvesely @JohninOz I believe the thought here (based on this and other articles) is that this could turn into a large land grab.  If Laos cannot pay back the debt, then China will "accept" payment in the form of acreage.  And by "accept", I mean "invade and occupy forcibly".

madeux
madeux

@tomxvesely @madeux slavery? bondage?  I think you're letting your personal predilections cloud your judgement here...

madeux
madeux

@tomxvesely@madeux@JohninOzUnless the train works as plans and allows for the substantial economic growth for the country as a whole.  This isn't debt for the sake of debt, this is an investment in what the leadership believes is the best plan for the future.

"the deal would involve 5 million metric tons of minerals, mainly potash, being imported from Laos every year until 2020, as well as timber and agricultural concessions."  

It sounds like a large portion of the payments will not even be in cash, which could work out in the favor of Laos as well.


thomasvesely
thomasvesely

@madeux @tomxvesely 

yes, as did all my travels/ reading and seeing.

living under capitalism and communism also gave me an insight.


thomasvesely
thomasvesely

@madeux @tomxvesely 

i formed the opinion after visiting LAOS for a year.

they need this about as much as they need predatory investments.