The China-Laos railway: a way out of poverty or a white elephant in waiting?
Critics of the Belt and Road Initiative rail link through Laos from China point to its devastating environmental impact and potential economic ruin for an already fragile economy. Others hope it can take Laos from landlocked to ‘land-linked’
At first, the journey from Luang Prabang International Airport into the city feels like the Southeast Asia of 30 years ago, before tourism and commercialisation brought beer-branded singlets and rowdy bars to even the most unremarkable towns.
In Laos’ former royal capital – a charming, Unesco-protected hodgepodge of golden-domed wats, teak-shuttered schools and muddy-green mountains – women sit in roadside corrugated iron shacks, machetes at hand to hack open a coconut or thwack an unwieldy length of sugar cane down to size. Sun-baked dogs doze on temple steps.
Further down the street, a neon sign advertises karaoke, a waving plastic arm points fun seekers towards crazy golf and a huge hoarding advertises Huawei’s latest smartphone. Chinese tourism and business have firm footholds here, likely to deepen with the opening of one of Laos’ biggest infrastructure projects.
Formally announced in 2015, the US$6 billion China-Laos railway, a marriage between Chinese President Xi Jinping’s signature Belt and Road Initiative and Laos’ ambitions to transform from a landlocked country into a “land-linked” one, is nearing completion. Since work began four years ago, about 200km of tunnels have been dug and 62km of bridges built, including two across the mighty Mekong River.
All that remains before the slated opening in December 2021 is for signalling mechanisms to be installed, and the final stretches of track to be laid along the 422km route. Starting in Boten on the Laos-China border, the line will take freight and passenger trains through northern and central Laos at speeds of up to 160km/h.
Eventually, the trains will stop at more than 30 stations, including Luang Prabang, before terminating in the capital, Vientiane. It will be part of a network of regional routes – completed, or nearing completion – linking China’s Yunnan province with Myanmar, Thailand, Malaysia and Singapore.
For its part, the Laos government hopes the railway will lower the cost of exports and consumer goods, promote economic development with its closest neighbours and improve the living standards of its seven million people, some of Asia’s poorest (Laos has a GDP of just over US$19 billion).
At the end of July, Chinese state media quoted Laotian Prime Minister Thongloun Sisoulith as saying the railway had already brought positive changes to the country, having promoted social and economic development and increased employment opportunities. Rattanamany Khounnivong, deputy minister at the Laotian Ministry of Public Works and Transport, claims the project has employed more than 7,000 local workers, in construction roles and in training to become signal operators, mechanics or maintenance supervisors.
But as with many of China’s Belt and Road developments, which span almost 70 countries, in part tracing the ancient Silk Road, the project is not without its critics. Sidelined Laotians complain of a Chinese takeover, citing land grabs, the increasing density of Chinese businesses and the 50,000 or so Chinese workers shipped in for the railway’s construction, as they were for comparable Belt and Road projects in Myanmar, Sri Lanka, Indonesia and Cambodia.
Conservationists also warn that the encroachment into uninhabited land, and the inevitable increase in noise and activity the trains will bring, will harm wildlife and put further pressure on dwindling forests already ravaged by decades of intensive logging. Perhaps most alarmingly, since Beijing pulled out of funding the project after a series of feasibility studies raised questions about its potential profitability, Laos has borrowed US$3.5 billion (almost 20 per cent of its GDP) from the Export-Import Bank of China.
Economists caution that any delays, missteps or surprises along the way could have a major impact on the country’s already fragile macroeconomics. A complete default could see China taking ownership of the entire asset, as happened with Sri Lanka’s Hambantota port, also funded by the Export-Import Bank of China. For a small town of just 56,000 people, like Luang Prabang, whose economy is largely dependent on the tourists drawn to its laid-back charm and the natural beauty of its setting on the banks of the Mekong, the railway could make or break fortunes.
Best friends Mae Laem Tong and Mae Kamphet rummage through a jumble of bananas and grass at Luang Prabang’s Elephant Village. These former working elephants found themselves out of a job when the government banned timber exports in 1999 in an attempt to stop illegal logging. Today, they spend their days being fed and bathed by adoring tourists at the manicured camp and are led back into the jungle each evening by their mahouts.
But the railway, which will run along the north edge of the camp, is already causing sleepless nights. “One day, a truck came by and one elephant was so scared she fled into the jungle and we couldn’t find her for three days,” says camp manager Sisouphanh Onsomboun. “They’re very sensitive and they don’t like too much noise or people.”
The camp’s 10 elephants are not the only ones with jangled nerves. The sanctuary’s owners say they have come under increasing pressure from Chinese developers in recent years and worry they may become victims of a state-sanctioned land grab, which have long been a problem in Laos.
They had to pay off the local government to stop a rocky island in the centre of the Nam Khan River – which skirts their property – being demolished for construction materials, voracious surveyors have been eyeing their 50-hectare plot, and rumours swirl about the opening of a Chinese-owned five-star hotel nearby.
“At the end of the day, it’s all about money,” says the camp’s business manager Limanungsang Longkumer. “Laos is still a communist country, so the government could make us sell the land. Chinese investment is obviously one of the biggest threats to us.”
Land has been cleared for about 50 metres on both sides of the railway along its entire route, as well as for 3km by 250-metre plots for stations, causing the eviction of more than 4,400 Laotian families, according to reports. As almost 80 per cent of Laos’ population is involved in agriculture, the evictions have forced some families to move their farms into previously untouched areas.
This encroachment also puts Laos’ bears at risk, says Nikki Brown, education officer for the local branch of Free the Bears. From the charity’s rescue centre, at the base of the almost otherworldly Kuang Si Falls, one of Luang Prabang’s most popular beauty spots, she says animal welfare concerns go way beyond habitat destruction.
“When Chinese New Year is approaching, we always notice a lot more wildlife for sale in the local market,” she says. “So there’s a worry the direct [rail] line into China will increase the trafficking of bear bile and other animal products used in Chinese medicine.”
China’s train manufacturers and railway contractors have been exporting their expertise since completing the country’s first overseas high-speed railway, in Turkey, in 2014. Encouraged by cheap labour and the promise of speedy construction and a reliable product, countries across Africa and Asia have been rolling out rivers of China-backed rail.
China and Laos first established diplomatic relations in the 1960s, but didn’t see their tepid Cold War alliance warm to the level of a comprehensive strategic partnership until 2009. Since then, Laos has become one of Beijing’s major aid and investment recipients, with billions of dollars pumped into its mining, agriculture, hydropower and construction sectors, especially since the establishment of the Belt and Road Initiative.
China is now Laos’ biggest investor, with the two countries’ relationship further solidified this year when Beijing sent medical experts and equipment to help undersupplied Laos cope with the coronavirus pandemic.
Another product of the initiative is a huge new dam set to be built on the Mekong, 155km north of Vientiane. The 684-megawatt Sanakham dam, due to be completed in 2028, is arguably as controversial as the railway in environmental terms. It has faced a backlash from several conservation groups and NGOs who say the project will further impede the already encumbered Southeast Asian artery, affecting untold livelihoods downstream.
The railway is also causing alarm on a fiscal level, with economists warning the huge loan could saddle Vientiane with an insurmountable deficit to China.
In December 2012, when the two nations were first discussing the intricacies of the deal, an official from Laos’ Finance Ministry predicted the loan would land the country with a bill of US$3 billion in interest payments alone, based on rates of 2 per cent per annum over 30 years.
Criticism also came from the Asian Development Bank (ADB), the World Bank, the International Monetary Fund and the United Nations Development Programme, the latter saying the terms of the financing were so onerous as to endanger Laos’ macroeconomic stability. Towards the end of last year, Australian think tank the Lowy Institute calculated Laos’ total debt to China at around 45 per cent of its GDP, surpassing all the other Belt and Road countries in the study.
Economic growth in Laos has slowed since the project was green-lit, falling from 6.3 per cent in 2018 to 4.8 per cent last year, according to the World Bank. This latest drop is attributed to natural disasters that affected the country’s agriculture sector, but the pandemic will exacerbate the situation further.
“The basic economic case for the railway is weak,” says Jonathan Hillman, director of the Reconnecting Asia Project at Washington-based think tank Centre for Strategic and International Studies. “It is designed to handle both cargo and passenger trains, but Laos has little of either. It increases the debt risks, which are further heightened by the pandemic.
All of this suggests a project moulded more in China’s short-term interests than in Laos’s long-term interest.”
In response to a 2013 New York Times article raising similar concerns, however, Global Times columnist Calvin Zhang accused the newspaper of “sloppiness” and cynically putting out a report that “appears premeditated to convey the US view”. He pointed out the loan has been collateralised with underground mineral reserves, meaning Laos’ debt to China could potentially be repaid by the extraction of natural resources, such as potash and copper, if the project is a failure.
“It makes perfect sense for a landlocked country to make a strategically important and productive railway investment that secures access to trading partners and lubricates the movement of essential productive factors,” Zhang wrote.
While critics argue that even the mineral collateral arrangement leaves Laos heavily in China’s debt, with Vientiane strong-armed into backing Beijing on key issues such as Taiwanese and Tibetan autonomy, others say the infrastructure will be inherently positive for Laos, whether or not it makes substantial returns on its investment.
The country has only ever had 6.5km of rickety railway, with the majority of the population forced to move themselves and their goods using a sparse and badly maintained road system. About 2,000 locals, each earning US$200-US$800 a month, have been employed to work on the railway in Luang Prabang alone, an unnamed provincial official told Radio Free Asia.
Other Chinese projects in Luang Prabang have seen the airport upgraded, hospitals and schools built and capacity expanded at key tourism sites. This investment has come hand in hand with a larger Chinese business presence, but many locals are happy to accommodate a few Chinese shops and hotels if the pay-off is better health care and schooling for their children.
The ADB says Asia will require US$1.7 trillion of infrastructure investment a year until 2030. And in its most recent report, published in June, the World Bank cuts a more optimistic tone on Laos’ latest venture: “With the right reforms undertaken by the Lao government, the railway connecting Lao PDR (and later Thailand, Malaysia, and Singapore) to the vast BRI network could potentially increase aggregate income in Lao PDR by up to 21 per cent over the long term.”
In order to truly capitalise on the venture, Vientiane will need to undertake bold policy reforms to facilitate the movement of people and goods along the line, it warned. The success of the railway will not only depend on Laos’ ability to attract cargo and tourism traffic, but also the surrounding infrastructure.
Border and customs systems need to be simplified to minimise delays, and the railway must be adequately connected to centres of production and consumption. The country’s corporate sector, which has been largely overlooked during the railway’s construction, should also adopt a proactive approach if it is to benefit from the project once the trains arrive.
Andrew Sykes, the British owner of Luang Prabang’s 525 Cocktails and Tapas, hopes to do just that. Although the swanky bar, which serves elevated Laotian staples alongside cocktails seasoned with local ingredients, gets no business from the Chinese tour groups that tend to eat and drink at Chinese-owned establishments, it welcomes the few independent travellers that cross Laos’ northern border. Black and white photos on the walls depict scenes from China’s southern provinces alongside local beauty spots, and a Mandarin menu is available.
“Sometimes there’s this old-fashioned way of thinking about Chinese tourism as it’s all just tour groups,” Sykes says. “But if there’s a train here, part of that will also be families, groups of friends and people just wanting to get out of China for a weekend. Especially with Covid, I think we should be really happy about people wanting to come in and see Laos and do everything we can to accommodate them and make it work.”
Sykes, who was forced to ship his high-quality handmade furniture from China via Thailand at great expense when setting up the bar in 2014, thinks the rail line will also benefit Laos businesses away from the tourism sector. “What Covid’s done is it’s exposed the remoteness of places more and more,” he says. “One of the key things the train line will bring is freight, and that’ll make it much easier for Laos businesses to import what they need and export what they make.”
While Laos has a long road ahead in its quest to ensure this controversial project does not become a white elephant, more prospecting and less speculation is undoubtedly what is needed. Arguments that Vientiane is overly reliant on and deeply indebted to China are not unfounded, but the new railway also has the power to help the country diversify its portfolio of international partners. Either way, there is no stopping it now. For good or bad, that train has already left the station.