Laos-China Railroad Launches as Debt to Beijing

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Beijing (AP) — A country of 7 million people between China, Vietnam and Thailand, Laos has opened a $ 5.9 billion Chinese-made railroad linking the poor southwestern part of China with overseas markets. Has potentially dangerous debt.

The route through the lush tropical mountains from Vientiane, the capital of Laos, to Kunming is under Beijing’s one-zone, one-way initiative to expand trade by building ports, railroads and other facilities in Asia, Africa and the Pacific. It’s one of the hundreds of projects in.

This week, 1,035 kilometers (642 miles) of routes will be opened to cargo, but will not be available to regular passengers due to pandemic travel restrictions.

Poor countries welcome China’s initiative. However, the project is funded by a loan that needs to be repaid from China’s state-owned bank. Some borrowers complain that projects built in China are expensive and leave a lot of debt.

Kunming-Vientiane Railway is a link to a future network connecting China with Thailand, Vietnam, Myanmar, Malaysia and Singapore. It will give southern China more access to ports and export markets.

Lao leaders want railroads to revitalize isolated economies by connecting to markets far away from China and Europe. However, foreign experts say the potential benefits to Laos beyond functioning as China’s trading channel are unclear and the costs appear dangerously high.

Scott Morris of Washington’s Center for Global Development says railroads “produce very positive economic benefits” for China and perhaps other countries, but “what the economic benefits will be” for Laos. Said difficult.

There are only 21 stations in Laos, and the line is designed to meet the needs of China and reach foreign ports quickly, Morris said. He said the railroads, which mainly serve rural Laos, would have more stations to connect farmers to the market.

“This is essentially a public infrastructure project in China that happens to exist in another country,” he said.

Chinese contractors are building high-speed rail from Bangkok, the capital of Thailand, to Nong Khai, a town in the northeastern part of the Lao border. It will not be completed until 2028, leaving a gap to be filled between the border and the route to China.

The 418 km (260 miles) segment of Kunming-Bienchan Railway in Laos is a 70% stake in the China Railway Group and two other Chinese government-owned enterprises and a 30% state-owned enterprise in Laos.

Borrowing accounts for 60% of rail investment, according to the governments of both countries.

Infrastructure finance specialist Laura Lee of S & P Global Ratings said such debt burdens were extraordinarily heavy and “the risk of repayment should be quite high.”

Ammar A. Malik and Bradley Parks report in AidData that Laos will take over the full $ 3.5 billion repayment of the joint venture if the company defaults and its Chinese partner chooses not to invest any more. He said he could be forced to do that. A research project at William & Mary University in Virginia.

This is almost one-fifth of Laos’s economic output last year.

Beijing, much of the country’s outstanding debt, owes about two-thirds of its annual economic output. Laos is ranked as a poor country that is considered “high debt risk”.

Railroads can increase income by connecting rural areas with cities and export markets. But while the rewards can be decades, railroads require significant equipment, land, and construction costs. Businesses that start with high debt need quick income to pay their lenders.

Greg Raymond, a Southeast Asian expert at the Australian National University, said:

Laos is one of the fastest growing economies in the world in the last decade, but it is still one of the poorest countries. Its average economic producer has more than doubled since 2010, at $ 2,600.

The World Bank said in a report last year that rail could increase revenues by 21% in the long run if other reforms were implemented to facilitate trade and business.

According to the Lao News Agency, the railroad “uses the location to transform Laos from a geographically disadvantaged situation into a hub linked to the land of the region,” said Vallee Besaphon, vice president of the Lao National Chamber of Commerce. Said. ..

People displaced to give way to the railroad complain that they are too few.

Environmentalists say construction has already damaged the natural habitat of Laos, the wildlife trade center, threatening endangered species.

“New transport promoters between the country and major wildlife markets such as China will threaten wildlife,” said Stephen Galster, Managing Director of the Freeland Foundation, which investigates and fights wildlife trade. Said.

Laos represents a new market for railway technology in China. Chinese state news outlets describe the Kunming-Bienchan route as fast, but its 160 kph (100 mph) speed is about half that of the Chinese Shinkansen.

China’s Shinkansen network is the largest in the world. The system is based on technology licensed from French, German and Japanese manufacturers, but China has developed its own trains and sold them globally.

Railroads built with BRI loans, including Kenya and Ethiopia, are struggling to repay Chinese loans. Beijing has begun to offer low-cost loans and tolerate the following complaints about the debt burden of poor countries.

In 2019, Beijing exempted Ethiopia and Cameroon from debt. That same year, Malaysia canceled a $ 20 billion rail line because it was built by a Chinese contractor after a failed price renegotiation.

Laos is also looking to its huge neighbors to support the development of other industries, including the supply of electricity from hydroelectric dams to neighboring countries. This is one of the country’s largest exports.

Under the agreement signed in March, the state-owned distribution network and export system will be operated by a joint venture between a Laotian power company and the state-owned China Southern Power Grid Co., Ltd.

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Kurtenbach contributed from Bangkok.

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