Railway carries load of debt
Laos launching line financed by Chinese banks, but which country will benefit most?
BEIJING — Laos, a nation of 7 million people wedged between China, Vietnam and Thailand, has launched a $5.9 billion Chinese-built railway that links China’s poor southwest to foreign markets but piles on potentially risky debt.
The line through lush tropical mountains from the Laotian capital, Vientiane, to Kunming is one of hundreds of projects under Beijing’s Belt and Road Initiative to expand trade by building ports, railways and other facilities across Asia, Africa and the Pacific.
The 642-mile line opened Friday to cargo but no regular passengers due to anti-pandemic travel curbs.
Poor countries welcome China’s initiative. But the projects are financed by loans from Chinese stateowned banks that must be repaid. Some borrowers complain Chinese-built projects are too expensive and leave too much debt.
The Kunming-Vientiane railway is a link in a possible future network to connect China with Thailand, Vietnam, Myanmar, Malaysia and Singapore. That would give southern China more access to ports and export markets.
Laotian leaders hope the railway will energize their isolated economy by linking it to China and markets as far away as Europe. But foreign experts say the potential benefits to Laos beyond serving as a channel for Chinese trade are unclear and the cost appears dangerously high.
The railway will “generate very positive economic returns” for China and possibly other countries, but it is harder to see “exactly what the economic benefits are going to be” for Laos, said Scott Morris of the Center for Global Development in Washington.
With only 21 stations in Laos, the line is designed to serve Chinese needs to reach foreign ports quickly, Morris said. He said a railway to serve mostly rural Laos would have more stations to connect farmers to markets.
“This is essentially a Chinese public infrastructure project that happens to exist in another country,” he said.
The Kunming-Vientiane railway’s 260-mile segment in Laos will be operated by the Laos-China
Railway Co., a joint venture between China Railway group and two other Chinese government-owned companies with a 70% stake and a Laotian state company with 30%.
Borrowed money makes up 60% of the railway’s investment, according to the two governments.
Such a debt load is unusually heavy and “repayment risk should be quite high,” said Laura Li of S&P Global Ratings, a specialist in infrastructure financing.
Laos might be forced to take over repaying the joint venture’s full $3.5 billion debt to keep the line running if the company defaults and the Chinese partners choose not to put in more money, said Ammar Malik and Bradley Parks in a report for AidData, a research project at Virginia’s College of William & Mary.
That is the equivalent of nearly a fifth of Laos’s economic output last year.
The country’s outstanding debt, much of it owed to Beijing, is equal to about two-thirds of annual economic output.
Laos has been one of the world’s fastest-growing economies over the past decade but still is one of its poorest.
Its average economic output person more than doubled since 2010 but stands at $2,600.