China-financed Laos railway expands Beijing’s reach in Southeast Asia

VIENTIANE, LAOS — As Beijing weaves its web of roads and railways through Southeast Asia, a massive Chinese-financed infrastructure project in Laos is quietly reshaping the region’s geopolitical landscape.

The $6 billion China-Laos railway, which opened in December 2021 and will soon provide a direct route from Kunming, China, to the Gulf of Thailand through connections with previously existing rail lines in those countries, stands as a symbol of Beijing's ambitious regional expansion strategy.

Initially planned with 32 stations, the railway currently boasts 10 passenger stations and 10 freight stations, with further expansion in progress.

The railway is managed by the Laos-China Railway Company, a joint venture in Vientiane. Laos holds a 30% stake through the Lao National Railway State Enterprise, with Chinese state-owned enterprises, led by China State Railway Group Company Ltd., covering the remainder. Funding includes a 60% loan from Eximbank of China and 40% equity investment from each nation.

Laos' $1.79 billion share includes $730 million in equity and $1.06 billion in debt, supplemented by a $480 million Eximbank of China loan and $250 million from the state budget.

While the project promises economic growth for Laos, it is also part of China's strategic Belt and Road Initiative aimed at extending the country's influence.

Daniele Carminati, a visiting lecturer at Bangkok’s Mahidol University International College, acknowledged the potential economic benefits of increased Chinese investment in Laos. He said that while there are opportunities for local employment and business growth near railway stations, there is also the risk of deepening dependence on China.

"China will still have a major role in the operations of the railways, and this can result in political influence, even if passively. Laos could hardly take a tough stance with China because there is a lot to lose," he told VOA by email.

Given Laos’ location bordering China, a tough stance would be unlikely anyway, he said.

"It is sensible for Laos to 'accept its status' and try to reap the benefits accordingly," he said.

The influx of Chinese investment may bring short-term gains, but the long-term consequences could entrench Laos in a cycle of debt and subservience.

Grace Stanhope, a research associate in the Lowy Institute’s Indo-Pacific Development Centre told VOA, "The railway was intended to increase economic activity and facilitate cross-border exports and tourism for Laos. However, reports indicate that most of the exports on the railway to China are from Chinese companies operating in Laos, rather than Laos-owned businesses."

According to Laos-China Railway Company figures, the Laos-China Railway recorded over 10,000 trains and 8.7 million passengers from January to May, a 17.5% increase over last year.

Looking ahead, Laos and Thailand are preparing to initiate a trial run of a Vientiane-Bangkok railway link on July 13-14, with plans for it to become the first rail link between Thailand and China.

Influence at the local level

Despite regulations requiring payments in Lao kip, railway stations display prices in both kip and Chinese yuan. Vendors often accept yuan, given the high number of Chinese tourists and business travelers, said Phetsamone ‘Mone’ Vilaysack, a cashier at a small shop in the Vientiane train station.

"The train and its operation are mostly run by Chinese companies, it makes sense that we should allow them to pay in yuan," Mone told VOA.

A train hostess, who asked to remain anonymous, said she was unaware of the currency law but was instructed by her employer to ask for payments in kip first but accept yuan.

"When customers pay, I always tell them the price in kip first. If they say they have only yuan, I allow them to use it," she said.

She said that since she started working for the Laos-China Railway in early 2022, there has been a massive increase in Chinese visitors.

"There are so many businessmen from China traveling by train now. I can recognize some of them. I guess they must have some big businesses in Vientiane or Bokeo," she said. "When I see them, I know they would pay in yuan."

Bokeo is the one of the most controversial areas in the region. It is home to the biggest Chinese-run special economic zone in Laos and is well known as a drug trafficking center with allegations of human trafficking, forced labor, prostitution, and illegal scam rings and gambling.

Jeuan, who prefers to be known by his nickname, has operated a restaurant in the Bokeo zone since 2021 but lives with his family in China, close to Laos' northernmost border.

"I often use the train to cross to Laos. It’s fast and cheap. It’s not necessary for us [his family] to move to Laos. I can just invest here," he told VOA at the Vientiane station while waiting for his train to Bokeo.

Jeuan said he travels to Bokeo and Vientiane up to three times a month, personally handling business paperwork with local authorities.

"I can consider investing in more businesses in Bokeo, or even Thailand, if the train will go there in the future," he said.

Regional influence, debt concerns

Meanwhile, concerns over the railway's financial implications loom large. Financed largely through Chinese loans, the project has raised apprehensions about Laos’ mounting debt to China, estimated to be over half of Laos' external debt, exceeding 100% of its gross domestic product, according to Stanhope.

Critics also say such projects could spur increasing alignment of Lao economic and political decisions with Chinese interests and that the project increases Beijing's leverage over Lao infrastructure and resources, potentially compromising Laos' sovereignty.

"The main challenges, beyond technical ones, would be for China to build a credible/persuasive narrative ensuring they will not take advantage of their role while respecting the receiving countries' sovereignty, aware that the United States and allies will keep warning the region of such risks," Carminati wrote in his email.

The project is part of China’s vision for the Kunming–Singapore Railway, also known as the Pan-Asia Railway, a flagship BRI project in mainland Southeast Asia. The vision includes three routes linking Kunming to Singapore via Myanmar, Thailand, Laos, Vietnam, Cambodia, and Malaysia.

Carminati cited the potential geopolitical impact of extending the line all the way south to Malaysia and Singapore.

Thailand, Malaysia and Singapore would not stop defending their national interests, he wrote, "but it is hard to deny that ... a softer stance is expected if these major infrastructure projects are to be completed, maintained, and 'exploited' in the long term."