China helps Laos kickstart multi-billion dollar railway link | Connect Asia

China helps Laos kickstart multi-billion dollar railway link

China helps Laos kickstart multi-billion dollar railway link

Updated 21 November 2012, 16:23 AEST

Construction of a $7 billion railway link between Laos and China is set to go ahead next year after a Chinese bank reportedly threw a financial lifeline to the stalled project.

The railway linking Vientiane to the Laos-China border will start next year and is scheduled for completion in 2018.

It will be a link in a vast network set to connect the southwest Chinese city of Kunming with Singapore.

Presenter: Del Irani

Speaker: Keith Barney, Crawford School of Public Policy, Australian National University

 

BARNEY: Well, it's highly significant in terms of Laos' development prospects. There's a couple of rationales that are forwarded for why it's needed, I suppose. Clearly if there's a strong story of national building within Laos, the Deputy Prime Minister of Laos, Somsavat Lengsavad, clearly sees the overcoming of the geographical constraints of Laos as a key rationale for the project and moving Laos from a land locked to a land linked status. There's also a strong story of transportation of people between China and within ASEAN and the export of natural resources as part of the railway project.
 
IRANI: This project has created some controversy with reports that thousands of people will be forced off their land. What are sort of the environment implications of this development?
 
BARNEY: Well, there's a few aspects to that I suppose. On the one hand, Laos, has in the last ten years, experienced enormous growth and forced land acquisitions and removal off land farmers from their traditional lands and forests and it's also notable that upland communities in these areas of Laos have very high rates of food insecurity, with the World Food Program reporting that one in two children are malnourished in rural upland areas of Laos.  So the issue of land and resource concessions generally is very high on the list of concerns amongst rural Laos citizens and there's been key issues raised when they've been given the opportunity to raise them.
 
IRANI: But do many see this project has having greater gains for Laos' economy and future growth?
 
BARNEY: Well, there's a few aspects to that as well I suppose. First of all, there's the question of how the seven billion dollar loan would actually be repaid and reports indicate that the loans with China's EXIM Bank is structured as a sovereign loan guarantee, which would include that revenues from the project and all the project assets would be part of the loan guarantee, but also royalties from other resource projects in Laos.  
 
IRANI: Talking more about this loan. There are obviously a lot of concerns about some of the terms on which this credit is being provided by China and there's a concern especially that it might carry a pretty high debt burden. Are these concerns valid, are there fears that this loan could actually put Laos at risk?
 
BARNEY: Well, I think there are some concerns about this. Even though it's a low interest loan on concessional terms and it's reported that there's a delay on repayment on the principle for ten years. It's still a massive loan for Laos to be taking out. The GDP of Laos is only slightly larger than the loan itself. The GDP is listed as around 8.3 billion dollars and the IMF has come out recently and stated that the issue of credit growth and higher lending rates have emerged as a source of vulnerability in the Laos economy.  However, I will note that Moody's credit rating agency issued a paragraph a few weeks ago which stated that the Laos-China project would be a net credit positive for Laos, given the opportunities for economic development and expanded resource exports to China.
 
IRANI: Is there information right now about how the Laos government is going to pay China back eventually?
 
BARNEY: It's not exactly clear, but there's the issue of the sovereign loan guarantee and the potential for Laos to pay back part of the loans through mineral exports is being suggested.
 
IRANI: And in geo-political terms, Laos has always been close to Vietnam. Is this going to shift them more toward China?
 
BARNEY: Inevitably I think yes. First of all, there is the issue that it's suggested that 50,000 Chinese workers would be required to construct the project in Laos, so certainly the project would bring a deepening geographical integration of northern Laos with China. At the same time, you have a new project, being talked about now which is Laos-Vietnam High Rail Speed Rail project through the east-west corridor through Savannakhet Province. So perhaps that might be part of how the geopolitics are being managed here whereby China extends its zone of influence in northern Laos and Vietnam into southern Laos, with Thailand also playing a role here.
 
IRANI: And how is this rail project going to fit into the big trans-Asia project?
 
BARNEY: Well, the ultimate goal, of course, is enhanced regional integration and people took about the journey of ten hours from Kunming to Singapore by high speed train connecting through Vientiane, Bangkok and Kuala Lumpur and Cambodians and Myanmar would also be connected by different sections of the project. But the manner which all this is going to proceed is not really that clear. For example, Thailand has not finalised plans for the Bangkok to Nong Khai  connection, which is across the river from Vientiane and it has not announced any plans for what would happen for the Thai section of the rail project which would connect up to Laos East West Vietnam project.
 
IRANI: Do we have an indication of timelines when perhaps more information will be revealed?
 
BARNEY: Well, the project has been first started talked about towards in 2009-2010 and it was put on delay at that point after a Chinese Railway Minister was fired for corruption, so it's kind of gone through a few stops and starts and we'll have to see how things move forward.

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