China’s New $6B Railway in Laos: Massive Debt Trap or Megaproject Success? | WSJ Breaking Ground

- Built between. the mountains and forests in Laos, rest a key component to one of China's biggest endeavors. (trains swooshing) A $6 billion high-speed. Railway stretching from Boten to Vientiane. In just a few years, the, Chinese built railroad has transformed what was once a few dusty lanes surrounded by tropical forest into what developers hope will become a major trade and transport hub. - Being able to travel across. the country so quickly, it's unprecedented. - But with this. Railway comes big questions - To many critics, this. project would be a symbol of irresponsible Chinese lending. - And it's just one part of China's Belt and. Road initiative or BRI. A trillion dollar mega project aimed at building a global infrastructure network. The Railway currently connects China to the capital city in Laos,, but that's just the start. - The ultimate idea is this will be part of a broader network to, better connecting Laos, not just to China, but to Thailand and throughout to the, rest of Southeast Asia. - Its impact on the country is already showing here,. right near its first stop in a six square mile special economic zone. One year before the railway launched, you can see residential. high rises in the south and mixed use towers in the north pop up, along with a headquarters office for the Yunnan Haicheng Industrial Group, the Chinese developer behind the zone. Most of this is due to. China's economic investment. (workers speaking in foreign language) - There's a few different motivations for China and the Chinese government. They're looking for new markets, new opportunities for Chinese companies and new places to export. their excess capacity in things like railway,. ports, hard infrastructure. Of course, it's to a great extent about the geopolitical game trying to increase China's. influence in the world. - If the larger network across Asia develops as imagined, experts, say China will be able to bind these economies to. its own for decades to come and since opening almost two years ago, the line from China to Laos has carried more than 20 million passengers and more than 25 million tons of cargo. For Laos, the railway is essential for fulfilling its ambition of growing into a robust export market. - Lao really wanted to go from, you know being landlocked to land linked. - The World Bank, says the Laos-China Railway could raise the Southeast Asian, country's aggregate income by up to 21% over the, long term if managed well. (horn blaring) More than 2000 products. are now approved for export via the new cargo route. Products like watermelon, cassava flour and rubber are heading to China. While mechanical equipment and chemical fertilizers pour into Laos, but weather Laos can reap the financial returns. it imagined is still unknown because in order to make, this railway happen, Laos had to take on significant debt. (train swooshing) According to World Bank records, more than half of the $6, billion high-speed rail line was funded by loans from the, Export Import Bank of China, a Chinese state-owned lender,

and to pay for its share, Laos borrowed about $1.5. billion, but in 2016 the country already had, high levels of debt. - They borrowed at a time where their debt was. actually unsustainable. Their revenue kind of stayed at the same levels, but their debt became unprecedented. You can see kind of a huge spike in borrowing from about 2013. - Laos debt has since grown. In 2021, the country's, external debt stocks amounted to about 90% of its GDP and now with surging inflation and no clear bailout agreement set, the country is heading, into an economic crisis. - People are worried, about their employment, the fact that they can't buy goods anymore. There's a general feeling that. there's a real crisis abound. People are sort of looking for a way out. - Some Lao people are concerned about displacement and land loss, along with the environmental. impact of the railway. Although China's Ministry of Foreign Affairs says that around $260. million of construction funds were used for environmental protection, the World Bank estimates that. BRI transport infrastructure could increase carbon dioxide emissions by 7% in the country. Other critics of the project, view this type of lending as dangerous for developing countries. - A narrative that the US government and some allied governments, have been trying to push, that China is trying to use debt traps to kind of undermine the sovereignty of third countries like Laos and and many others. - China's. Ministry of Foreign Affairs has called these claims lies, adding that the Laos government. has publicly refuted this. - But I don't think that's necessarily how a lot of developing, countries would see things. I think they see these things as, you know opportunities that. come with strings attached. - Because, of its size, location, and economic situation, Laos, didn't have a huge queue of foreign investors waiting to come in and build large infrastructure, projects like the railway. China offered Laos a unique opportunity. Loans with generally higher interest rates than Western countries,, but with less scrutiny. - Was much easier to unlock the financing, to continue to get the financing and that's partly because. of some of the protocols and the lack of conditions that China has. - The fear among Western countries is that Laos economic situation will mirror that of Sri Lanka, where the country's sovereign debt crisis in part stimulated by Chinese lending has crippled its economy and sparked months of political, turmoil and public unrest, but Laos and Sri Lanka differ in their relation to China. - It's uncontested that Laos and China have a special relationship where China is much more generous than they are to potentially anyone else in the BRI. - Laos and China are both ruled by an authoritarian communist regime, which experts say contributes. to their diplomatic ties. - They're neighbors, but they're lucky in that, unlike many of China's, other neighboring states, there's no ongoing territorial dispute between China and Laos. - And as. recipients of Chinese aid, Laos along with Cambodia

have often sided with Beijing on maritime disputes. in the South China Sea, that they aren't a party to. The diplomatic ties between Laos and China date back over 60 years. Laos has often backed China's positions in international forums,. such as gatherings of a regional block called ASEAN, the Association of, Southeast Asian Nations. Over that same period, the US and Laos have developed a complicated, relationship because. - Laos was extensively, bombed by the United States during the Vietnam War or what the Vietnamese. would call the American War. - In 2016,. president Barack Obama was the first US president to visit the country. He offered reconciliation and $90 million to help clean up unexploded cluster bombs, but decades after the war ended, unexploded ordinance is. still injuring villagers and slowing development. (bomb explodes) A spokesperson for the State Department said that in total the US has given Laos $355 million since the effort to survey. and clear unexploded ordinance began in 1995. Experts say that if western countries want to avert deeper China relations in developing countries like Laos, they need both a stronger. relationship and approach. - If the US is trying to. kinda win more influence in Southeast Asia or other, parts of the developing world, they need a counter offer, rather than just criticizing Chinese projects. - Some analysts, say Lao's diplomatic ties are why the country hasn't. sought Western solutions to its debt issue, like the United Nations. International Monetary Fund based in Washington DC. - Even in this time of severe debt distress, Laos is still much more keen. to try to work out their debt with China directly. - To China,. this 262 mile rail line showcases its vision of success as a partner on massive. infrastructure projects. A point it's eager to make Since the BRI has been in retreat in recent years with a number of projects stalled or entangled in controversy. - If you wanna get the benefits. from a big project like this you need to have a lot. of ancillary facilities and connections to make the. new rail network worthwhile and it's not clear that there's been a fully thought through plan - And as it stands today, economists are still at odds. over its financial rationale. - There has been a lot of industrialization that has been stimulated. by the Chinese lending, but it's not really been concerted. The big push hasn't yet happened for Laos. It's gone from a country, that had enormous potential, to a country that's now really at the bottom of its trajectory in terms of development. (bright music).