China train project runs roughshod over Laos
Laos-China railway is now 20% complete but there are few signs the US$6 billion project's benefits are trickling down to the local Lao economy
Lao officials have told Samkhan Koomsanyalat that she and her family will have to leave their home in Phu Din Daeng village, nestled in a bucolic valley amid limestone cliffs, to make way for the Laos-China railway.
“The government has told us we have to leave, but they haven’t told us how much they will pay us,” said Samkhan, who currently lives about eight kilometers outside of Vang Vieng town. “We will not move unless we are paid.” Now her once peaceful home is next to a giant construction site, near the planned Vang Vieng Railway Station.
Phu Din Daeng, a village of 200 people, is situated directly in the route of the 414-kilometer Laos-China railway, a medium-speed train system (160 kilometers per hour for passenger trains and 120 kilometers/hour for freight). Upon its scheduled completion, Laos will be transformed from land-locked to “land-linked”, in the parlance of the ruling Communist Party.
The project’s scheduled launch, set for December 2, 2021, will symbolically mark the 46th anniversary of the creation of the Lao People’s Democratic Republic, the one-party communist system that has governed the country since 1975.
Construction of the Laos-China railway began in December 2016, and is now more than 20% complete, according to government media reports. Some 53 tunnels have been bored through mountains at a combined length of 37,314 meters, while 47 of the 167 bridges to be built for the line are under construction, according to the Vientiane Times.
Tunnels and bridges will comprise 62% of the track’s length, from Boten on the northern Laos-China border, to Vientiane, the capital. It will pass through scenic mountainous terrain while stopping at the country’s major tourist destinations such as Luang Prabang, the ancient royal capital, and Vang Vieng, a hipster hangout on the Nam Song River.
More than 4,000 Lao families will be “impacted,” and 3,832 hectares of Lao land will be handed over to the project, according to state media reports.
Under a China-Laos agreement signed in 2016, the two sides have set up a joint venture – the Laos China Railway Company – where the Lao sides holds 30% and China 70%. The joint company is responsible for the estimated US$6 billion mega-project, the largest investment in Laos to date worth about 35% of Laos’ meager gross domestic product (GDP) of US$17 billion in 2017.
Although the railway project is now considered part of China’s Belt Road Initiative (BRI), it was actually conceived long before the grand US$1 trillion Chinese infrastructure scheme was hatched.
Vientiane and Beijing had discussed a train link as early as 2001, culminating in the signing of a memorandum of understanding in 2010. The two communist neighbors came close to launching the scheme in 2011, but it was derailed by a corruption scandal at China’s Railways Ministry.
The project was dusted off again in 2015, when both sides resumed discussing financial terms. Under the terms of the latest deal, both sides must commit over 40% of the investment (or US$2.4 billion) in cash to cover initial construction costs, to be split 30/70 with China paying the lion’s share.
That means that Laos’ cash commitment is US$720 million, of which US$250 million will come from the national budget over the next five years and the remaining US$470 million borrowed from the Export Import Bank of China at a 2.3% interest with a 35-year maturity after a five-year grace period.
Laos’ public debt is projected to reach 65% of GDP this year, up from 61% in 2017 due to increased borrowing from Chinese banks and the issuance of sovereign bonds on the Thai market. The figure already has the International Monetary Fund (IMF) concerned, judging by its most recent assessment of the country’s fiscal situation.
While US$50 million a year might seem a manageable budgetary burden, it is a fiscal challenge for little Laos, which faces declining revenues from its mining sector (big silver and copper mines are expected to be depleted in two to three years) and a low tax base of about 12% of GDP.
An estimated US$250 million is to be spent on compensation for those displaced by the rail project. Leakage in such payments is to be expected in Laos, where corruption is the norm. However, there are worries that the cash payments will detract from the government’s already inadequate budgets for health and education.
It is still unclear how Laos will pay for its remaining US$1.1 billion commitment to the project. Development bank officials in Vientiane say the remaining portion will likely be paid in kind via land contributions to the scheme, though it’s unclear how such land concessions will work.
Visits by paid by this reporter to the potential rail station sites in Luang Prabang (about 13 kilometers north of the city) and Vang Vieng (eight kilometers north) revealed huge plots of land being cleared for what looks like more than just cargo and parking space.
The Vang Vieng station site covers 143.8 hectares, presumably enough land to set up train facilities as well as commercial complexes and hotels.
“We heard that Laos has pledged some concessions, on bauxite or other things, in order to basically back the guarantee for the JV component,” said one international organization head who requested anonymity.
“If that is the case then I presume that there is no further government guarantee, but I don’t know, because the deal was not wholly transparent or discussed in an open way when it was negotiated.”
The lack of transparency and independent local media coverage has spawned rampant rumors, including murmurs that the government has agreed to allow 8,000 Chinese families to settle in Laos as a type of down payment on the train project.
What is clear so far is that there has been little trickle down into the local economy from the US$6 billion project. Workers on the track, estimated at over 30,000, are predominantly Chinese, so the project has created few new local jobs.
Chinese work camps, meanwhile, are situated far from city centers, and food and supplies are provided mostly by Chinese contractors rather than local vendors.
One form of local employment, however, is on the rise: prostitution. Lao locals say brothels, specializing in provincial Lao girls with little education or job prospects, are being established to cater to the Chinese workers. There is little interaction with locals beyond the commercial variety, they say.
“They leave villagers alone. The Chinese workers are like prisoners. They stay in their barracks mostly although some will come out at night, but they don’t have much money to spend,” said Phanh Bounthium, a Luang Prabang-based van driver.
“In the short term, we thought there would be some impact, but we haven’t seen it,” said Bounmy Sengphachan, deputy chief executive officer of Banque Franco-Lao (BFL), a joint French-Lao bank “But in the long term, once the railway is finished it’s going to bring a lot of people in and we will see a lot of tourism infrastructure being built that will have an impact on job creation and everything.”
That may or may not come to pass. Many of the smaller hotels and restaurants in Luang Prabang and Vang Vieng are already being rented out by their Lao owners to Chinese, Vietnamese and Korean entrepreneurs. Lao jobs at the tourism-geared businesses are largely confined to cleaners and bus boys.
Once completed, the railway is expected to facilitate even greater imports of the cheap Chinese goods which already inundate Lao markets and discourage local industries. It will also detract from locally owned bus and plane services between Luang Prabang and Vientiane, economists note.
“The railway serves a political purpose and an economic purpose,” said one Lao economist, who asked to remain anonymous. “It’s not only about Laos. We have agreed to serve as an international connection, and the government committed to it. But looking at the economic returns…not much.”