Will Modern-Day Silk Road Bring Prosperity To Laos? – OpEd

By Pattama Vilailert

When a China-built high-speed railway began operations in December 2021, Laos joined the modern-day silk road project that opened itself to trade and tourism opportunities across Asia. But many in the country doubt whether the land-locked nation would reap full benefits.

But Sangphet Manivong, a Lao non-governmental organization staffer, was somewhat skeptical. “When Chinese tourists come to Laos, they stay in the hotels and eat in the restaurants that the Chinese run. Subsequently, the revenue does not go to the Lao people,” he complained.

“Also, in some areas like Boten on the border with China, where the Chinese own casinos and hotels, the Yuan is the main trading currency.” To overcome such concerns, Laos and China agreed in January this year to facilitate the direct exchange of the Lao Kip and the Chinese Yuan instead of having to make conversions via other currencies, as was previously the case.

The trains not only carry passengers from abroad but also shorten the travel time for Lao people, who have eagerly lapped onto train travel in a country without trains.

“It used to take me four hours by bus to Vang Vieng, but now it only takes me 55 minutes by train from Vientiane,” Vilaiphone Phommchanh, a 3rd year nursing student studying across the border in Udonthani, Thailand, told IDN. Her only complaint was to having to queue at the station because ticket sales open only 45 minutes before the train departs.

The railway is part of Chinese President Xi Jinping’s Belt and Road Initiative (BRI), launched in 2013 to establish two new trade corridors—land and sea—linking East and Southeast Asia to Central Asia, the Middle East, and Europe. A total of 147 countries have joined BRI.

In May 2017, Laos and China signed the ‘One Belt One Road Master Plan’, which focuses on seven areas of cooperation: Infrastructure, Agriculture, Capacity Building, Industrial Parks, Culture and Tourism, Finance and Banking, and Marketing.

The Laos-China Railway (LCR) is the top priority for the BRI cooperation between the two countries. At a speed of 160 km per hour, the 1,035-kilometre line connects Vientiane, the capital of Laos, with Kunming, the capital of southwest China’s Yunnan province. The line then connects to China’s national railway system, and at the other end (after the establishment of the bridge across the Mekong ), it will connect with the railways of Thailand, Malaysia, and Singapore as part of the Pan-Asian Railway Network.

The train stretches 422.4 km within Laos and connects the northern border towns of Boten and Luang Prabang, and Vang Vieng, popular tourist spots, with Vientiane. The LCR will advance economic and social development in the region by improving access to markets and resources, creating jobs, and reducing poverty.

According to China Railway Kunming Group and the Laos-China Railway Co., by April 2023, the cross-border railway handled 14.43 million passenger trips and 18.8 million metric tons of cargo. Today, local and foreign passengers pack trains.

But this project is not immune to criticism from foreign and local critics who claim the railway has increased Laos’s debt burden. Laos, which has ambitions to become the hydro “Battery of Southeast Asia,” has borrowed heavily to develop its hydroelectric potential, and the railway project is estimated to have added another $6 billion to its debts.

Half of the debts are believed to be to China, and according to the US research organization AidData, Laos’ debt to China, including off-balance sheet items as borrowings by state-owned enterprises, amounts to 65% of GDP, one of the highest in the world.

“Laos is heavily in debt and has not been able to negotiate much to its advantage. Several fruits and vegetables and other things (from China) influx Laos by train,” Sangphet told IDN.

Meanwhile, a May 2023 World Bank report notes that while the Laos-China railway line and the new dry port have facilitated travel and trade flows, and natural resource exports have supported industrial activity, macroeconomic instability and external factors have undermined the recovery.

The need to service large external debts, high import prices, and limited foreign exchange contributed to a sharp fall in the value of the kip, causing high inflation and weakening income, consumption, and investment.

“Most skilled workers leave the country to work in Thailand and elsewhere; many foreign companies established in Laos have hired their own experts,” said Noi Maliwan, co-founder of a private Lao SME Center. “Even for non-skilled work in a number of cultivated Chinese farms, Chinese are hired, although the Lao Labour Law stipulates that locals must be hired for such work. But foreign companies usually claim that Lao workers are not qualified.”

Sanphet alleges that the Chinese tend to get privileged treatment in the country. “It looks to me like some privileges are given to the Chinese; some Chinese men marry Lao women to own land,” he told IDN. “Chinese businessmen invest in banana farms so that Laos now has about 66,000 acres of banana farms and later transports them back to China on the Laos-China train, while Lao laborers working on the farm and their children are exposed to pesticide residues,” Sanphet added.

Noi also said that the number of small and medium enterprises in agriculture has increased due to the train operation. However, they are not owned by the Lao people as they have no capital but are owned by Chinese investors. It is a scarce opportunity for Lao people to co-invest with the Chinese.

Noi noted that before Covid-19, the economy was not that bad, but now it is time to pay off the debt, which has led to a devaluation of the kip, making the Lao economy vulnerable. Additionally, she expressed concerns about Lao SMEs’ inability to benefit from the railway.

“Many Lao SMEs in agriculture sell their products in the local market,” Noi pointed out. “They also want to export their products by train but lack capital as government support is only available for a few SMEs.”

Another Lao SME operator Bounthavy Inthavong (not her real name), agreed with that. “Currently, the cost of living in Laos is very high; even though World Bank and Asian Development Bank provide some loans through our governments, not many people qualify to get the loan.”

Hommala Phensisanavong, an academic at Lao National University, is more optimistic about the potential of the railway to spur her country’s economic development in the long term. “I see the advantages of Laos over the Laos-China train,” she said, pointing to her enterprising students who have ordered shoes, bags and cosmetics, among other things, from China and had them delivered by train, which they then sell online.”

“Besides, there is a high demand for Chinese-speaking staff, young people do not need to have a university degree, if they want to work, they may learn Chinese, and when they are proficient in the language, they are easily hired by Chinese companies in Laos,” she added

“It is encouraging to see that there is hope for Laos to sustain itself through investment and growth in the agricultural sector. The Laos-China train offers a valuable opportunity to increase exports to China,” notes Noi. But for this to happen, the Lao mindset needs to change, she argues.

“Lao government and people need to know what products are in demand and invest in growing and selling them. With continued efforts in this direction, Laos can achieve long-term sustainability and prosperity,” Noi told IDN in a hopeful voice.