Experts have warned that the Communist Party’s “Belt and Road” projects in Laos in recent years threaten to trap the country in a “debt trap” that would put it at the mercy of Beijing. The $6 billion railroad project has not only increased Laos’ debt burden, but also has unpredictable benefits. The Chinese feasibility study is said to contain unrealistic assumptions.
As the largest lender and investor, China (Communist Party of China) has invested more than $12 billion in Laos through 785 projects, ranging from special economic zones and industrial parks to large-scale infrastructure, according to the South China Morning Post.
Viability of $6 Billion China-Laos Railway Questioned
According to the report, the Sino-Lao railroad project is the largest Chinese Communist Party infrastructure project in Laos and the most high-profile Chinese investment project. Construction of the $6 billion railroad began in 2016. It is reportedly now 90 percent complete, with the Vientiane-Vang Vieng section expected to open in December.
Selina Ho, professor of international affairs at the National University of Singapore’s Lee Kuan Yew School of Public Policy, said the railroad is expected to be completed on schedule despite delays due to the Epidemic.Ho added that Laos decided to go ahead with the railroad despite criticism that fares would be too expensive for the average Laotian and that the market was too small for an investment of this scale.
Ho said the feasibility study for the project was carried out by the Chinese side, with Beijing’s justification that Laos did not have the capacity to conduct such a study. And the feasibility study has been criticized for containing unrealistic assumptions and overly bullish projections for passenger and freight traffic.
Ho said other major powers, including Japan, were reluctant to accept the project.
Chinese workers prepare for the construction of a railroad linking China and Laos in March 2011. (Photo credit should read HOANG DINH NAM/AFP via Getty Images)
Keith Barney, a senior lecturer at the Australian National University’s (ANU) Crawford School of Public Policy, said Laos needs to develop proactive and practical strategies on how the railroad will drive investment and revenue, such as building and operating warehouses and storage facilities, organizing transportation and supply chains, and addressing immigration and visa management issues.
The danger, Bani said, is that the Laotian government will only invite Chinese investors to establish a string of special zones along the railroad, which will become new Chinese enclaves in Laos. China-linked casino enclaves already exist in Laos.
Martin Stuart-Fox, professor emeritus of history at the University of Queensland, says bluntly that the railroad will increase Chinese Communist penetration in Southeast Asia and could increase the influx of Chinese immigrants already flowing into Laos in search of business opportunities and wives.
In a July 2019 article in Forbes, Professor Panos Mourdoukoutas, chair of the Department of Economics at Long Island University in New York, revealed three major problems with the Communist Party’s Belt and Road projects: 1) they are economically unviable; 2) they are being built at exaggerated costs; and 3) They leave partner countries with heavy debts. The article says that this has resulted in many expensive but impractical “white elephant” projects for small countries, and that the Chinese Communist Party has used bribery to promote Belt and Road projects.
China’s dam projects in Laos lack revenue-generating capacity
In addition to the railroad project, the Chinese Communist Party is also funding the construction of dams on the Mekong River and its tributaries in Laos. Susanne Schmeier, an associate professor at the International Institute for Hydraulic and Environmental Engineering in the Netherlands, said the move has raised major concerns in downstream countries such as Cambodia and Vietnam, who fear the dams will cause floods and droughts and block fish migration routes, thus affecting Food security and livelihoods.
Bani said Laos has taken on too many dam projects without fully considering their ability to generate revenue or the existence of an efficient electricity market and infrastructure capacity to deliver power to customers.
“Chinese investors and Chinese policy banks are no less responsible for the situation.” Bani said.
Laos fears debt trap
Analysts warn that the China-Laos railroad, along with other Chinese Communist Party investments, could eventually send Laos into a debt trap.
Various estimates suggest that the Chinese Communist Party has invested more than $10 billion in Laos. This represents about 45 percent of Laos’ 2019 gross domestic product (GDP), according to a study by the Lowy Institute in Australia.
Credit rating agencies say Laos faces growing debt distress and the risk of sovereign default – problems exacerbated by the New Coronavirus pandemic and the power sector’s lingering debt. The country’s foreign exchange reserves are already set to fall below $1 billion, less than the country’s annual debt repayments required.
Last September, the Financial Times reported that Laos had sought possible restructuring proposals from its largest creditor, China.
If Laos believes such a restructuring is indeed necessary, it could find few options other than giving the Chinese Communist Party greater access to Laos’ energy and natural resources, analysts say.
That could even lead Laos to make political concessions, Schmeier said.
Former U.S. President Donald Trump and his administration strongly opposed the Communist Party’s Belt and Road Initiative, which former Vice President Mike Pence called a “road of no return” to bind other countries and a “debt-trap diplomacy” to expand the Communist Party’s global influence. “. The Trump Administration has denounced the Belt and Road as a way for partner countries to borrow money from the Chinese Communist Party to pay for Chinese contractors’ work to build infrastructure projects that the partner countries cannot afford. When partner countries are unable to repay their debts, the CCP takes advantage of the opportunity to plunder their strategic resources.
“Sri Lanka, a key country in the Belt and Road Initiative, has borrowed billions of dollars from the Chinese Communist Party for infrastructure development. Due to insolvency, Sri Lanka had to sublease 15,000 acres of land in and around the strategic Hambantota deep-water port in the south of the country to China for 99 years in 2017. The move sparked a flood of condemnation and protests in the country, with protesters saying the country’s sovereignty has been violated.
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