China’s US$7 billion railway link to Laos is almost half done, on schedule to begin service in 2021
- Laos is dependent on China to bankroll the US$7 billion project, raising concerns of being caught in a debt trap
- The Kunming-Vientiane link would eventually connect with a railway line to Bangkok, and southward along the Malay peninsula through to Singapore
China’s railway line to Laos, a 414km (257 miles) link between the Yunnan’s provincial capital of Kunming and the Laotian capital Vientiane, is almost half complete, putting it on schedule to begin service in December 2021, said the chief of Lao Railways.
Trains on the line can travel at up to 160 km/h (100mph), cutting the travelling time between the two cities to three hours from three days, said Lao Railways’ director general Somsana Ratsaphong. Tickets will start from US$20 a trip.
The Chinese government, a major promoter of the Belt and Road, will bankroll 70 per cent of the cost of the railway, while Laos – where subsistence agriculture makes up half of the economic output – pays for the remaining 30 per cent with loans from Chinese financial institutions. China was the biggest foreign investor in Laos as of 2016, having invested US$5.4 billion since 1989.
“For an economy like ours, with a population of only 6.8 million people, it is good for us to make use of the manpower and finance from China,” said Ratsaphong, during the Asia-Pacific Rail conference in Hong Kong.
Part of the loan’s tenure will be interest-free, with a 2 per cent annual rate charged over 30 years, according to Ratsaphong. The financing terms have raised concerns among developing nations of being pushed into a debt trap, as debtors may find themselves saddled with large borrowings that would take a long time to repay.
Malaysian Prime Minister Mahathir Mohamad has been the most vocal critic, instructing his government to scrap a US$20 billion rail link on the country’s east coast after balking at its construction cost and the terms of its loans from Chinese banks.