Infrastructure Development: How China’s Influence on Laos is Growing

Hydroelectric power stations, high-speed trains, roads – the poor, landlocked country of Laos could really use China’s expansion of its infrastructure. But what do the local people get out of it?

Where there used to be a village, today only the roof of a Buddhist temple sticks out of the water. The village of Ladthahae on the Nam Ou River in northern Laos was flooded for the construction of a Chinese dam.

Laos wants to generate electricity by building hydroelectric power stations and become the “battery of Southeast Asia”. Around 100 dams are expected to be in operation by 2030. By exporting electricity, the communist unity party wants to strengthen the economy and reduce poverty. Laos is one of the poorest countries in Asia with a low education rate. The majority of the roughly seven million Laotians work in agriculture.

Laos is China’s biggest debtor

Red Chinese trucks rattle past the house of a farmer in the north of the country every minute. Not far away the warning signal of a train sounds. It is the country’s first high-speed train. China bore 70 percent of the construction costs, 30 percent Laos.

Laos has borrowed heavily for the construction of various infrastructure projects such as the railway line, dams and roads. The largest lender and investor is China. This leads to an increasing dependency of the country on its big neighbor. According to the US research institute AidData, Laos has the highest debt to China in the world in terms of gross domestic product.

According to the World Bank, the debt is now even higher than Laos’ annual GDP. This is also due to the massive devaluation of the local currency kip against the US dollar. The inflation rate is currently around 40 percent, says a banker who is having lunch in a street restaurant in Laos’ capital Vientiane. Fuel and food prices almost doubled last year.

Train travel only for the wealthy

Chinese, tourists and wealthier Laotians – or Laotians who have saved up for a ticket for a long time – are therefore more likely to sit in the new express train. A second-class trip across the country costs just under 30 euros. A lot of money with an average salary of around 200 to 250 euros per month.

The Laos-China-Railway logo is somewhat reminiscent of the Deutsche Bahn logo. The seats are protected with covers. In the second class there are three places on the left and two on the right. The new train saves him a lot of time, says a passenger.

The train ends in Boten, a former casino town on the Chinese border, in northern Laos. A road with deep potholes leads from the train station past a truck terminal and the customs post. A little further, the dusty road turns into a new, perfectly paved four-lane road, with tall white street lamps on the sides.

Node of China’s New Silk Road

“Here is China, there Laos,” says a young Laotian with a laugh. He works at the border for a logistics company, studied in China and speaks the language. Although Boten is on Laotian territory, there are many things that remind him of China. The architecture, the writing on the buildings, the restaurants. It is even paid with Chinese currency. And China still has a lot planned.

On the ground floor of a newly built office building, the model of a future, ultra-modern city stands on a white marble floor. A Chinese guides through the exhibition in search of potential property buyers. The city is planned, built and financed entirely by Chinese companies.

The woman who guides through the exhibition explains that the investments will make Boten an important hub of China’s New Silk Road – an infrastructure project in China whose roads, bridges and railway lines stretch all the way to Europe. The exhibition illustrates this on a large world map on the wall. Red dots lead from China to Duisburg. Among all the infographics: the new express train.

“No intentional debt trap”

The railway line is important for China to transport goods to Laos and later through Laos. The route is to be further built in Thailand and lead to the port of Singapore. For China, the route is an important alternative to the shipping route through the South China Sea or the Strait of Malacca. The project is interesting for Laos because it strengthens its position as a logistics hub – important as the only country in Southeast Asia without access to the sea.

According to the Federal Foreign Office, China has not sufficiently taken into account the debt sustainability of some countries. Last year, Laos made headlines because the country was on the brink of bankruptcy. However, Jacob Gunter from the Mercator Institute for China Studies believes it is unlikely that China intentionally drove its small neighbor Laos into a debt trap. They would be interested in a stable neighbor.

Unlike in the case of Sri Lanka, China will not let Laos go bankrupt either. Marcus Hernig from the German Society for Foreign Trade and Location Marketing shares this view. “China needs Laos as a transport corridor. The state banks will certainly postpone their credit periods for as long as possible.”

Negative local impact

The people on the Nam Ou River are currently feeling the negative effects of the mega infrastructure projects financed by China. Five villages were resettled for the dam project. The Chinese investor has built new stone houses close together on higher levels. “Everything looks the same, the soul of our village has been lost,” says one resident.

Nobody wants to be quoted by name here. An old woman sits on the floor next to her daughter who is washing lettuce. In the past they would have had a large garden where they could grow fruit and vegetables. They had plenty of room for their cattle. Now they only have one house.

There are similar problems in other villages. The school bus no longer comes because the driveway to the new village is too steep. Others report that the bus ride to school now costs 5,000 instead of 2,000 KIP each way, equivalent to 28 cents per child. Too much for some families. Almost everyone complains that the toilet tanks in the ground are too small. A man sits on the dark ground floor of his new home with a jigsaw, cutting up tiles for the new toilet. All at your own expense.

Cracks can already be seen on the walls of the houses built by the Chinese, and in some houses also in the concrete floor. Many have no money to lay tiles or plaster the walls. Let alone buy a ticket for the new railway. For many, the infrastructure projects like the Chinese train remain something from another world, rushing past them at high speed.