In late-March, the first piece of track of the $6 billion Kunming-Vientiane railway was bolted down, a major milestone for the line linking China’s south west with the capital of landlocked Laos.
An emblematic piece of China’s Belt and Road Initiative (BRI) and a torch bearer for future regional railway lines, the project has proved impervious to the disruption that Covid-19 has wrought and looks set to be completed by December 2021.
The single-track, 400km-long railway will run through 76 tunnels and over 154 bridges, with trains hitting top speeds of up to 160kmh. While that pales in comparison to the high-speed trains north of Laos’ border, for a country with only a 4km stretch of existing railway, the project will prove groundbreaking in the country’s quest to shed the limitations of its landlocked status.
The railway is seen as a vital link of the Chinese BRI dream being played out on its comparatively tiny neighbour. But Laos has its own ambitions at play. The long, mountainous country has embarked on an ambitious railway plan to cheat geography and become ‘land-linked’ with the help of an infrastructure overhaul financed with outside help.
With the train fast approaching the platform, the tangible benefits of the project remain unclear, more so for those in Vientiane than Beijing. Funded primarily by the BRI’s opaque financing system, the project is a joint venture that is within Laos’ borders, but not of its making. And while railways historically have heralded connectivity and economic benefits for both state and localities, with Laotian demand for the route seemingly not there, scant infrastructure in place to capture revenue and fears of debt defaults for the project, the view is less clear on Laos’ BRI Express.
Other than the existing 4km stretch, Laos has no rail network, explaining the eagerness of which it has approached the railway to Kunming.
“Building railways has long been a goal for Laos, as it missed out on colonial railway infrastructure in the early 20th century,” explained Keith Barney, a senior lecturer at the Crawford School of Public Policy at Australian National University.
The roots of the project stretch back decades, when the idea of a Kunming-Singapore regional railway was softly proposed at the 1995 ASEAN summit.
“Actors within the region have looked at this project and struggled to see the viability of it, but then in steps China,” Scott Morris, co-director of sustainable development finance and a senior fellow at the Center for Global Development, told the Globe. “It’s become sort of emblematic of its investment projects under BRI.”
Representatives from China and Laos signed a memorandum of understanding for the project in 2010, six years before workers first broke ground on the initial stretch of railway. The China-Laos partnership, however, is weighted more to the former according to Simon Rowedder, a postdoctoral fellow at the National University of Singapore and member of the Max Weber Foundation Research Group on Borders, Mobility and New Infrastructures.
“The railway is now being realised within a Chinese framework with Chinese money, Chinese workers and Chinese vision,” Rowedder said.
What’s more, the project’s investment model would subdue much of the economic benefits for Laos at the construction level, with the vast majority of laborers working on the railway being brought in from China.
Morris said the Chinese investment model suggests a series of diminishing returns.
“The entire financial package rests on the use of Chinese firms, so Laos is not feeling the boost may be as much as it should have done,” Morris explained.
Like similar projects that fall under the BRI’s obfuscated financing umbrella – the railway seems more like a project within Laos, but not by it, or even for it. Morris said investment entities within the BRI template don’t report financial data “in any sort of transparent fashion”, making it difficult to parse out what their funding packages actually consist of.
This was the case for the Kunming-Vientiane railway, which Morris said carried a price-tag beyond what the Laotian government was able to borrow on its own. As a product of that, the financing structure of the project forms a 70-30 ownership split, made up predominantly of Chinese loans and equity investments. The World Bank estimates China’s share of the financing to be $4.11 billion.
“A lot of criticism leveled at BRI goes towards this issue, where you have a government owned-Chinese entity that is taking a majority stake in massive infrastructure,” Morris said. “It’s politically sensitive, but the only way this project was going to get done is with this equity.”
Laos also had to turn to China to help fund its minority stake, taking out a $480 million loan from China’s Export-Import Bank, and further $250 million from the government budget, and it will need the railway to generate enough revenue to service the loans, or risk defaulting.
“Even for Laos to fund its minority stake, they needed a huge loan from the Chinese government – which makes it particularly convoluted,” Morris said.
