China’s Promise of Prosperity Brought Laos Debt — and Distress

By Shibani Mahtani, Ore Huiying / The Washington Post

16:33 JST, October 21, 2023

VIENTIANE, Laos – At speeds of almost 100 miles an hour, the Chinese-built train zips over the Mekong River and careers through dozens of newly bored tunnels as it travels north from the capital. At its last stop, near the Chinese border, brand-new residential towers rise out of the jungle.

China funded much of the glistening new infrastructure that has transformed this landlocked country of 7.5 million people. The building boom showcases the kind of modernity China says it can offer the world, notably the high-speed Laos-China railway that in a feat of engineering transformed a two-day journey across the country into a sleek three-hour trip. The line was built by Chinese engineers to Chinese rail standards, allowing it to connect to China’s high-speed network.

But Laos is also an economy in distress. Inflation rose to more than 41 percent at its peak this spring. The Laotian kip has depreciated more than 43 percent against the U.S. dollar. In a country where virtually everything is imported, the statistics translate into sacrifice: farmers who can no longer afford fertilizer, children who have dropped out of school to work and families cutting back on health care.

The China-led strategy was meant to protect Laos from these shocks – instead, it led to them. Laos is struggling to repay the billions it borrowed from China to fund the hydroelectric dams, trains and highways, which have drained the country of foreign reserves. As repayments drag, external debt is rising, a vulnerability exacerbated by the pandemic and rising global fuel and food prices.

The AidData research lab at William & Mary, which tracks China’s lending, calculates Laos’s total debt to China over an 18-year period starting in 2000 to be at $12.2 billion – about 65 percent of gross domestic product. Add in loans from other agencies and countries, and Laos’s debt stands at more than 120 percent, according to AidData.

There is “no country in the world with a higher amount of debt exposure to China than Laos. It is a very, very extreme example,” said Brad Parks, AidData’s executive director. “Laos went on a borrowing spree and got in over its head.”

Laos has had to make compromises, including on its own sovereignty, to appease Beijing and seek some financial forbearance, allowing Chinese security agents and police to operate in the country as Beijing extends its repression beyond its borders, according to human rights groups and Lao activists. The Laotian electrical grid is now partly controlled by China, in what analysts believe is a trade-off in lieu of debt repayments. A Chinese company provides security for the new train line.

“Laos went on a borrowing spree and got in over its head.”

China also faces difficult choices. It cannot let Laos default, as Beijing’s regional strategy rests on success here. The rail line cutting through Laos is intended to extend into Thailand and Malaysia, and then Singapore, creating a network at the heart of Chinese leader Xi Jinping’s ambitions. Laos is also one of the few relative success stories for China, at a time where its Belt and Road Initiative is shrinking or being reevaluated elsewhere, forcing Beijing to focus on its most strategic goals – integrating its closest neighbors among them.

“Laos is the ticket to be closer to” Southeast Asia, said Toshiro Nishizawa, a professor at the University of Tokyo who specializes in economic and development policy and has advised the government of Laos. Beijing has so far been “very generous” by allowing Laos to defer payments, Nishizawa added, but it cannot postpone the problem indefinitely.

Debt forgiveness to countries like Laos will also open up China to similar requests from governments around the globe. Beijing has loaned almost $1 trillion to developing nations in the past two decades, a mammoth amount that has fundamentally reshaped China’s position in the world. “We are now getting acquainted with China as the world’s largest debt collector,” said Parks at AidData, something that is uncharted territory for both the borrowers and China.

“It is challenging not to let this affect your diplomatic relations,” Parks said.

The Laotian Embassy in Washington did not respond to a request for comment. A representative for the Laos-China Railway Company Ltd. referred questions to the Laos Foreign Ministry, which did not respond to a request for comment. The Chinese Embassy in Laos and the Chinese Foreign Ministry did not respond to requests for comment sent via email and fax.

Riding the new Chinese-built high-speed rail from Vientiane, the capital, to Boten, and then back down to the tranquil tourist town of Luang Prabang, revealed a landlocked country torn between a recognition of its limitations – no progress would have been possible without China – and deeply anxious about its reliance on Beijing.

Lao people have begun to express unprecedented discontent online, targeted at China and their own government, rare in a one-party socialist state where critics are harassed and even disappeared. Lao on social media most recently expressed outrage at reports in late August that a Chinese mining company had detained some 50 villagers for illegally digging gold in a part of northern Laos where the company held a concession and demanded a ransom for their release.

“Laos is so indebted to China that [the Chinese] can come over here [and] take our land,” said Nin, a 23-year-old vegetable and condiments seller at a local market in Vientiane, who like other Lao spoke on the condition of anonymity or only with their first name for fear of retribution. Chinese companies, she said, can use Lao workers however they please.

Surveys show a remarkable shift in sentiment away from China to other Asian and Western nations – most surprisingly to the United States, which rained some 270 million cluster bombs down on Laos during a covert campaign in tandem with the Vietnam War in the 1960s and 1970s.

This year’s State of Southeast Asia survey by the ISEAS-Yusof Ishak Institute in Singapore saw a majority of respondents from Laos, almost 60 percent, say they would prefer the region to align with the United States over China, a sharp reversal from the previous year’s survey. A growing number of respondents, more than 72 percent, also indicated they were worried about China’s economic influence.

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When Laos developed a vision for itself as the “battery of Asia,” hoping to export electricity primarily generated by hydropower, it looked north to China for support. Chinese companies arrived to build dams and supporting infrastructure. Other Chinese businesses followed, making large-scale investments in mining, agriculture and telecommunications.

In 2013, China became the largest foreign investor in Laos with some $5 billion spread across 745 projects, overtaking Thailand. The high-speed railway from the Laotian capital of Vientiane to the border town of Boten and then into Yunnan province in China became the signature project in this new relationship, despite warnings from economists about the debt Laos was taking on to build it. The commercial rationale for the railway was also “weak,” according to a report by the Asian Development Bank, with costs outweighing benefits even if the line eventually connected to Malaysia and Singapore.

Seventy-five tunnels, 167 bridges and $6 billion later, the single-track railway opened in December 2021. Chinese state media made a special effort to highlight one of the most challenging technical aspects of constructing the railway: clearing unexploded ordnance left behind by the United States during its bombing campaign. A columnist from the Chinese state-run Global Times later declared that the “US dropped bombs in Laos,” while “China builds railways.”

Covid restrictions were still in place in Beijing at the time of the opening, forcing Xi to officiate remotely. “With the railway, the mountain from Kunming to Vientiane is no longer high and the road is no longer long,” Xi said in a speech telecast by video link to a room full of Lao officials.

“With the railway, the mountain from Kunming to Vientiane is no longer high and the road is no longer long.”

A beaming Lao President Thongloun Sisoulith responded that his country had finally realized its dream of building a rail connection to its powerful neighbor and beyond. Two-way cross-border passenger services between Laos and China started in April. On a recent morning outside the Vientiane station – a structure more imposing than the capital’s airport – visibly excited passengers extended their selfie sticks for photos.

Still, it is not passenger travel that will reap benefits for Laos, analysts say, but freight – and so far that has largely traveled in one direction, with goods exported from China coming into Laos and then on to Thailand. Only a few companies in Laos have been using the link to export products to China, and they have been almost exclusively Chinese, business executives say.

“As an Australian company, we haven’t seen the benefits,” said one executive in Laos, who spoke on the condition of anonymity because of the sensitivity of the issue. Only companies connected to the Chinese and Lao investors in the project appear to be able to get access, and without those connections, “it is almost impossible to utilize the rail,” the executive added.

The Laotian government said it expects the railway, a 70-30 joint venture between Chinese state-owned companies and a Laotian one, to be profitable by 2026. But the parent company, which has no revenue other than that generated by the railway, has to not only be profitable but also pay back the $3.54 billion loan it obtained from the state-run Export-Import Bank of China.

“If the railway revenues are insufficient . . . it is ambiguous who would bail that company out,” Parks said. “It is a phantom menace for Laos: They don’t know whether they are going to be responsible for a small part of this debt, a big part or none at all.”

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The crowd on the train had thinned by the time it pulled into the last station on the Laos side of the border. The town of Boten in the early 2000s was transformed by a private Hong Kong-based company from a remote outpost on Laos’s northern fringe to a casino boomtown. Tourists from China, and also from other parts of Laos and neighboring Thailand, flocked to its nightclubs and gambling dens.

“Laos is so indebted to China that [the Chinese] can come over here [and] take our land.”

Boten was designated as a special economic zone with a major casino as its centerpiece business. Built largely for Chinese visitors, for whom gambling is illegal back home, the town soon devolved into lawlessness. The Chinese government, in response, cut off electricity and telecommunication services to the zone, which came from neighboring Yunnan. The casino was forced to shut. Decay set in. Paint began peeling off the pink and yellow buildings.

The Belt and Road Initiative offered Boten a new lease on life as the first stop in Beijing’s plans to economically and physically integrate its neighbors. The special economic zone was rebranded from “Boten Golden City,” its moniker as a gambling destination, to “Boten Beautiful Land.”

Haicheng Holdings, a private Yunnan-based developer, started to build residential buildings and schools in the town, hoping for a rush of Chinese migrants following the expected boom. Advertisements in Haicheng’s showroom feature multiple photos of Xi with Lao officials calling Boten a “pilot zone” for deepening regional cooperation.

Outside the marbled showroom, the reality of Boten bears little resemblance to Haicheng’s gilded model city, and the marketing has done little to shed its unsavory past. The zone is devoid of the kind of suited businesspeople and bustling factories it claims to attract, or even tourists. Instead, Boten’s few thousand residents are overwhelmingly Chinese workers building new residential towers and those working in services catering to them – Chinese restaurants, Chinese shops and brothels. Private security guards with Chinese flags on their flak jackets police the area.

Virtually no shops are run or owned by Lao. Businesses almost exclusively accept Chinese yuan rather than local currency. Steaming hot pot, barbecued meats and noodles in lava-red soup are featured here over Lao dishes like sticky rice and laab. By night, young women sit outside brothels bathed in purple and pink neon lights, while their handlers try to cajole Chinese men walking outside to come in.

Phet, 32, is one of the few remaining Lao shopkeepers in the zone, running a small convenience store that sells snacks and Lao food made in a tiny back kitchen. He said he saw an initial rush of people when the train first opened, but business has since died down. The train has allowed Chinese visitors to bypass Boten, going directly on to Vientiane or Luang Prabang and returning to China without again getting off.

Most difficult of all: Phet’s landlord accepts rent only in Chinese yuan; with the devalued Lao kip, the cost of running his business has skyrocketed.

“Chinese bosses are so much stricter than Lao bosses,” he said. “We have no ability to negotiate with them. We can’t talk to them.”

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Soutchai Phouthivong, 60, has driven a songthaew – a pickup truck that functions as a shared taxi – since the Lao-Thai Friendship Bridge opened in 1994, ferrying people from the immigration checkpoint near Vientiane to Thai malls and restaurants in Nong Khai. Lao, particularly lower-income families who don’t have cars, are his main customers.

His income, he said, has fallen by more than half this year.

“Look, it is now almost noon and there are no Lao people around,” Phouthivong said on a recent Wednesday. “I am lucky to do one or two trips a day.”

What was once a routine trip for many Lao – to seek medical treatment, buy goods that they cannot find at home or simply enjoy a weekend outing – has become unaffordable because of the falling Lao currency and inflation. In Vientiane, prices are soaring for basics. A 52-year-old seller of dry goods said the noodles have tripled in price, turning from a staple to a luxury. Sonesavanh, a 46-year-old whose husband has depression, has turned to Buddhist healing, seeking blessings from monks and trying to improve their luck by rearranging furniture, because the medical treatment he needs in Thailand is now unaffordable.

“It is like a race between the economy and my husband, to see which one will get better first,” she said.

Discontent with both China and the Laotian government have “melded together at this point,” said Joshua Kurlantzick, senior fellow for Southeast Asia at the Council on Foreign Relations who wrote in April about popular unrest in Laos. “It has turned into a generalized anger at China overall. You don’t see that anger at other partners critical to Laos, like Thailand and Vietnam.”

In March 2022, Anousa Luangsuphom, 25 – an activist widely known as Jack in Laos – launched a Facebook page called “The Power of the Keyboard,” using satire and memes to criticize both his government and China’s reach into his country. He also called for the end of one-party rule in Laos.

On April 29, Jack changed his Facebook profile picture to one bearing the motto “Fighting for Laos’ survival, so we don’t become China’s slave.” He then went about his day – serving khao piak sen, a Lao noodle soup dish, at the shop he worked in, before meeting friends at a coffee shop and bar. That evening, a man entered the bar and asked in a few words of Lao if they were still serving alcohol. He briefly exited before returning and shooting Jack in the face and chest.

“I didn’t know what had happened to me,” Jack said in an interview, his first since the attack. “I just heard people calling my name.”

Jack was initially treated in a Laotian government hospital, before the Manushya Foundation, a human rights group, organized his medical evacuation. Doctors outside of Laos worked to reconstruct his jaw, but they predicted he wouldn’t regain speech for a year because of the extensive damage.

Now in a safe location, Jack is relearning basic functions. He has difficulty chewing, and while he can speak, he struggles to articulate his words. He habitually touches the circle-shaped scar to the right of his lips, where the bullet entered his cheek. Jack doesn’t know who shot him; he also hasn’t been able to look at the video of his shooting, which was widely shared on Lao social media. All he does know is that the day he was shot, he had explicitly posted about what he called China’s monopoly over Laos, which he described in an interview as tantamount to an “invasion.”

Jack is trying to rebuild his life, helping activists get better at social media while waiting for more surgeries to fix his jaw and fully restore his speech. But Jack has stopped saying anything negative online about the Chinese government, or Chinese-linked projects in Laos. In the months following his shooting, two Chinese dissidents – free-speech activist Yang Zewei, also known as Qiao Xinxin, and prominent human rights lawyer Lu Siwei – were taken into custody in Laos. Yang resurfaced more than two months later in a Chinese detention center and has been charged with “subversion of state power.” Lu was deported to China in mid-September, despite pressure from Western governments and the United Nations to release him and allow him to travel to the United States, where his wife and daughter resettled last year. Lu had a U.S. visa. In a statement on Oct. 11, the State Department condemned Lu’s “forced repatriation,” which it said was at the request of Chinese authorities.

Jack’s fear now is that China’s growing transnational policing will ensnare him, too.

“I did not realize that talking about China would get me shot,” Jack said. “I did not realize that talking about China is more dangerous than talking about the Lao government.”