China’s promise of prosperity brought Laos debt — and distress


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 fertiliser, 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. Read more

  • Shibani Mahtani is a Singapore-based international investigative correspondent for The Washington Post. She focuses on accountability-driven investigations across the Asia-Pacific region.
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