Indebted To Beijing – The Price Of Development For Laos

Indebted To Beijing – The Price Of Development For Laos

Colonization By Debt: Laos, The Latest Victim

tippinsights Editorial Board

The promise of high-speed trains, smooth expressways, and mega hydropower is too good to turn down for a country like Laos. For the tiny landlocked Southeast Asian nation, with a population of about 7.5 million, it is an opportunity to shed the label of “one of the least developed countries in the world.”

Laos shares a 313-mile long border in the north with China. The geographic placement of the country ensured that it would not be ignored by Beijing and would inevitably feature in its grand geopolitical plans. The mineral-rich, underdeveloped country is the right fit for President Xi Jinping’s much-exalted Belt and Road Initiatives.

The cost of three Chinese-built expressways is expected to be around $17.8 billion. While that figure is not huge when applied to infrastructure projects, it is almost equal to the country’s GDP to Laos.

In the hope of securing better roads and the country’s first rail line for its people, Vientiane has stepped into a pothole-ridden future. China is already the country’s largest foreign investor. Chinese firms are into hydropower, agriculture, mining, and construction in the country’s furthering Beijing’s hold over its economy and fiscal health.

Like other BRI projects worldwide, China’s dealings with Laos are murky, often unethical, and “hidden.” According to the AidData report, the railway between the Chinese city of Kunming and Laos capital, Vientiane, is being built on a public-private partnership (PPP) model. For the project, the Government of Laos secured a $480 million loan from China’s Eximbank, meaning the funds should eventually find their way back to Chinese shores.

With a weak economy, further burdened by Covid restrictions, Laos is in a precarious position. The country shows signs of having fallen into the dreaded debt trap propagated by China. AidData report states, “ Laos is in a class of its own, with exceptionally high levels of sovereign debt exposure (29.4% of GDP) and hidden debt exposure (35.4% of GDP) to China. Laos’ overall level of debt exposure to China is equivalent to 64.8% of GDP.”

A couple of months ago, Fitch Ratings described Laos’ external debt repayment profile as “challenging.” Vientiane will likely have to take more loans, probably from China, to repay its current debts.

The noose has already begun to tighten. It has been reported that Laos is repaying loans to China through debt to equity swaps because it is unable to make payments in currency. The country handed over majority control of the debt-ridden state utility Électricité du Laos to China Southern Power Grid Co to cover debts owed. In effect, now the country’s national power grid is controlled by a state-owned Chinese company.

China’s interests in the country are both political and economic. Aiding the country to develop its infrastructure would pave the way to its vast mineral reserves. Tin, gypsum, gold, granite, and limestone are mined here. Rich deposits of iron and lead are found in Laos. The country also possesses substantial reserves of copper and precious stones. It is believed that many other mineral deposits remain as yet undiscovered and underexploited.

Improving its transport infrastructure will ensure China’s land connectivity to the Indochina Peninsula, specifically Thailand and Cambodia. It opens up a corridor to ports located in the Gulf of Thailand, away from the South China Sea. Cultivating Laos, a member of the Association of Southeast Asian Nations, or ASEAN, would ensure that Beijing has an ally when its neighbors band together.

Countries like Laos urgently need the BRI alternative, proposed by the G7 nations, Build Back Better World, to take off. Otherwise, in their quest for development, many might lose their sovereignty.


ICYMI

Countering China’s Loan Sharking
The Build Back Better World (B3W) plan, which is set to launch as early as 2022, will compete with China’s predatory lending.
Indonesia: Railroaded Into Debt By Beijing
A case study of Beijing’s blatant disregard for accepted lending and business practices.

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