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China Stiffs Its Friends

China is building a railroad from Kunming in southeastern China through Laos to Thailand (click map to enlarge), a significant upgrade to the Laotian transport network and an extremely lucrative link between China and Southeast Asia. But because of a very skewed financing agreement between Chinese, Laotian, and international banks, Laos is footing the bill for its section of the railway while China will take nearly all the profits once trains are running. Construction of the railroad is also expected to turn the Laotian countryside into a “waste dump.”

The NYT has the story:

Most of the benefits [from the railroad], critics say, would flow to China while most of the costs would be borne by the host nation. The price tag of the $7 billion, 260-mile rail project, which Laos will borrow from China, is nearly equal to the tiny $8 billion in annual economic activity in Laos, which lacks even a rudimentary railroad and whose rutted road system is largely a leftover from the French colonial era. [ . . . ]

An assessment of the rail project by a consultant for the United Nations Development Program said the terms of the financing offered by China’s Export-Import Bank were so onerous they put Laos’s “macroeconomic stability in danger.” At the same time, construction through northern Laos would turn the countryside into “a waste dump,” the consultant’s report said. “An expensive mistake” if signed under the terms offered, the report concluded. As collateral for the loan, Laos was bound to provide China with minerals, including potash and copper.

For China, the railway is strategically and economically vital. It connects southeastern China to the expanding markets of Thailand, Burma and Vietnam, while energy and minerals can move in the other direction. And it provides an alternative route for oil and other resources to get to and from the West and the Middle East without going through the Straights of Malacca.

But China’s bullying might doom the project before it even gets going. The deal stiffs rural and mostly poor Laotians, making them bear the brunt of the costs and environmental degradation of constructing the railroad, while sending most of the profits back to China. Remember the Myitsone Dam in Burma? Local opposition convinced the Burmese government to shut down the China-financed project and greased the skids for Burma’s turn away from Beijing.

Could Laos follow suit someday, joining China’s growing list of ex-allies in Asia?

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