MOIT VIETNAM | Nikkei Asia: Laos is trying to rise above the ranks of the least developed countries

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Nikkei Asia: Laos is trying to rise above the ranks of the least developed countries

15th November 2021 post by MOIT Vietnam

Nikkei Asia commented that a number of Chinese-backed infrastructure projects are underway in Laos, creating mixed hopes and doubts for the Southeast Asian nation trying to rise above the ranks of other undeveloped countries. A China-funded expressway, connecting Vientiane with Laos' Vang Vieng, will open in late 2020.

According to Xinhua news, in early June, the Laos government announced a new highway connecting the capital Vientiane, in the center of the country, with Pakse town, Champasack province in the south. The 578km-long highway, worth $5.1 billion, was introduced by Laos as one of the country's top infrastructure projects. The route was proposed by the Henan Provincial Media Planning and Design Institute (HNRBI), a Chinese consulting firm.

According to Laotian Times, the new highway promises to reduce travel time from Vientiane to Pakse from 10 hours to 7 hours. It also strengthens connectivity with two major foreign cities in the south; Bangkok of Thailand and Ho Chi Minh City of Vietnam.

In addition, Laos has just started studying another highway project that will connect the towns of Boten, bordering China, with Bokeo province that borders Thailand. The 180km-long highway is expected to cost $3.8 billion, allowing travel from southern China to Thailand via Laos in just an hour and a half. The first highway in Laos, which connects China and Laos, under Beijing’s Belt and Road Initiative (BRI) has been completed. The 110km route connecting the central capital, Vientiane, with the tourist town of Vang Vieng in the north, opened at the end of 2020. It has reduced the travel time between Vientiane - Vang Vieng, from 3 hours to less than 2 hours. The Vientiane - Vang Vieng Expressway is currently 95% owned by China under the build-operate-transfer plan. After 50 years, control and profits of this highway will move back to Laos. According to Nikkei Asia, although the Lao government's stake in this project is only 5%, the financial burden is not light for a country that has been running on a persistent deficit. The total construction cost of the three highways undertaken by China will be $17.8 billion - more than four times larger than the government's fiscal 2020 spending and close to the country's GDP.

Highways are not the only infrastructure sector where Laos depends on China. The high-speed rail line linking Vientiane with southern China, with a top speed of 160 km/h, is expected to open next December in a country that is said to lack even a conventional rail system. When this railway project started to be implemented in September 2016, Xinhua News Agency reported: "The Sino-Laos Railway is China's first overseas railway project mainly financed by China, built and operated, and connected to China's main railway network".

 In 2019, the two countries signed a master plan to build a Laos-China community, raising the level of relations between the two countries from "strategic partnership" to "a community with a common future". According to Nikkei Asia, Laos is betting on China to help strengthen its economy, as it struggles to rise above the ranks of the world's least developed countries.

The nation's new cabinet, established in March this year, set an annual growth target of over 4% in its socio-economic development plan for the five-year period to 2025. The big challenge now, is the Covid-19 crisis that has devastated Laos' vital tourism industry, forcing the landlocked country to turn to Chinese infrastructure development projects as a source of funding.

Laos' official debts now exceed 60% of GDP, and it is a warning sign regarding the country's ability to repay its debts. In September 2020, Fitch Ratings downgraded Laos' IDR rating from B- to CCC, deeming the country's foreign currency reserves "insufficient" for future debt repayment plans.

If Laos falls into arrears, much of its infrastructure assets could be seized by China. In 2018, the US Center for Global Development said that Laos was one of eight countries with particularly heavy debts to China.