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Crossing the line

For Laos, the cost of the HK$56 billion high-speedrail link connecting Vientiane to Yunnan may far outweigh the benefits. In the first of a two-part series on China's growing economic interests in its neighbour, David Eimer looks at why the project may have grave consequences for one of Asia's poorest nations

 

Moving their homes to make way for mainland-inspired projects is becoming a way of life for Mai Kham Saivong and his fellow villagers. In 2008, his village of Boten was relocated a few miles south from the border of Laos and southern China's Yunnan province because their land was required for a mainland-owned casino complex.

Now Saivong faces another forced eviction, along with about half of the village, this time to make way for a controversial and ambitious high-speed railway designed to bring Southeast Asia into the economic embrace of Beijing. And while Saivong is set to lose his home again, the railway's impact will be felt all over Laos and leave the impoverished country indebted to its giant neighbour for generations.

Standing outside his wooden house, the 66-year-old grandfather points towards the nearest hill, rearing up to the south of the village. "That's where the railway will go. The Chinese surveyors and our government officials came last August and told us they're going to build a tunnel through it. That's why we have to move again."

Those surveyors were part of a team of 1,600 sent by the China's former Ministry of Railways, which was dissolved in March this year. Their mission was to plan the route of a link that will run from Kunming, in Yunnan, south to Laos' capital, Vientiane. The track will then cross into Thailand and head to Bangkok. The ultimate goal is for the line to terminate in Singapore, after having passed through Kuala Lumpur and elsewhere in Malaysia, while other branches of the network will stretch into Myanmar, Cambodia and Vietnam.

It is not a new idea. As far back as 1900, the British and French, then the colonial powers in Southeast Asia, proposed building a railway that would link Kunming to Singapore, but it is Beijing that is making the line a reality. Work on the railway is expected to begin early next year, with the line through Laos completed by 2019. Then, mainland goods will be able to move south in even greater numbers while the natural resources of the region head north.

For Saivong and most of the other 6.5 million residents of Laos, just thinking about any sort of train, let alone one that can cruise at 190km/h, requires an imaginative leap. Currently, Laos has only three kilometres of functioning railway track, operated by Thailand and running just across the border close to Vientiane. Few Laotians have ever travelled on it.

A largely agricultural nation, where the average annual income is a mere nine million kip (HK$8,760), according to the World Bank, Laos lacks both infrastructure and industry. Many people, especially in the northwest of the country, where the railway will cross the border at Boten, live without running water or electricity.

Yet, despite the vast disparity between the fortunes of Laos, one of the poorest countries in Asia, and China, the world's second-largest economy, it is Laos that will be footing the bill for Beijing's ambitions in the region. Using untapped minerals as collateral, Laos plans to borrow almost HK$56 billion from China's state-owned Exim Bank to pay for its section of the railway.

Equivalent to almost 90 per cent of the nation's annual gross domestic product of HK$64.3 billion, the loan will make Laos the world's fourth most-indebted nation, after Japan, Zimbabwe and Greece. Paying it back is scheduled to take 30 years, assuming that Laos doesn't default on the debt. Such enormous numbers are not only inconceivable to Saivong and his fellow villagers but unknown to them, too.

"I don't know how much the railway will cost. I don't think anyone around here does. All I know is that it will cost a lot," says Saivong.

He is more worried about the amount of compensation he will receive for losing his home again and wonders where, exactly, he will be allowed to build a new one.

"We don't want to move again and the government hasn't told us what compensation we will get. Last time, I got 10 million kip and that wasn't enough to build this house," he says. "We did look for new land but, in the end, we were just assigned lots of land here by the local government. Our old land was much better; we had rice paddies and could grow corn as well. Here, we can only grow corn."

In Laos, where two-thirds of the population survive by farming, land ownership has an importance that transcends everything else.

"You can spend 50 million kip in two years but one hectare of rice paddy lasts forever and will feed your grandchildren. In Laos, we say 'money disappears but land is forever'. If you lose your land, you are finished," says Nang Pansouk Sakhon, a 38-year-old neighbour of Saivong.

But for the secretive leaders of Laos, a one-party communist state run by the Lao People's Revolutionary Party (LPRP), an organisation even more opaque than China's Communist Party, the concerns of those in the way of the railway appear to mean little. To them, the railway is regarded as vital to the development of the landlocked nation, offering access to ports further south in Thailand and Myanmar while transforming a country where everything and everyone has to move around on a creaking road system.

It is for those reasons that the LPRP decided to bear the full cost of its section of the railway after an original plan for joint ownership fell through. The failure to find a partner, though, is being viewed by those who question the LPRP's decision to go ahead as the economic equivalent of a railway signal flashing red.

"Financially it is not feasible and that's why the original Chinese partner dropped out," says Tristan Knowles, a director at Economists at Large, a Melbourne, Australia-based think tank, who has studied the financial implications of the rail link. "The cost of building it outweighs the costs they can charge, so no private partner would build it. It has to be on the public purse."

Just paying the yearly interest on the loan will amount to almost 20 per cent of Laos' annual government spending. It could be more if Exim Bank doesn't agree to the 2 per cent annual interest rate Laos wants.

"That's a lot of revenue, so where is the government going to find it? What other part of their budget do they cut? I imagine they will have to prune every part of [it]," says Knowles.

International financial institutions are critical of the project, too, with many regarding it as an economic disaster waiting to happen. The Asian Development Bank has described it simply as "unaffordable". In a statement to Post Magazine, the World Bank's Laos office said the loan would make "public debt unsustainable" and that "a careful review is therefore critical before proceeding".

Environmental concerns over the impact of the railway are mounting as well. A mammoth engineering task, it will require 154 bridges and 76 tunnels, along with 31 stations, just to get the line the 420 kilometres from Boten to Vientiane. No one knows yet the effect building them will have on northwest Laos, an area of forested hills, rice paddies and rubber and banana plantations.

What is clear is that there will be drastic changes to the landscape. Sitting in the doorway of his house in Naseam Kham, a village south of Boten, just outside the town of Oudomxai, Galong Vue enjoys an idyllic view across rice paddies glinting green in the sun. But sometime next year, his house, the surrounding fields and the entire village will most probably disappear.

Replacing them will be a gleaming, state-of-the-art train station. Judging by a Chinese promotional video seen by Post Magazine, it will dwarf every building in low-rise Oudomxai, which the station will serve.

"We first heard rumours of the railway in 2010," says Vue. "Then the surveyors came. They told me the railway will happen for sure and that a train station will be built here."

Despite the huge financial and environmental issues involved, there has been no public debate about the railway in Laos. The media is tightly controlled by the LPRP and dissent is not tolerated. Last December, Sombath Somphone, Laos' best known civil society leader, was apparently abducted after being stopped at a police checkpoint in Vientiane. He has not been seen or heard from since.

His fate ensures that the few local NGOs stay silent out of fear. Foreign aid workers have been expelled from Laos in recent months for criticising the LPRP while even major organisations such as the World Bank and the United Nations Development Programme are wary of what they say about the government in public. Unlike neighbouring Cambodia, where activists are increasingly vocal about rights and environmental abuses, and Vietnam, with its growing army of online critics of communist rule, Laos remains a place where public protests are unknown.

Saivong knows that all too well: "We said in 2008 that we didn't want to move and then the police came and told us to pack up. If we hadn't, they would have arrested us and sent us to prison. In Laos, it's impossible to protest. It's not like Thailand. There is only one party here and you can't argue with them," he says.

"All we can do is write to the local government saying we don't want to move again. We did that last year after the survey. We haven't received a reply yet."

Some of those who stand to lose their homes are prepared to fight for them.

"It's one thing to improve the country but we need something, too," says Vue, 53. "The government hasn't spoken to us about compensation. If we don't get something, then everyone in the village will try and stop the railway. This land is all we have in our lives."

Many Laotians also fear the increasing Chinese influence in their country. Chinese companies are investing across Laos in everything from rubber and banana plantations to construction, hydroelectric and mining projects, while the number of immigrants from across the border moving south in anticipation of the railway rises by the week. They will soon be joined by the estimated 20,000 Chinese workers who will build the line.

Fifteen per cent of Oudomxai's 30,000 people are from China and the street signs are now written in both Lao and Chinese.

"The Chinese started coming here in 2000 but the numbers have really increased in the past couple of years," says a teacher who asks to be known by the pseudonym Tou Vang. "Some stay long term. Others come for a few years, make some money and then leave. But then new immigrants come to replace them. They all live in one part of town. We call it 'Chinatown'.

"Of course, people are worried about the impact of the railway and the number of Chinese coming, but it's good and bad. The railway will make our lives better just because it's so hard to travel to Vientiane by road," he says. "And the reality is that we can't stop the Chinese. They are everywhere already and there are so many of them. If they want to come to Laos, they will."

While there is no question that the railway will make getting around the north of the country far easier, other benefits to Laos are harder to quantify.

"I think if the Chinese are willing to provide the money, then they're doing it for a number of reasons," says Knowles. "You can flood the market in Laos with Chinese goods, especially agricultural products. The meat and livestock industries in Laos may not be able to compete unless they modernise in the time it takes to build the railway."

Along with the prospect of minerals such as potash heading north to the mainland, the sheer cost of the railway means the government is unlikely to be able to pump investment into its agricultural and mining sectors for decades, leaving Chinese firms with a free hand to buy all the Laotian companies they need. At the same time, Laos will almost certainly need increased overseas aid to maintain its schools and hospitals.

Above all else is the very real fear that building the rail link will be more expensive than anticipated.

"A lot of these vast infrastructure projects underestimate the costs while overestimating the benefits," says Knowles. "Laos could end up spending more and then the fiscal impact on the country intensifies."

There is little doubt the railway will go ahead, despite the potentially destabilising effects it will have on Laos. After a meeting this month in Nanning, Guangxi, between Laotian Prime Minister Thongsing Thammavong and Chinese Premier Li Keqiang, the LPRP described the project as a "priority" and called on the formal agreement to build the railway to be "signed soon".

All that is holding it up is Thailand. Beijing is believed to be waiting for the Thai parliament to approve a 2.2 trillion baht (HK$500 billion) infrastructure upgrade, which will include a high-speed rail link from the Laos frontier to Bangkok, before signing off on the loan. That bill is expected to pass within a couple of months and so guarantee that the railway will reach the increasingly lucrative Thai market.

The people who live in its path, though, appear to be on the fast track to nowhere.

"The train might be good for the country, but it's not going to be good for us," says Saivong. "It's not going to make us richer. Only the Chinese and the government and the businessmen will make money."

 

Next week, a look at the influx of Chinese into Laos

 

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