News Desk
VIENTIANE, Laos — The sleek, modern trains of the Laos-China Railway glide through lush jungles and past sleepy villages, a symbol of ambition for a landlocked nation eager to connect with the world. Stretching 260 miles from Vientiane to China’s Yunnan province, the $6 billion rail line was meant to transform Laos into a hub of commerce, a linchpin in China’s sprawling Belt and Road Initiative. Instead, it has become a stark reminder of the risks of borrowing big from Beijing.
Laos, a small, communist-run country of 7.5 million, is drowning in debt. The railway, along with a string of Chinese-funded hydropower dams, has pushed the nation to the brink of economic collapse. With nearly half of its external debt owed to China, Laos has ceded control of critical infrastructure, including its national power grid, to Chinese state-owned firms. The story unfolding here is one of promise turned to peril, as China’s development aid reveals a sharper edge.
“It’s a classic case of overborrowing for projects that don’t deliver immediate returns,” said Toshiro Nishizawa, a professor of economics at the University of Tokyo who studies Asian infrastructure financing. “Laos was sold a vision of growth, but the terms of the deal have left it vulnerable.”
The Laos-China Railway, launched in 2016, was pitched as a game-changer. By linking Vientiane to China’s vast markets, it would boost trade, tourism, and investment. Laos, one of Southeast Asia’s poorest nations, saw it as a ticket out of isolation. But the price tag—equivalent to nearly a third of the country’s GDP—required loans that Laos could scarcely afford.
China’s Export-Import Bank financed most of the project, with Laos covering $2.3 billion through a joint venture and loans. The terms were steep, and the timeline for repayment was unforgiving. By 2023, Laos’ national power utility, Électricité du Laos, was saddled with $5.4 billion in debt, much of it tied to hydropower projects also backed by China. The government’s total debt to Beijing? Roughly $5.25 billion in sovereign loans alone.
When repayments faltered, China stepped in—not with forgiveness, but with deferrals. Since 2020, Beijing has postponed $2.5 billion in debt payments and extended a $900 million currency swap to prop up Laos’ faltering economy. These lifelines have staved off default but deepened dependency.
“The deferrals are a Band-Aid,” said Mariza Cooray, a researcher at the Lowy Institute who has studied China’s lending in Laos. “They keep Laos afloat, but they don’t address the structural problem: the debt is simply too big for the economy to handle.”
Beyond the railway, China’s investments in Laos have focused heavily on hydropower. The goal was to turn Laos into the “battery of Southeast Asia,” exporting electricity to neighbors like Thailand and Vietnam. Dozens of dams, many financed by Chinese loans, now dot the Mekong River and its tributaries. But the results have been mixed.
Energy overcapacity has left Laos with more power than it can sell, while the dams have disrupted fisheries and displaced communities. The financial strain is stark: Électricité du Laos reported losses of $600 million in 2022 alone. In a stunning move, Laos handed control of its national power grid to a Chinese state-owned company in 2021 to settle part of its debts.
“Laos thought hydropower would be its golden goose,” said Brian Eyler, director of the Stimson Center’s Southeast Asia program. “Instead, it’s become a millstone, and China’s the one holding the leash.”
Laos’ predicament fits a broader pattern. From Sri Lanka’s Hambantota Port to Zambia’s state broadcaster, China has used loans to gain strategic footholds in developing nations. In Laos, Beijing’s influence extends beyond finance. Chinese firms operate special economic zones with their own security forces. Joint patrols along the Mekong River bolster China’s regional clout. Even Laos’ extradition policies, shaped with Beijing’s input, reflect China’s sway.
The Lowy Institute estimates that China holds about 50% of Laos’ external debt, a level of dominance unmatched in most other Belt and Road countries. This gives Beijing outsized influence over Laos’ economy, politics, and foreign policy. The International Monetary Fund projects Laos’ growth will limp along at 2.5% by 2029, with inflation in double digits and the national currency, the kip, steadily losing value.
For ordinary Laotians, the impact is visceral. Prices for basics like rice and fuel have soared. Young people are fleeing to Thailand for work, leaving villages emptier by the year. Foreign investment, once a trickle, has all but dried up.
Laos still clings to hope that the railway will spark growth. Freight and passenger numbers are rising, and officials talk up plans for new trade hubs. But without significant debt relief, the path forward is bleak. China has shown little appetite for writing off loans, preferring to extend repayment terms while tightening its grip on Lao assets.
The situation raises hard questions about the Belt and Road Initiative, now in its second decade. What began as a vision of global connectivity has, in cases like Laos, become a cautionary tale of debt and dependency. For developing nations eyeing Chinese loans, Laos’ experience is a warning: the cost of partnership can outweigh the benefits.
