Wang Quan, the new Chinese owner of a hotel in this farm town tucked into the tropical mountains of northern Laos, is hoping that the first of 20,000 Chinese workers will arrive here soon to start construction on a new railroad.
The Chinese-financed railway is to snake its way through dozens of tunnels and bridges, eventually linking southern China to Bangkok, the capital of Thailand, and then on to the Bay of Bengal in Myanmar, significantly expanding China’s already enormous trade with Southeast Asia.
Wang may have to wait a little longer to make his fortune from all the Chinese expected to descend on this obscure corner of Laos about 80 km from the nearest border with China. However, even though the project has run into some serious objections from international development organizations, most experts expect it to go ahead anyway. That is because China considers it vital to its strategy of pulling Southeast Asia closely into its orbit and providing Beijing with another route to transport oil from the Middle East.
The crucial connection would run through Oudom Xai between Kunming, the capital of China’s southern province of Yunnan, and the Laotian capital, Vientiane.
“China wants a fast-speed rail — Kunming to Vientiane,” George Yeo (楊榮文), a former foreign minister of Singapore, said in a recent speech to the ASEAN Business Club in Bangkok.
Yeo, chairman of Kerry Logistics Network, a major Asian freight and distribution company, is considered one of the best-informed experts on the expansion of new Asia trading routes.
“The big objective is Bangkok,” he said. “It’s a huge market, lots of opportunities. From there, Bangkok to Dawei in Myanmar — that will enable China to bypass the Malacca Straits,” a potential choke point between the Indian Ocean and China’s east coast.
However, China is not particularly interested in sharing much of the wealth the railroad would generate. Most of the benefits, critics say, would flow to China while most of the costs would be borne by the host nation. The price tag of the US$7 billion, 418km rail project, which Laos will borrow from China, is nearly equal to the tiny US$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.
In mid-November last year, when Chinese Premier Wen Jiabao (溫家寶) visited Vientiane for a summit meeting of European and Asian leaders, he was expected to attend a groundbreaking for the railroad. The ceremony did not take place.
An assessment of the rail project by a consultant for the UN Development Programme said the terms of the financing offered by China’s Export-Import Bank were so onerous they put Laos’ “macroeconomic stability in danger.” At the same time, the 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 on offer, the report concluded.
As collateral for the loan, Laos was bound to provide China with minerals, including potash and copper.
Other international donors echoed the findings.
“Partners, including the Asian Development Bank and the World Bank, expressed concern, and the International Monetary Fund was here and said: ‘You have to be very careful,’” said an Asian diplomat briefed on the reservations expressed to the Laotian government.