HomeExpansionismChina’s Debt Trap Strategy: The Laos Experience

China’s Debt Trap Strategy: The Laos Experience

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When trains zip at nearly 100 miles per hour over the Mekong River, courtesy of China’s state-of-the-art railway in Laos, it’s easy to be seduced by the gleaming marvel of infrastructure. These trains, which travel from Vientiane, the capital of Laos, to the Chinese border, epitomize the transformative power of China’s lending efforts in the developing world. But beyond this spectacle lies a more complex, and concerning, narrative.

China has channeled vast sums into building infrastructure in Laos, a landlocked country of 7.5 million. The Laos-China railway, a magnificent testament to Chinese engineering, has cut a two-day journey across the country into just three hours. But while these investments glitter on the surface, they also veil the mounting economic challenges stemming from China’s financial influence.

Laos’s economy is staggering under distress. As inflation skyrocketed to a daunting 41% this spring, the Laotian kip plummeted over 43% against the U.S. dollar. The country, heavily reliant on imports, now grapples with tangible consequences: Farmers struggle to buy fertilizer, children are leaving school to work, and families are making health care cutbacks.

The AidData research lab at William & Mary offers a startling insight: “No country in the world has a higher amount of debt exposure to China than Laos,” remarked Brad Parks, AidData’s executive director. Over an 18-year period, starting from 2000, Laos accrued a debt of $12.2 billion to China, equating to roughly 65% of its GDP. When combined with debts from other nations and agencies, Laos’s total debt escalates to an alarming 120% of its GDP.

Yet, this financial conundrum isn’t merely about numbers on a ledger; it has serious ramifications for Laos’s sovereignty and self-determination. In attempts to placate Beijing, Laos has permitted Chinese security agents and police to operate within its borders. The Laotian electrical grid, once a symbol of national autonomy, now has significant Chinese control, leading many to speculate that this shift may be a trade-off in lieu of repaying debts.

However, it’s not just Laos feeling the squeeze. China is walking a tightrope. As Beijing’s regional ambitions hinge on its success in Laos, letting the country default on its debts isn’t an option. Furthermore, the railway, which slices through Laos, is pivotal to China’s larger plans of extending into Thailand, Malaysia, and then Singapore. But forgiving Laos’s debt might set a dangerous precedent for China, which has loaned close to $1 trillion to various developing nations over the past two decades.

“We are now getting acquainted with China as the world’s largest debt collector,” Parks noted, shedding light on the uncharted waters both debtor nations and China are navigating.

For the everyday Laotian, the feeling of being trapped between gratitude for China’s investments and apprehension about the nation’s influence is palpable. Social media platforms, usually quiet in this one-party socialist state, are now echoing with unprecedented criticisms of both China and the Laotian government. One Vientiane local, a 23-year-old named Nin, expressed the prevailing sentiment: “Laos is so indebted to China that [the Chinese] can come over here [and] take our land.”

However, this narrative also presents a twist: While many argue that Laos is ensnared in a Chinese “debt trap,” some suggest that China is equally trapped as a creditor. If Beijing were to allow Laos to default, it would reverberate across the Global South, potentially jeopardizing China’s international reputation and interests.

In a notable move in 2020, Électricité du Laos partnered with China Southern Power Grid Company to manage Laos’s power grid for the upcoming 25 years. Anjali Bhatt, a keen observer of this development, noted, “China not only has a say in Laos’s domestic and foreign energy sales, but also a say in which infrastructure projects will be prioritized.”

The tale of Laos serves as a cautionary reflection on China’s ambitious global lending endeavors. Behind the allure of modern railways and gleaming towers, there lies a complex web of financial, political, and socio-cultural implications that nations must navigate with caution.

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