China is dreaming up one of its grandest public works projects yet: building a high speed train system that would span Laos, Malaysia, and Singapore. While projects like these are frequently showcased to garner international attention, projects of such a scale rarely come to fruition. Now it appears that the Laos government is close to inking a deal that could indeed jump-start construction of the massive railway.
Apparently, the Chinese government has surveyed land throughout Laos and has drawn up plans to construct the railway. From the beginning, however, there’s been a major problem: Laos is one of Asia’s poorest companies and doesn’t have nearly enough money to fund the project.
Impoverished Laos is a stumbling block
Laos is an impoverished South East Asian nation, home to just over 6.5 million people. The country’s entire nominal GDP measures in at just over $9 billion dollars and amounts to only $1,320 dollars per year. Like China, Laos is ruled by a single party that claims to be founded on Marxist principles. So how could such a country afford a high speed railway system?
There's a gold rush coming as electric vehicle manufacturers fight for market share, proclaimed David Einhorn at this year's 2021 Sohn Investment Conference. Check out our coverage of the 2021 Sohn Investment Conference here. Q1 2021 hedge fund letters, conferences and more SORRY! This content is exclusively for paying members. SIGN UP HERE If you Read More
While details remain unknown, it appears that the Chinese government will be loaning Laos the money to pay for its portion of the high-speed train. Apparently, the loan will be for a total of $7.4 billion dollars and will instantly make Laos the fourth-most indebted nation in the world. The loan will be secured with vast deposits of Cambodia’s natural resources.
Railway to benefit from China
Critics claim that the railway will primarily benefit China. Cheap Chinese goods will be able to flood South East Asia, moving quickly along the high speed railways. At the same time, China will be able to quickly extract natural resources from its South East Asian neighbors and import them for processing.
Various international groups, including the Asian Development Bank, have slammed the project. Apparently, just servicing the interest on the loan will amount to 20% of the government’s current budget. How Laos will pay for the loan remains unclear.
Details regarding the other portions of the grand railway remain rather murky, but Thailand, Malaysia, and Singapore are all far wealthier than Laos. Given the structure of their economies and need to move their own goods and people internally, it is also likely that the railway will produce more direct benefits to their economy and people. Early reports indicate, however, that both Singapore and Malaysia are ready to support the project.
Thailand not on board
Thailand appears to be on the one country holding the project up. Beijing is waiting for the Thai parliament to approve a $67 billion dollar infrastructure upgrade plan before approving of the loan to Laos. With Thailand’s government currently under siege by protesters, it may be some time before any deals are inked.
Beyond the direct line from China to Singapore, other branches of the planned railway will reach off into Vietnam and Cambodia. 154 bridges, 76 tunnels, and 31 train stations will have to be built in Laos alone. Some 20,000 Chinese workers will be employed, and the project is slated to be finished by 2019.
How many Laos citizens will be employed remains unclear. The economic impacts of this project also remain largely unknown. As a landlocked nation, the railway will help Cambodia connect with the rest of the world. At the same time, there are serious questions as to whether Cambodia can compete with its neighbors or the industrial might of China.
For the Chinese, it’s a win-win if the project goes forward. If Cambodia repays its debts, China will have built a massive international railway connecting it to its South East Asian neighbors and costs will be minimal. If Cambodia defaults, China will find itself the proud new owner of vast natural resource deposits, and it will have a shiny new railway with which to extract them.