Issue No. 2 | March 2019

Under Chinese Construction: Deconstructing the infrastructure boom in Laos

Laos is at a crossroads – it can opt to keep on building mega-infrastructures ridden with external debts and marred by displacement of its people, or it can rethink economic development beyond foreign debt-driven infrastructure frenzy.
A Lao child is barred from entering a partially complete area of a railway under construction, north of the riverside town of Vang Vieng in central Laos. (Photo: China Dialogue)

Laos, the only landlocked country in the Asia Pacific region, is not just hemmed in on all sides geographically. It is dwarfed by its richer neighbors Thailand to the west and Vietnam to the east. To its north, the rising global power China maintains a chokehold on its economy — with the latter’s flagship Belt and Road Initiative (BRI) bringing in tens of billions of dollars for major infrastructure projects that Laos believes it needs to prosper but cannot fund on its own.

Whether it is the road to riches or ruin remains to be seen. A high-speed 420-kilometer railway supposed to be built by 2015 still awaits completion. Yet, for this project, Laos has loaned from China what already amounts to more than half of the former’s gross domestic product (GDP) in 2015.

More investments are breeding greater ambitions. Though reeling from the collapse of a dam last year, Laos remains keen to railroad foreign-financed hydropower projects along the Mekong river in its bid to become the “battery” of Asia. These may constitute a massive interference in the course of the world’s largest inland fishery and are feared to impact food security downriver.

Nearly as striking as its rush to build public works is Laos’s belief that all this can tackle poverty. This cannot be farther from reality as the infrastructure activities do more than force out rural communities in the way. As so far proven, they are bound to bulldoze more grindingly the rights and access to land and waters of a people starved for so long of relief and economic security.

Off the rails

The path that China aims to stretch through Laos to mainland Southeast Asia seems paved with dubious intentions. For while China appears to be a generous neighbor, Laos’s disproportionate land concessions to hold up its end of the bargain seems a higher price to pay.

Workers bused in from China have begun to drill through and blast mountains along the planned rail line and to push off residents to pave the way for stations and bridges. The contractor China Railway Group has granted no compensation to those displaced, despite such initial guarantees.

As early as May 2018, already 20 families left their farms in Nateuy village in Luang Namtha district, around 650 kilometers north of the capital Vientiane. Also evicted without resettlement plans in place were nine other families from Phonexay village in Luang Prabang, another one of the provinces cut through by the rail. By 2021, the new target year of completion, the Ministry of Public Works and Transports estimates over 4,411 families will have been relocated.

Such losses of land to development projects should be justly paid for, as per Lao Decree No. 84. Monetary compensation commensurate with market prices should be provided for lost income, crops, or properties. Not only that, help with new livelihood prospects must also be extended to the affected residents, whose consent must be duly given prior to any construction in their land.

But without notice, Chinese workers have arrived in villages with eviction orders and bulldozers. In Donemai village, down the road from Phonexay, they gather at market shops set up for their crews during break. Near the construction site, they are welcomed by a banner that reads: “The people of Laos are proud to build the railway with friendship, happiness, security, and harmony.”

The Lao government regards cozying up to China as instrumental in its aim to be a “land-linked” nation. The railway, for one, is hoped to facilitate trade. China, for its part, plans to integrate the rail line into a grid for property investment through which it can link its biggest southwestern city, Kunming, to the world’s third largest foreign exchange market, Singapore. Yet who has more to lose between China and Laos becomes more apparent in light of the terms of their contract.

The memorandum of understanding (MOU) signed in April 2010 states that China will contribute 70% of the US$6 billion needed for the railway. Laos will invest the rest through its national budget and by borrowing from the state-owned Export-Import Bank of China at 2.3% interest rate.

Even usurious lenders like the International Monetary Fund (IMF) have warned of the debt trap Laos may find itself in. For now, the country is managing to stay afloat. The same, however, might not be said of a third of Laos’s population, composed mainly of ethnic groups, should the lands they turn to for living serve as collateral damage in the government’s push for regional assimilation.

China-funded hydropower dams are expected to provide electricity to Laos’s neighbors such as Thailand and Vietnam in the coming years, but could threaten the biodiversity and food security in the Lower Mekong region. (Photo: Getty Images)

Opening the floodgates

Even the country’s waterways have not been spared. The latest hydroelectric dam to be built on the Mekong, the Pak Lay dam costs US$2.1 billion and rides on Chinese loans as per usual. It is designed to produce 770 megawatts of electricity which, along with the other China-backed Pak Beng dam that has long begun construction, is hoped to export power to Vietnam and Thailand.

For all its grand efforts at industrialization, though, much of Laos bestrides impoverished rural districts that no longer just face risks of downswings in agricultural productivity but also threats of large-scale dislocation given increasing investments in the hydropower sector.

Precedents hint at troubled waters. In Ngoy district in Luang Prabang, over 220 kilometers north of Vientiane, more than 70 families have been expelled ahead of the next phase of construction of Nam-Ou Dam 1. Meanwhile, in Luang Prabang’s Pak-Ou district, after another dam has been erected, the relocated 174 families still await, to seemingly no avail, the vocational training for new livelihood alternatives the Chinese contractor Sinohydro Corporation had promised them.

So far the strongest case against pushing through with the Pak Lay Dam is the recent disaster at the Xe-Pian-Xe-Namnoy dam in Champasak province in southwestern Laos. The dam failure in July 2018 swept away 12 villages, with at least 40 fatalities and 6,000 displaced victims.

Laos goes on to ignore admonitions from Vietnam and Cambodia and foregoes transboundary impact assessments of its other dams at the peril of 20 million Mekong-basin dwellers.

An intergovernmental body comprising riparian nations, the Mekong River Commission (MRC) declared a moratorium on further dam building following the tragedy, which as per International Rivers, an environmental NGO, highlights the cross-border risks in constructing infrastructures incapable of coping with extreme weather conditions.

The MRC points to increased climate vulnerability and food inadequacy as few of the tradeoffs from the planned construction of 11 more dams on the mainstream, not to mention more than a hundred more on the Mekong tributaries over the next couple of decades. Another concern is the damage to the ecosystem such structures would cause: an estimated decline in up to 40% of fish catch and the near depletion of sediment floodplains by 2040.

The Mekong river as the region’s lifeblood nourishes crops that Lao farmers grow on riverbanks, and, with a quarter of the global freshwater catch, feeds millions in nearby communities. Locals worry how the river can continue to do so with damming on track, even if most of them will likely have been displaced by the time biodiversity suffers and grazing land along the river diminishes.

Edifice complex

Rails and dams form only a part of Laos’s larger plans of rebranding. An entertainment complex, for instance, is soon to rise where an airport once stood in the tourist town of Vang Vieng, about a four-hour bus ride north of the capital. Needless to say, a Chinese firm helms the development.

This burgeoning sprawl of shopping centers, casinos, and hotels appeal to foreign investors on whom the government confers a host of investment incentives. But Lao residents are none too pleased. Recently, the government had to suspend surveys in 22 villages near Vang Vieng, after residents harangued Chinese surveyors who they thought would push them off their properties.

The public, after all, is losing confidence in the government’s decade-long policy of “turning land into capital.” The nominally communist state has been commercializing lands to the detriment of peasant groups. In 2016, it reoriented its policy to include a US$30-million poverty reduction fund from the World Bank meant to, among others, promote rural access to infrastructure.

Yet what Laos’s ties with countries like China have so far led to indicates otherwise. A 2016 World Bank-commissioned study assessed 3,179 infrastructure projects in seven provinces and found 33% of roads and 20% of infirmaries and schools built to be subpar, while half of the irrigation systems were unserviceable. The toll all this has taken on the poor Lao is immeasurable, what with unpaid surrender of their lands and resources and still little to no access to basic services.

Still, a bilateral consensus on building a China-Laos economic corridor has been signed off on. High-speed rails and hydropower dams are in the works. Chinese workers and tourists still come in droves. Foreign businesses eye plantations, real estate, and special economic zones, and the Lao government is more than willing to oblige. In all this, the broader public has been given no say.

Laos is at a crossroads. On the one hand it can opt to keep on building mega infrastructures ridden with external debts and marred by displacement of its people. The other option requires rethinking poverty eradication and economic development beyond foreign debt-driven infrastructure frenzy and entails engineering opportunities that trust in the skills and industry of the Lao people, rather than erode their rights and liberties.


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