Thriving on China's Belt and Road, Laos border town ditches kip for yuan

https://asia.nikkei.com/Spotlight/Belt-and-Road/Thriving-on-China-s-Belt-and-Road-Laos-border-town-ditches-kip-for-yuan

by zinekeller • 4 years ago

60 50 4 years ago

asia.nikkei.com

jitl• 4 years ago

I traveled from Kunming to Vientiane overland over a decade ago. At the time, the best way from Kunming to Laos was to take a sleeper bus to Luang Prabang. The roads were adequate on the China side of the border but unsafe in any kind of rain on the Laos side. On one Kunming—Luang Prabang trip to refresh my visa stay in China, I had to remain in LP for 3-4 extra days because the road washed out. This sort of thing was fairly regular so I was prepared, but still.

In that context, the China-Laos railway is mind blowing. It sounds like it comes at a very steep cost to Laos. Never the less, it’s an exciting development and I look forward to riding it north to Kunming once travel into China is less restricted by the zero COVID policy.

bArray6• 4 years ago

So the success story here is:

[..] the yuan is now its main currency of trade.

1. They lost their own currency.

[..] it is also increasingly populated by many from across the border hoping to benefit [..]

2. The 'investment' into the local area is actually being used to employ imported Chinese workers.

Jua, a 24-year-old truck driver, feels he has been "kept alive" by China. He is paid in yuan every month by a Chinese cargo owner.

3. Local businesses are being purchased or replaced with Chinese owners.

When they fail to pay back some loans [0], they will be forced to hand over large strategic areas, such as their mining lands [1] on a 99 year lease. Over the next 10 years we will likely see the erosion of Laos sovereignty.

[0] https://www.voanews.com/a/laos-faces-debt-crisis-after-borro...

[1] https://en.wikipedia.org/wiki/File:Laos_Product_Exports_(201...

Yeahsureok• 4 years ago

What happens when you fail to pay back loans to western companies? "oh no worries, we'll just write it off and you keep all your assets"?

This handwringing on stuff like this is fairly transparent.

bArray6• 4 years ago

There is supposed to be due diligence on the issuing of loans, like a person getting a mortgage for a house, but for an entire Country. It is well known that the likes of Goldman Sachs, JP Morgan, etc, have been acting immorally in this regard. As far as I'm aware, Western loans are recouped through assets seizure, and there are large programmes in place to write off debt for those who would be perpetually bound by it.

That said, the idea of a 99 year lease seems particularly troubling. It's essentially the time frame where everybody whom agreed to the arrangement will be long dead, and generations of people would have been raised not knowing the land was in fact leased. I suspect kicking people out of somewhere they have been for almost 100 years is not easy.

Worse still is that the land acquired via the 99 year lease will be highly profitable land, with all profits and resources used for China's benefit. This further entraps the local Laos economy, where mining appears to make up major portion of their exports. Not only will they still be saddled with debt, they will now be less capable of repaying it.

rayiner2• 4 years ago

The IMF and World Bank regularly forgive loans.

SR2Z• 4 years ago

Yes! Western companies are much more willing to do due diligence before issuing loans because they don't (at least these days) have an army to expropriate assets when their debtors default.

This is an actual significant difference between China and the West: China is much more willing to invest in countries with less capable governments and relatively weaker rule of law because the Chinese state is underwriting the loans and has much more weight to throw around.

There's a reason why US companies are much more reluctant to invest in developing nations.

rhaway847733• 4 years ago

Western companies and governments are far more forgiving of these situations than the Chinese are.

Countries go back to the IMF over and over asking for forgiveness and extension of loans which are provided at far below market rates, and as long as you aren’t doing stupid shit like converting your economy to run on Bitcoin or using those loans to cut taxes ahead of an election, you will probably be able to continue doing that.

Western loans also don’t tend to require you to use western subcontractors who will fly in unskilled laborers from their own countries to do the work instead of using the unemployed and large local working population.

rfoo• 4 years ago

employ imported Chinese workers

Isn't what you quoted contradicted this? Jua is not a Chinese name.

bArray6• 4 years ago

I thought what I wrote was quite clear. They import Chinese workers to do the infrastructure development and the local people receive some small temporary benefit from the net import of Chinese migration.

In this case the Chinese workers build skyscrapers that Laos cannot economically make use of using Chinese materials and Chinese workers, and a truck driver in Laos benefited from this as they need more business in the local area. The profits from his work got to the Chinese business owner.

yarg• 4 years ago

It's a Chinese invasion in slow motion. The same as Africa.

One day, these people will wake up and realise that they're second class citizens in someone else's country.

badrabbit6• 4 years ago

Yes, Chinese workers but work still gets done. This isn't a developed nation, perhaps if the west is willing to do business your comment and sentiment has validity but sitting at Chinese workers and Chinese debt us better than sitting at a distance and pitying those poor people and occasionally tossing charity their way.

Perhaps instead of criticizing China you should criticize the west for not besting China? Why isn't europe doing this, afterall they are the final destination of the belt road and they get a ton of stuff from China and can benefit to trade with the rest of asia? IMF and worldbank also hold a ton of debt on developing countries. I mean, I like to think I am the last person to support the CCP but bullshit is bullshit!

etempleton• 4 years ago

Risk. Yes there are laws preventing or at least discouraging western companies from investment, but these are also inherently risky loans. China seems to have a larger appetite for risk. Higher risk, higher reward, but it can also backfire suddenly and spectacularly.

bArray6• 4 years ago

This isn't a developed nation, perhaps if the west is willing to do business your comment and sentiment has validity but sitting at Chinese workers and Chinese debt us better than sitting at a distance and pitying those poor people and occasionally tossing charity their way.

I disagree. It is sometimes better to do nothing if the alternative causes more problems than it solves. Laos' time would have come naturally given stable government and consistent investment. They are now on a fast-track to failure.

Perhaps instead of criticizing China you should criticize the west for not besting China?

As I said before, if a better solution cannot be proposed, it is better to do nothing, rather than an action that will most certainly end in failure. Without a stable government in Laos, all investment will likely be misused. It is up for the Laos people to decide when they are ready.

China is also trying to become a world leader, it therefore opens itself up to criticism. There is a lot of responsibility if you want to wear large shoes.

Why isn't europe doing this, afterall they are the final destination of the belt road and they get a ton of stuff from China and can benefit to trade with the rest of asia?

Europe isn't accepting charity from China, if anything it is the other way around. China receives favourable trading terms because they are a developing Country. The belt and road is not being built by China as a charity project, it is directly for their own economic gain.

IMF and worldbank also hold a ton of debt on developing countries.

They do, but this is something that is currently a work-in-progress. Debt forgiveness is now more common and there is increasing regulation regarding issuing of loans to debt-trap companies.

I mean, I like to think I am the last person to support the CCP but bullshit is bullshit!

I have no idea of your background, but you do appear (at least in this case) be supporting to actions of the CCP to debt-trap Laos.

powerapple4• 4 years ago

Why should the western do the dirty jobs? It is the same as different jobs taken by immigrates and locals. Why not selling a bag made by other people, slap on a logo and sell it for 99% profit?

rhaway847733• 4 years ago

All China is doing is giving money to politicians and/or dictators for their short term benefit and in return those politicians and dictators are giving China massive long term benefits.

Western countries shouldn’t be beating China at this game because it’s a fucked up game that is very obviously designed to play the decision makers’ interests against the interests of the nation and its people.

europeanguy• 4 years ago

Forget about failing to pay loans. If the place is financially successful and lots of Chinese have interests there, the CCP will just declare it's Chinese.

Straight from the Russia playbook.

barelysapient• 4 years ago

China would never be so Loas'y.

dirtyid• 4 years ago

The success story is Laos, a shit tier landlocked country with no development prospects has defied all sense, roughly parallelling trajectory per capita GDP growth with booming Vietnam next door, who has the option of replicating maritime export led growth. There's no reason Laos should be doing better than Cambodia unless prudently aligning with PRC interests.

Laos' only short/medium term potential on her own is digging rocks or low end labour. But with PRC assistance, Laos can also become trail transit hub linking region and become energy exporter (battery of IndoChina) by having the privilege/permission as first downstream Mekong country that can harness left over hydropower, using infra PRC built. And obviously serving as PRC proxy or ceding sovereignty of control over said power network to allow PRC to influnece region via electricity and water. For landlocked Laos, that's about as, in PRC parlance, "win-win" as it gets.

rayiner2• 4 years ago

The Belt and Road initiative is China’s Marshall Plan for Asia and Africa. I don’t think Americans realize the scale of Chinese money and engineering investment in these countries. It’s a trillion dollar endeavor, six times as large as the Marshall Plan (in today’s money). Like the Marshall Plan, it will help local economies develop. But I suspect it will lead to the same long term dependency and alignment with China that Europe has with America. I don’t think that’s necessarily a bad thing but it’s something to be cognizant of.

cactusplant73742• 4 years ago

But how much corruption and how many failed projects? It has been particularly disastrous for Ecuador.

https://www.nytimes.com/2018/12/24/world/americas/ecuador-ch...

eliseumds• 4 years ago

Has it? Ecuador is doing relatively well overall. Decent infrastructure, growing exports, one of the most stable economies in Latin America. Their GDP grew ~6x since 2000. They took the risk and seem to be on a good development path. Would any other country have offered them loans on better terms? Doubt it.

notlukesky• 4 years ago

I am not sure they care. After all, the US dropped more ordnance on Laos than during the whole of WWII. Laos is the most bombed country in the world:

"U.S. aircraft dropped more ordnance on Laos than on all countries during World War II, leaving Laos with about 78 million pieces of unexploded ordnance (UXO) by the end of the war."

https://en.wikipedia.org/wiki/Laotian_Civil_War

https://www.history.com/news/laos-most-bombed-country-vietna...

Air America is a movie on CIA activity in Laos:

https://www.imdb.com/title/tt0099005/

badrabbit6• 4 years ago

It is China to Europe, the end destination if the railway is germany iirc

throw0101c2• 4 years ago

The Belt and Road initiative is China’s Marshall Plan for Asia and Africa.

Except the Marshall Plan didn't take ownership of the assets constructed:

* https://en.wikipedia.org/wiki/Hambantota_International_Port#...

contingencies• 4 years ago

A few issues with this article.

1. This is old news. Northern Laos has long been fighting against disuse of the local kip. There are three major towns in the north; the border itself (Boten); Udomxai ("Muang Sai") and Luang Namtha. AFAIK all of them had large banners hung to the effect "use local currency" for many years. This effort would include both USD and Vietnamese Dong as well as Chinese Yuan Renminbi.

2. The border town area is called Mohan on the Chinese side, and Boten on the Laos side. Some of the images shown appear to be the Chinese side.

3. The initial Chinese push was for a road down to Chian Saen in Thailand. This road was built allegedly against promises from Thailand to pay for or at least allow the bridge at the end of the road to cross the Mekong. Thailand apparently rescinded and declined the bridge after the road was built. Chinese logistic influence on far northern Thailand was thereby eclipsed. Note further this area of Thailand is a stronghold of Nationalist Chinese support.

4. Much cargo travels directly from Yunnan to Thailand via boat, not so much via road and Laos. Similarly, much Thai fruit comes north to China via the same route. The boat trip can be taken by individuals. I've done it a few times and can vouch that it used to be spectacular, but widespread deforestation for rubber plantations has drastically reduced the biodiversity along the river over the last 20 years.

5. The major Chinese gambling destination was not Laos, it was Kengtung in Burma's Shan State (accessed from Menghai rather than Mengla). This was long ago closed off (10+ years), although a limited amount of covert border crossing probably continues.

(Source: Previously lived in the area, transited many times.)

nerdbert• 4 years ago

The "use local currency" banners were also hanging in Vientiane, far from the (Chinese) border, back when USD was the threat. The kip has always been a tough sell.

philliphaydon• 4 years ago

Cambodia also tried to devalue the US dollar in favor of its own currency.

The last time I visited Cambodia, 1000 local currency was $1, but if you used a $2 note it was worth 25 cents. So toktok drivers would try pay you in $2 so they can offload them, but would refuse to take them as they had no value to them.

rippercushions3• 4 years ago

Re: 5, there was a massive gambling operation at Boten as well, but it was shut down in 2011.

Also, while the history of Chinese nationalist armies taking refuge in northern Thailand is rather fascinating [1], we're talking about only ~4,000 people and their descendants here and they're politically insignificant these days. Of course, Thailand itself has a complicated relationship with China.

[1] https://en.wikipedia.org/wiki/Santikhiri

refurb• 4 years ago

The geopolitical aspects of this are important.

China has been long fighting to expand its sphere of influence into SE Asia.

Vietnam pissed off China when it invaded Cambodia to dispose the Khmer Rouge which led to the Sino-Vietnam war of 1979.

The Laos government is very cozy with the Vietnamese government so no doubt the Belt and Road initiative is concerning to Vietnam in terms of its influence on Laos.

rippercushions3• 4 years ago

Laos is small, weak and thinly populated. Their diplomacy consists of playing off the great(er) powers that surround them, namely Thailand, Vietnam and China, with varying degrees of success. Now that the China-Laos rail link is complete, they're busily angling for another to the port of Vung Ang in Vietnam.

Fun fact: northeastern Thailand (Isaan) is ethnically and culturally Lao, and to this day has far more Lao speakers than Laos itself. The current rump state of Laos on the east bank of the Mekong was carved off by the French as a colony.

rippercushions3• 4 years ago

One important factor not mentioned is that the local currency, the Lao kip, has had a really rough ride this year, losing almost half its value in USD terms. I was in Laos earlier this year and hotels, travel agencies, even larger restaurants were requiring payment in USD.

Of course, one major reason for the kip's weakness is that Laos is now heavily indebted to China and unlikely to be able to repay its loans. The local economy has taken a major hit from China being closed, with lots of abandoned construction sites and shut-down hotels in the capital Vientiane.

powerapple4• 4 years ago

the major reason of currency weakness, like in any other country in this world right now, is US dollars. Chinese Yuan lost 15% - 20% value, Japanese Yen, Pound, Euros.....

twelve40• 4 years ago

oh man, they get a railroad? no fair, can we get these belt and road folks to fix up caltrain while they're at it? I guess not..

Thriving on China's Belt and Road, Laos border town ditches kip for yuan

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