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Links Long Overdue

The China-Laos Railway makes the long-awaited Pan-Asian Railway Network linking Kunming and Singapore inch closer

By Yu Xiaodong Updated Mar.1

The China-Laos Railway began operation on December 3, 2021

On December 3, 2021, the ChinaLaos Railway, a landmark project of China’s Belt and Road Initiative, officially went into operation. The line, 1,035 kilometers in length and sustaining top speeds of 160 kilometers an hour, links Kunming, capital of Southwest China’s Yunnan Province to Lao capital Vientiane.  

As of January 3, the line has operated 116 cargo trains transporting over 49,800 tons of goods valued around 676 million yuan (US$106m), CGTN reported.  

Within Laos, the only landlocked country in Southeast Asia, the railway is known as the Lao-China Railway, and runs for 414 kilometers between Boten, Laos’ main border crossing with China, and Vientiane. Travel time between Boten and Vientiane is cut from 15 hours by car to just four hours.  

In an inaugural ceremony held via video link attended by Chinese President Xi Jinping and his Lao counterpart Thongloun Sisoulith, Xi said the project marks highquality cooperation between the two countries and called the railway “a golden line” for the benefit of the people from both countries.  

Calling the opening of the railway “a significant milestone in history and a new era for the development of modern infrastructure in Laos,” Thongloun said it was a proud moment for the Lao people that the country has finally bid farewell to its days without a proper railway. Thongloun said the railway will promote Laos’ economic and social development.  

Prior to the construction of the Lao-China Railway, the country’s only railway was a seven-kilometer narrow-gauge railway on its southern border with Cambodia built in the 1890s, and a 3.5-kilometer railway east of Vientiane at its major border crossing with Thailand.  

‘Game Changer’ 
Many analysts described the railway as a “game changer” that could kick-start Laos’ mostly agrarian economy. But ever since the Lao-China Railway broke ground in 2015, there has been heated discussion about the economic viability of the project. With total investment of US$5.9 billion, many in the West questioned its financial viability given Laos is one of Asia’s poorest countries with a population of just 7.3 million.  

But supporters say the project’s debt problem is over-exaggerated. According to the 2020 World Bank report “From Landlocked to land-linked – Unlocking the Potential of Lao-China Rail Connectivity,” the total investment of US$5.9 billion was funded with 40 percent in equity and 60 percent debt through a joint venture between the two countries in which Laos holds 30 percent of shares and China 70 percent.  

Under the arrangement, the Lao government handles only 30 percent of the US$2.3 billion equity payment, which amounts to US$730 million. With a US$465 million concessionary loan from the Exim Bank of China with an annual interest rate of just 2.3 percent over 35 years, the Lao government’s direct contribution from its budget to the project is only US$250 million, which is about 7 percent of Laos’ government revenue in 2015, and spread over five years.  

“While the railway may exert financial pressure on the Lao government in the short term, it could substantially boost the country’s economic development in the mid and long term,” Li Mingjiang, associate Professor at S. Rajaratnam School of International Studies at Singapore-based Nanyang Technological University told NewsChina.  

“As geographic disadvantages are the No.1 factor hindering economic development, in Laos, the China-Laos railway has the potential to become the driving force of Lao’s economic growth in the long run,” Li added. The country is so mountainous that only 38 percent of the Lao-China Railway runs on open land, with the rest requiring 72 tunnels and 170 bridges, the main reason the railway costs so much.  

According to the World Bank report, the railway could reduce shipping costs between Kunming and Vientiane by 40-50 percent, a reduction of about US$30 per ton. Within Laos, the report expects the overall cost of trade to drop by 20-40 percent. As of 2016, only 37 percent of the total 3.25 million tons of bilateral trade between China and Laos was transported by land. Trade between China and Laos accounts for less than 2 percent of the total trade tonnage between China and ASEAN countries.  

With reduced transportation costs, the report said the railway presents a “significant opportunity” for Laos to attract cargo and passenger traffic away from the maritime routes between China and ASEAN countries. It estimated the railway would transport 3.9 million tons of goods by 2030, diverting 1.5 million tons of trade from maritime routes. In the long run, the railway can increase aggregate income in Laos by up to 21 percent, concluded the report.
But to maximize the benefits of the railway, the World Bank report stressed the Lao government needs to conduct complementary policy reforms. “The Lao government has shown strong political will to conduct reforms,” Li said. “Its next step should be to expand its road network to take full advantages of the opportunities the railway presents.”  

With completion of the railway in sight, trade between China and Laos had already picked up in the past couple of years. In the first half of 2021, trade between China and Laos reached US$2.3 billion, up by 48 percent over the same period in 2020, with Laos’ exports to China up by 60 percent to reach US$1.43 billion.  

On May 31, 2021, China signed a deal with Laos to purchase nine types of agricultural produce worth over US$1.5 billion between 2021 and 2025. The two governments are also reportedly in talks over opening China’s market to the import of more than 90 agricultural products from Laos by 2025.  

Pan-Asia Railway Network 
For many observers in the region, the impact of the China-Laos Railway goes beyond bilateral ties, as it provides new momentum for construction of the Pan-Asian Railway Network.  

First proposed during the colonial period of Southeast Asia in the 20th century, the Pan-Asian Railway linking Kunming and Singapore has been discussed multiple times in recent decades, including at the first ASEAN summit in 1995.  

Also in the 1950s, the Trans-Asian Railway Network, a grander plan aiming to link Europe and Asia, was raised by the United Nations. In 2006, 18 Asian countries signed up to the Trans-Asian Railway Network Agreement. The Pan-Asian Railway would be incorporated into the Trans-Asian Railway Network. But until China launched its Belt and Road Initiative in 2013, progress on both projects was limited.  

“The Pan-Asian Railway Network is a common aspiration of all Asian countries, but until recent years, commitment and investment among regional countries was lacking,” said Professor Huang Renwei, executive director-general of the Fudan Institute of Belt and Road & Global Governance. 

The Pan-Asian Railway Network has three planned routes: the central route from Kunming to Laos and finally to Singapore via Bangkok and Malaysia, a western route that would extend through Myanmar, and an eastern route that would cross Vietnam and Cambodia before connecting in Bangkok and extending toward Malaysia.  

Given Myanmar’s political instability and Vietnam’s geopolitical wariness toward China, China focused on the central route, making the China-Laos Railway the flagship of its Belt and Road Initiative in the region.  

The completion of the China-Laos Railway has rekindled enthusiasm among regional countries. On December 1, 2021, just two days ahead of the maiden voyage of the China-Laos Railway, the Bangkok Post reported that Danucha Pichayanan, secretary-general of Thailand’s National Economic and Social Development Council, the country’s top economic planner, said that Thailand needs to speed up talks with its Lao and Chinese counterparts to link Thailand’s rail system with the Laos-China Railway.  

“Thailand may lose an opportunity to boost trade, investment and tourism if the country ignores speeding up forming an agreement with China and Laos,” Danucha told the Bangkok Post. “Better or seamless rail linkages will enhance economic opportunity and the expansion of trade, investment and tourism between Thailand, Laos and China.”  

Regional Connectivity 
According to the 2020 World Bank report, if Thailand’s rail system connects to the Laos-China Railway, transport costs between Kunming and Laem Chabang, a major port in Thailand, could decrease by more than 40 percent.  

Thailand’s Neighboring Countries Economic Development Cooperation Agency is building a 5.35-kilometer track to link Laos’ Thanalaeng Station to northern Vientiane, which is now 70 percent complete, according to the Bangkok Post report.  

On November 29, 2021, Malaysian Prime Minister Ismail Sabri Yaakob proposed reviving discussions about high-speed rail between Kuala Lumpur and Singapore. Singaporean Prime Minister Lee Hsien Long said Singapore is open to new proposals, and that transportation ministers would discuss the matter in detail.  

Singapore and Malaysia agreed to a highspeed rail project linking Kuala Lumpur and Singapore in 2013. The project was halted by a new Malaysian government in 2018 and eventually terminated in January 2021 as the two countries cannot reach agreement on some details of the project. It was considered a major setback for the Pan-Asian Railway Network.  

According to Bai Ming, deputy director of the international market research department at the Chinese Academy of International Trade and Economic Cooperation in Beijing, increased interest in railway projects reflects that regional countries recognize the importance of efficient transportation, particularly as the Regional Comprehensive Economic Partnership (RCEP) trade deal went into effect on January 1, 2022.  

As the world’s largest free trade deal by GDP, the RCEP includes all 10 ASEAN countries plus China, Japan, South Korea, Australia and New Zealand, covering nearly one-third of the global population and 30.5 percent of the global economy by GDP.  

“As the RCEP takes effect, there will be stronger demand for efficient transportation in the region, and the China-Laos Railway serves as a critical catalyst for the construction of more transportation infrastructure linking China with ASEAN countries,” Bai Ming said.  

According to Xu Ningning, executive president of the China-ASEAN Business Council, if the China-Laos Railway connects with other rail lines, it would present a bigger and more open market for China and ASEAN members as they work to launch “version 3.0” of the China-ASEAN Free Trade Area under the RCEP.