Laos will open a 6 billion-dollar Chinese-built railway on Friday. This is the largest public works project in its history. Analysts warn that this may expose this poor Southeast Asian country to financial risks or politics from Beijing. Coercion.

From Boding near the Chinese border to the capital Vientiane, the 414-kilometer railway is in China “One Belt One Road” Initiative, Xi Jinping’s iconic infrastructure plan.

Lao officials hope that once the Covid-19 pandemic subsides and the border is reopened, the railway will reduce freight rates, promote exports and attract more foreign tourists.

The Chinese company has dug 75 tunnels, built a bridge across the Mekong River in Luang Prabang, and smoothed a large area of ??rugged terrain, connecting inland Laos with Kunming, the capital of China, and providing access to the country The global market provides convenience.

But analysts warned that the project Represents a gamble For 7 million heavily indebted countries.

“The project has potential positive implications,” said Jeremy Zook, director of ratings for Asia Pacific at Fitch Ratings. “The downside is that this is a very expensive railway, so the question is whether these advantages are enough to make it economically meaningful in terms of cost-effectiveness.”

Just like some “Belt and Road” projects—especially the port built by China in Hambantota, Sri Lanka, Lease to China After Colombo struggled to repay its debts, analysts questioned whether Laos could manage its finances.

“This is one of my main concerns: how they will repay their debts,” said Ruth Banomyong, a logistics professor at Bangkok Law and Political Science and Business School. “High-speed rail has been questionable economically.”

The construction cost of this railway is almost equivalent to one-third of Laos’ GDP. Among them, the Lao China Railway Company, a special-purpose company that constructs and operates this railway, borrowed US$3.54 billion from the Export-Import Bank of China.

LCRC owns state-owned enterprises in China and Laos as its shareholders, and the shareholding ratio of China and Laos is 70:30%.

In order to finance its equity, in addition to paying for the resettlement costs of villagers along the railway, Laos also borrowed US$480 million from the Export-Import Bank of China and invested US$250 million in its own funds.

But researchers affiliated with the AidData Laboratory at the University of William and Mary in Virginia Recent report Since the railway is a public infrastructure asset, if the LCRC defaults on its obligations to the bank, there is an “extraordinary possibility” for the Laotian or Chinese authorities, and they will feel the need to bail out the LCRC.

According to data from the World Bank, after financing power and other infrastructure projects, Laos must repay an average of US$1.3 billion in public external debt each year until 2025. Because the government relies on borrowing to finance energy and other projects, its total debt last year reached $13.3 billion, accounting for 72% of GDP.

The World Bank recently warned that the country’s external Debt distress As of May, its foreign exchange reserves remained high at approximately US$1.2 billion.

According to Reuters, Laos gave majority control of its power grid to a Chinese company last year because it is trying to avoid defaulting.

“Their sources of financing are becoming more and more limited, so they will face challenges in being able to repay and refinance some of their upcoming debts,” Zook said. He added that Fitch has assigned Laos a sovereign rating of three Cs, indicating that “default is a real possibility.”

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