Among the Southeast Asian nations, Laos showed particular alacrity when it came to embracing China's Belt and Road Initiative (BRI), largely because it was quick to see it as a means to develop the infrastructure it so clearly needs to boost its economic development.

Historically, Laos struggled to attract trade and investment, largely due to its lack of a proper transportation network. Prior to 2016, this consisted largely of a 3.5kmlong railway to Thailand, a poor road network, and inadequate funds to develop new infrastructure. With China to its north, Thailand and Cambodia to its south, and borders with Viet Nam and Myanmar, Laos had long been seen as having clear potential to become a major trade hub at the heart of Southeast Asia. In 2016, the Lao government signed an agreement with China under the BRI umbrella to build the LaosChina Railway, connecting Kunming in China with Vientiane, the capital of Laos, which sits on the country’s Mekong River border with Thailand.

The huge project was a massive investment for the country. Running for slightly over 1,000km, the railway required the construction of 157 bridges and 74 tunnels. The price tag came in at US$5.9 billion, almost a third of Laos’ annual gross domestic product (GDP), with construction to be mainly financed by China through a series of loans. The railway finally opened on 3 December 2021, but crossborder activities were limited to the transport of goods because of Covid-19related travel restrictions in China. On 13 April 2023, the rail line finally began offering crossborder passenger services.

Since its opening, the railway has performed well in line with expectations. Data from its operators, Laos-China Railway Co. and China Railway Kunming Group, show the crossborder railway has handled 21 million tonnes of cargo and 16.4 million passenger trips over the 18 months since its opening. The link has created opportunities for trade and investment as well as development and tourism, generating jobs for the local workforce. It has allowed the quicker transport of goods, thus reducing time and expenses for businesses, and enabled citizens from both countries to engage in crossborder travel at a reduced time of only a few hours instead of days.

Local businesses such as hotels and shops in the Lao regions along the railway have also reaped benefits from the influx of tourist arrivals from China. Moreover, Chinese entrepreneurs have begun investing in the country. With the old capital of Luang Prabang proving to be a major draw as a stop on the route, international tourism overall has been boosted. Data from the Laos Tourism Department indicate that there were more than 1.6 million foreign visitors in the first half of 2023 – up from just 42,000 during 2022 when the impact of the pandemic still lingered. Thai, Vietnamese and Chinese tourists made up the majority of visitors, with the Chinese portion expected to grow further.

While the railway is definitely making a positive impact on the Laotian economy, the big black cloud on the horizon relates to whether this will be sufficient to support the massive debt load the country will need to service because of the investment. According to the World Bank, the railway is expected to expand Laos’ aggregate income by up to 21% in the future, while the country’s connection to the wider BRI network is projected to improve its GDP by, potentially, another 21%. However, Laos will need to manage annual public debt service payments of about $1.2 billion for the coming five years, according to the Asian Development Bank (ADB).

The country took a big hit to its economy as a result of the pandemic and while the ADB’s current GDP forecasts are for growth of 3.7% in 2023 and 4% in 2024, inflation remains stubbornly high, with forecasts of 28% and 10% for those years, respectively. If Laos can overcome the financial challenges of the next few years, however, it will emerge with a new infrastructure that finally positions the country to participate in, and benefit from, the growing economic dynamism of Southeast Asia.