(Oct 6): Just outside the capital of Laos — a country with an economy smaller than Vermont — a US$6 billion (RM25 billion) rail line carves its way through rice paddies and forested mountains toward the border with China.

Further south, Malaysia’s king is seeking Chinese investors for a high-speed rail to Singapore, while in Vietnam, a US$6.3 billion trio of railroads built by Beijing are a linchpin in the nation’s efforts to bolster its economy and regional trade ties.

Together they form the missing links to what China calls a “golden corridor” that would eventually connect the nation’s manufacturing provinces more than 4,000km to Singapore.

Many of these projects will take decades to justify their upfront costs — and that’s according to people who support them.

Critics say they’ll never break even and that such “debt trap” investments primarily serve China’s economic and geopolitical interests, leaving poorer nations stuck footing the bill.

Either way, the network of new and proposed railways coursing through Southeast Asia underscore the latest way China is cementing its role as the region’s key benefactor, with the US far behind.

Beijing “has been championing railway development”, Malaysian Transport Minister Anthony Loke Siew Fook told Bloomberg during an interview in Kuala Lumpur. “They are connecting China with the rest of the Asian continent.”

For countries such as landlocked Laos, where regional leaders are gathering next week for a summit of the Association of Southeast Asian Nations, the burden that comes with embracing expensive infrastructure can be particularly heavy.  

Stretching from the capital Vientiane to Kunming, China, the Laos railway has helped residents in one of Asia’s poorest nations save time, money and even lives compared to more perilous road routes.

Since launching three years ago, it has transported some six million passengers and 9.5 million tons of cargo, according to data provided by Laos-China Railway Co. The socialist government has also waived visa fees for Chinese visitors in a bid to boost tourism.

But for a nation with a debt load larger than its US$15 billion economy, the project’s US$1.79 billion cost — representing Laos’ 30% share in the joint venture — is formidable. The Asian Development Bank Institute has said the China-backed project is “unlikely to bring major economic benefits” and has “the potential to present a very large contingent liability”.

Laos’ acting central bank governor Vathana Dalaloy acknowledged the nation’s “economic and financial difficulties,” but said the rail project is able to service its own debts.

“I foresee that the Laos-China Railway might come to the breakeven point earlier than it’s expected,” Dalaloy said during an interview, citing “the flow of their revenues through the banking system.”

Despite questions about the project’s economic viability, the railway has become a posterchild for success in Chinese President Xi Jinping’s flagship Belt and Road Initiative (BRI).

Around the world, the BRI has drawn criticism for backing expensive, white-elephant projects — like a little used US$823 million light rail project in Nigeria — and pressing countries such as Sri Lanka to borrow so much that it helped push them into default. But rail projects are still sought after across the Global South, from Indonesia to Brazil. And China is often the partner of choice.

“The Chinese are better than other providers at seeing a railway as part of a broader story rather than as an individual, financially viable project,” said Christoph Nedopil Wang, director of the Griffith Asia Institute.

Now those disparate pieces are starting to fall into place.

China already built Southeast Asia’s first high-speed rail network in Jakarta, a US$7.2 billion project that started operations last year to fanfare in a metropolis choked by gridlock. In July, Thailand launched a trial passenger service between Bangkok and Vientiane ahead of a much-delayed high-speed rail system that will link to China via Laos by 2028.

A Chinese-built rail bridging the east and west coasts of Peninsular Malaysia is on track for completion by the end of 2026. Prime Minister Anwar Ibrahim’s government has proposed linking it to Thailand’s rail network.

Even Vietnam, which has a long list of grievances with Beijing in the South China Sea, is on board. Communist Party leader To Lam inked a rail cooperation deal with Xi in August, touting Beijing’s role in helping to build three rail lines connecting the two countries and backing Chinese participation in another between Vientiane and a seaport in central Ha Tinh province that’s reportedly worth US$6.3 billion.

More and more, such projects are seen as a way to boost tourism, cross-border trade and reinforce supply chain resiliency at a critical time for global trade.

That is a sharp shift in outlook from just a few years ago, when many BRI projects in Asia were perceived as unfair or corrupt. Then Malaysian prime minister Tun Dr Mahathir Mohamad suspended three BRI projects in 2018, including its US$20 billion Chinese railway, calling the venture a “new version of colonialism”.

Yet after facing a US$5 billion cancelation penalty, the two sides renegotiated the cost of the 640km project down to RM75 billion. Loke said it could still take anywhere from 50-100 years to recoup the project’s costs but he insisted that it’s still worth it.

“You have to look at how this project can transform the country,” Loke said, citing the expected development of industrial parks.

Even Mahathir has come around. In an Oct 2 interview, he said, “It's obvious many Southeast Asian countries have a lot of resources, materials it exports to China and sending it by ship takes a long time — it's not convenient. If we have a rail line linking Southeast Asia with China, products from Southeast Asia can reach China faster and probably at a lower cost.”

It’s too early to know whether the golden corridor will be fully realized. Indonesian officials say their China-backed railway saved millions in fuel costs and slashed commuting times. Yet it’s also missed passenger targets. The state-owned operator, PT Kereta Api Indonesia, has expressed concerns over its debt burden and called for additional government assistance to cover operational costs.

Beijing defended “mutually beneficial cooperation” with developing countries in a written reply to Bloomberg’s questions.

“Mutual connections and links are going deeper and more substantial,” China’s Foreign Minister Wang Yi said during a meeting with regional counterparts in July. The “China-Laos railway is booming.”

Expanding rail links also give Beijing another way to showcase its national security prowess. The new Laos line has already been used to transport tanks and armored trucks during joint drills. Asean officials may single it out during next week’s meetings: last year’s summit in Indonesia included Chinese Premier Li Qiang taking a joyride on the link between Jakarta and Bandung.

The growing web of Chinese infrastructure projects hasn’t gone unnoticed in Washington. The US touts its expanding efforts to boost infrastructure in Asia as more transparent and less risky. The flagship effort in that program is a port upgrade in Sri Lanka backed by a US$553 million loan from the US Development Finance Corp.

At the same time, China is revamping how it makes infrastructure loans after getting burned by defaults in nations including Pakistan and Sri Lanka. Even with the new US efforts, China has the biggest wallet for developing nations to turn to, and countries still see the benefit of that cooperation.

Asean secretary general Kao Kim Hourn said in an interview that a broader Southeast Asian rail network would bring “tremendous benefit” to a bloc that represents the world’s fifth-largest economy.

“I mean, everyone’s in debt,” he said. “The most important thing is how countries manage the debt.”

Uploaded by Jason Ng