Now that the crowning of “Emperor for Life” Xi Jinping is official, he can tighten his control of those countries where China has made massive infrastructure loans as part of “China’s Belt and Road Campaign.” Nikkei Asia recently published that the U.S.-based Aid Data reported that $385 billion of Chinese debt to other countries had been hidden from the World Bank and IMF, given the way the loans were structured. China hid the loans by making them to private companies in developing countries using special purpose vehicles as the borrowers rather than state institutions. Any defaults by the private companies would be settled through the sale of the assets themselves to China rather than by a loan foreclosure. China’s support to build infrastructure may seem benign and friendly, but it is anything but that.
In fact, 42 countries now have a level of public debt exposure to China of more than 10% of their GDP. The China Exim Bank financed the China-Laos railway project of $5.9 billion funding it entirely with hidden debt representing one-third of Lao’s GDP. One wonders, when looking at the image below, whether the railway between China and Laos makes any economic sense, or is it merely an avenue to purchase a logistically important country in Southeast Asia by way of foreclosure.
Although there are many measures of public and hidden debt exposure to China, the most severe is the relevance of the debt as a percentage of GDP. High levels of GDP underwrite the support of the country to have the economic resources to generate sufficient cash flow to retire the obligations. As shown below, Laos is in trouble relative to that measure. It does not come as a surprise as Laos has always been the weak economic entity in Asia and Indochina, in particular. However, it does represent a superhighway to military control of the remainder of Southeast Asia. Can you imagine putting your combat forces on a high-speed bullet train to make their way to the front—just like the Eurostar between London and Paris with noodles and Mao Tai rice wine rather than French Foie Gras canape snacks and Bordeaux wine?
Although the rail line from Kunming, China to Vientiane, Laos is due to open December 2, it appears the concept of connecting the rail system to the northern part of Malaysia is more of a dream than a reality. When the high-speed train, shown below, pulls into Vientiane this winter it will not be continuing through Thailand as very little has been done on the other side of the border. On the other hand, it may be a wood burning old world locomotive rather than the sleek promotional image presented here.
The railway groundbreaking ceremony in Thailand was officiated by Prime Minister Prayuth in 2017 but only 3.5 km of rail has been laid. Prayuth is a great publicity junkie but a miserable leader which is surprising as he came up through the military. However, I must say that the Thai military folks I knew back in the “Black and White Vietnam War Days” were strong and capable, if maybe a bit on the wrong side of the law and ethics. On the other hand, much of the U.S. front in Laos were also on the wrong side of the law as their presence was in contravention of the Geneva Convention. Both sides dabbled in opium for funding.
Back to Thailand – if the rail system does not extend beyond Laos for many years to come, it is most unlikely that Vientiane would represent much of a tourist destination for Chinese and we know there is little commerce generated in Laos. Therefore, unless the Thais crank up their part of the rail system beyond virtually nothing that has been done to date, the $5.9 billion of Laos debt cannot be retired and “China, Inc.” will foreclose and own a strategically significant over-land route to Southeast Asia. As evidenced below, Thailand is running a bit behind the program but it is kind of the Thai “mai pen rai” never mind attitude of Thailand.
Vientiane may become a Chinese tourist destination which will represent a significant change from of the melting pot it was in years gone by. Just a reminder that Vientiane during the “Troubles in Laos,” was the Casablanca of Southeast Asia as a neutral city with Russians, Chinese, Pathet Lao, Vietcong and Air America mercenaries in residence. Spooks galore created an everlasting and most exciting moment that transcends anyone’s concept of intrigue. We all recognized the personal exposure risks but a few hours of time in the favorite watering holes can make one fearless. Subsequent close calls proved that was not the case. On the other hand, the libations, companions and fun in the bars caused the close calls to fade into the background. No one is “bullet proof” but a good time can erase any danger from your minds until it is in your face.
Whether for yourself or to give as a gift, these hand-carved chopsticks and rests will make a statement on the table. All from northern Thailand, these items are made by the indigenous hill tribes of the area.