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Spaces of Capital: Full steam ahead for the Belt and Road Initiative in Laos

by Sam Webb on September 5, 2019
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As discussed in part one, situating China’s Belt and Road Initiative historically and conjuncturally within the global capitalist system provides an alternative understanding of the BRI as a product of uneven geographical development. Here, part two considers how the BRI can also be understood as a cause of contemporary ongoing processes of spatial differentiation within global capitalism.

As argued in my Master of Political Economy thesis (see below), undertaken in the Department of Political Economy and the University of Sydney, the BRI requires not only excess capital in China, but also the ongoing underdevelopment of countries that are absorbing this capital through hosting BRI projects. 

One such country is Laos, a small, landlocked nation and former French colony in Southeast Asia, currently the recipient of several BRI projects including a US$5.95 billion high-speed railway. 

Uneven geographical development and the Lao People’s Democratic Republic

Laos’ uneven integration into global capitalism occurred as a result of French colonial exploitation and US neo-imperial war in Southeast Asia, driven by those countries’ objectives of capitalist accumulation and the necessity of underdeveloped geographic spaces for the absorption of surplus capital. 

Laos’ uneven historical integration into global capitalism and concurrent processes of state formation has resulted in an ostensibly socialist republic, sitting uncomfortably on the foundation of a royal and military oligarchy, Today, Laos is run by an authoritarian government comprised of comprador elites that enriches itself while impoverishing many Lao people. 

Laos has achieved more than 6.5% annual GDP growth over the past 15 years, with the majority of this growth coming from foreign investment in projects such as hydropower dams and mining, supported by the Lao government’s flagship economic strategy of ‘Turning Land into Capital’. Yet the benefits of this growth have failed to trickle down to the majority of Lao people, with rising inequality; increasing poverty in some rural areas; and inadequate social and physical infrastructure; all the while removing Lao people from their land and means of subsistence and damaging the natural resources on which people rely. 

High levels of corruption and nepotism render the Lao government unable to appropriate revenue from the wealth created in its country, nor effectively spend what revenue it does acquire to alleviate the poverty of its people.

This leaves Laos in an underdeveloped state and courting foreign capital in return for land through state-facilitated primitive accumulation. 

The perfect ‘fix’ for Chinese surplus capital.

The economic impacts of the China-Laos Railway 

In December 2016 construction commenced in northern Laos on the US$5.95 billion China-Laos Railway, traversing 414km from China’s southern Yunnan to the Lao capital Vientiane. The project is significant as the first and crucial section of what will become the 3,000km Pan-Asia Railway Network, planned to connect China to Thailand by 2023, and then onward to Malaysia and Singapore.

The Lao government signed onto the railway in 2019 without a clear economic strategy and has failed to develop one in the decade since, beyond the slogan of going from ‘landlocked to land-linked’. It is presumed the railway’s overland connectivity will boost trade and tourism with Laos’ two largest trading partners, Thailand and China. However, improved connectivity does not guarantee increased productivity. 

As of today, Laos has little to export, with only a small manufacturing sector in parts of the country where the railway will not go, though there will be some opportunities for Laos to increase exports of agricultural products. The railway may also boost Laos’ agricultural processing of crops such as coffee, sugar cane and cassava, which would provide employment opportunities. Overall, however, the railway is expected to increase imports rather than exports. 

For Laos, the benefits of the railway will involve moving people rather than cargo. Tourism from China is expected to grow significantly, however it is unclear how this will benefit the Lao people, a common refrain being when Chinese people come to Laos they stay only in Chinese hotels and eat only at Chinese restaurants, having little positive impact on the local Lao economy. 

Though the immediate economic benefits to Laos are not substantial, it must be acknowledged that major infrastructure such as a railway will be in service for decades and will facilitate the economic activity of generations to come. 

Development for whom? Considering the social and environmental consequences of the China-Laos Railway

Growing Chinese immigration and influence in Laos, both during construction and after completion is a concern for Lao people, with fears the benefits will go to Chinese people who do little to integrate into the Lao community, putting Lao culture at risk. Most of the project is carried out by Chinese transportation, construction and consulting firms. Though Lao laws stipulate a maximum of 10% foreign labour, this does not apply where Lao workers lack the necessary skills, such as in building high-speed rail, tunnelling through mountains, and building rail bridges. 

The large influx of Chinese male workers drives up rates of Lao women and girls being prostituted and increases sexually-transmitted diseases including AIDS. Other security issues have been raised around migrant workers including drug smuggling and trafficking. 

The railway also brings concerns around the destruction of ecosystems and habitats, with harmful consequences for biodiversity and wildlife including endangered elephants, issues of particular concern given Chinese investors’ reputation for getting around environmental protections. Railway construction has already polluted water into streams, affecting the paddy fields of local farmers. Once the train is operational, there are concerns than it could speed up illegal logging, and that growing numbers of tourists will bring pollution and environmental damage.

Primitive accumulation and proletarianisation

The government of Laos has also confiscated land from the Lao people for the construction of the railway, with an estimated 4,000 households in over 150 villages displaced from their land. For many households this means a partial loss of farming land, reducing their ability to grow enough rice or other food, while for some this means losing all their land as well as their home.  

The government is due to pay US$290 million in compensation to people affected by the railway construction either through loss of land or crop damage. There is little consistency in how compensation is calculated. Government valuations of land and assets are below market price, without considering the subsistence value that paddy fields, mango trees or fish ponds produce over a lifetime, let alone over several generations. 

A woman winnowing rice in a village in Luang Prabang, one of the provinces through which the China-Laos Railway will pass. (Author’s image, May 2019).

Reports from some affected villages say that the compensation levels paid by the government are not enough for many households to resume their agricultural activities elsewhere, and likely mean transitioning into new livelihoods like business or tourism. The change of livelihoods also entails a loss of hundreds of years of indigenous knowledge around how best to care for natural resources of soil, water and forests. 

Through dispossessing the Lao people of their land and livelihoods, destroying forests and waterways, damaging biodiversity and wildlife, and threatening local culture and ways of life, the railway further contributes to the processes of primitive accumulation and the proletariansation of the Lao peasants. 

Despite this, the optics of a railway are popular among many Lao people who see it as an important symbol of development and modernity. Many villagers living near the railway speak positively about the project being of national importance, with hopes it will bring market opportunities, and allow geographically dispersed families to stay connected. The train will also improve access to healthcare for many Lao people who currently cannot access quality hospitals.

The China-Laos Railway as a case of ‘debt-trap diplomacy’

Media are quick to criticise the BRI generally and the China-Laos railway in particular within the frame of ‘debt-trap diplomacy,’ and this concern is echoed by locals and foreigners across government and civil society within Laos. 

Reports cite the total project size of US$5.95 billion being equal to one-third of Laos’ GDP as evidence Laos is pressured into taking on exploitative levels of debt. However the actual size of China’s loan to Laos is approximately $480 million, reportedly at a concessional interest rate of 2.3%. 

In comparison, the Chinese government is contributing approximately US$1.7 billion in up-front capital. It also falls to China to raise the remaining US$3.6 billion in capital to fund the joint venture, which will most likely be through Chinese state-owned banks. A Chinese business-person in Laos explained how the US$3.6 billion needed for the railway could be raised via the Chinese ‘special’ political-economic structure:

The Chinese government is the father, the state-owned bank is the elder son, and the state-owned company is the younger son. If the state-owned company has no money, he talks to dad. Dad says to the elder son “release some money to your younger brother”.

Through direct government spending or indirectly through its state-owned banks, China is contributing US$5.25 billion of the total US$5.95 billion project. This is in addition to the almost half a million-dollar concessional loan to Laos.

The project financing demonstrates that, for China, the railway is not about a financial return and it not is not necessarily a ‘debt-trap’ for Laos. 

Rather, the China-Laos railway is an opportunity for China to spatially and temporally fix its excess capital in the short term, while achieving what Marx termed the ‘annihilation of space through time’ in pursuit of medium to long term economic goals. 

For Laos, the railway is another case of state-facilitated primitive accumulation, dispossessing the Lao people of their land and livelihoods and damaging the environment in the pursuit of economic growth, the benefits of which will be unevenly distributed. However, unlike hydropower dams and mines, the railway may actually provide tangible use-value to the people of Laos now and into the future.

Win-win cooperation? 

If China were not building this railway for its own economic objectives, it is unlikely that Laos would ever be able to fund such a project, especially considering that country’s difficult mountainous terrain and the higher costs associated with building the 69 tunnels and 139 bridges, as well as the new roads, electricity networks and drainage systems that China needed to construct to support the operation. 

Far from being exploited by China, the government of Laos is an enthusiastic participant in the Belt and Road Initiative and despite severe criticism of the project in international media, many Lao people feel positively toward the railway. While the majority of short to mid-term gains from the railway will accrue to China, there will be social and economic benefits to the people of Laos now and for generations to come. 

However, the history of global capitalism shows us that economic development is experienced unevenly, with class disparity in terms of who benefits from these investments, with the gains accruing to the already wealthy and the poor suffering the most. 

Just as China’s own industrialisation involved privatisation of land and displacement of peasants into landless wage-labourers, Chinese surplus capital has similar consequences in underdeveloped countries. The China-Laos Railway displaces thousands of people from their land and livelihood sources, compelling subsistence farmers to enter wage-labour, while damaging natural resources and biodiversity and threatening local culture. 

Yet, as the working classes of western developed economies benefited from the industrialisation and proletarianisation of the Chinese peasants throughout the late twentieth-century through imports of cheap consumer goods, so too the Chinese working class will likely benefit from the dispossession of the poor within underdeveloped BRI countries like Laos. 

Sam Webb
Sam Webb completed the Master of Political Economy at the University of Sydney in 2019. Her dissertation focused on China's Belt and Road Initiative in Laos, for which she was awarded the Euan Crone Asian Awareness Scholarship from the Australian Institute of International Affairs to undertake research in Laos.

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