In this webinar, Dr Nick Freeman and Mr Nguyen Xuan Thanh discussed two China-financed railway projects in Southeast Asia, namely the Boten-Vientiane (Laos-China) railway and the Cat Linh-Ha Dong metro line in Hanoi. They examined how the political-institutional contexts and levels of bilateral trust in the recipient countries influenced the outcomes of these two projects.
REGIONAL STRATEGIC AND POLITICAL STUDIES PROGRAMME & VIETNAM STUDIES PROGRAMME WEBINAR
Tuesday, 15 August 2023 – The Regional Strategic and Political Studies Programme and the Vietnam Studies Programme co-hosted a webinar titled “China’s BRI in Southeast Asia: A Tale of Two Railways”, featuring Dr Nick Freeman, an associate fellow at ISEAS, and Mr Nguyen Xuan Thanh, a senior lecturer in public policy at the Fulbright School of Public Policy and Management, Fulbright University Vietnam. During the webinar, Dr Freeman discussed the Boten-Vientiane railway, while Mr Thanh presented on the Cat Linh-Ha Dong (A2) metro line.
Kicking off the discussion, Dr Freeman mentioned Laos’ prior experiences with railways: a 7-km French-built track from the colonial era and a 3-km Thailand-funded railway across the Friendship Bridge that connects Nong Khai, Thailand with Thanaleng, Laos. Against this backdrop, the ambitious Boten-Vientiane railway project, which commenced construction in 2016, emerged. It is a 422 km single-track high-speed line, including 200 km of tunnels and over 160 bridges. The project’s construction cost was US$6 billion, equivalent to a third of Laos’ GDP. To fund the railway, Laos and China established a special purpose vehicle, owned 70 per cent by China Railway Group and 30 per cent by Lao National Railway State Enterprise under the Ministry of Public Works and Transport. Laos financed its share of the funding through two loans from the Export-Import Bank of China (China Eximbank).
Although service began in December 2021, cross-border operations only started in April 2023, after China relaxed its zero-COVID policy. The railway runs one daily cross-border train in each direction and three to four domestic trains, each with a capacity of over 700 passengers. Daytime services are for passengers, while freight trains travel at night.
Dr Freeman described the railway as an impressive feat of engineering that only China had the willingness and ability to undertake. He underscored its status as a flagship BRI project for China and a symbol of modernity for Laos. However, Dr Freeman stressed that economic benefits could only materialise if the line is well-integrated into Laos’ economy and optimised for cross-border transportation of people and goods.
Nonetheless, whether the railway will be a profitable investment for Laos remains an open question. It has added to Laos’ aggregated external debt obligations, of which China is the largest lender. While the Lao government refutes that it is in a debt trap, the International Monetary Fund and the World Bank have voiced concerns over the country’s mounting debt obligations and its ability to service these debts while sustaining public services. The recent rapid depreciation of the Lao kip has amplified these concerns.
Looking ahead, Dr Freeman speculated that China envisions extending the line from Vientiane to Bangkok and then onward to Kuala Lumpur and Singapore. However, these ambitions have been met with considerable delays in Thailand, as the country has reservations about China’s influence in the financing and execution of railway projects. Dr Freeman also highlighted the Muse-Kyaukphyu railway project in Myanmar and the proposed upgrade of the Kunming-Haiphong railway project connecting China’s Yunnan Province and northern Vietnam as examples of China’s ambition to create a railway network across Southeast Asia to bolster connectivity.
Mr Thanh discussed the background, construction, and operation of the A2 metro line. He noted that in 2004, Vietnam officially proposed the development of the A2 line with financial support from the Chinese government and the involvement of China Railway Sixth Group Co,. Ltd (CRSG). There was much enthusiasm from both sides as it marked CRSG’s first overseas metro line project and a seemingly economical project for Vietnam. Compared to other planned metro line projects in the country, which would usually cost around US$1 billion for 10-15 km, the A2 line only required an investment of US$553 million for 13 km.
Unlike the Boten-Vientiane railway project, which was largely under China’s control, the A2 line was managed by Vietnam’s Ministry of Transport (MOT) and jointly financed through Vietnam’s state budget (US$134 million) and two preferential loans (totalling US$419 million) from China Eximbank. This tied aid project required Vietnam’s MOT to appoint CRSG as the engineering, procurement, and construction contractor, without any bidding process. After five years of negotiation, construction of the A2 line finally commenced in 2011.
However, the project was beset with controversies. First, the construction cost was overrun by 57%, escalating from US$553 million to US$858 million. This resulted in an additional loan of US$251 million from China and an additional US$65 million in funding from Vietnam’s state budget. Second, while the planned construction duration was five years, the actual construction took a decade, from 2011 to 2021. Third, construction encountered various safety issues, including accidents and complications in safety certification.
These controversies led to the development of negative public attitudes toward the construction of the A2 line. Blame was placed on both China and Vietnam for the delays. CRSG faced criticism for technical design and inexperience, as well as its insistence on following “the Chinese way” of construction. Vietnam, on the other hand, was criticized for its cumbersome regulations, supervisory and management shortcomings, and insistence that CRSG adhere to local regulations. The discrepancies between “the Chinese way” and Vietnamese regulations were a major cause of construction delays. Additionally, the undercurrent of anti-China sentiment in Vietnam further exacerbated public discontent with the construction of the project.
Despite these controversies, the A2 line has operated smoothly since its opening in November 2021. As of June 2023, daily passenger traffic reached 32,000. While this is well below the line’s capacity of 217,000, Mr Thanh anticipated higher traffic once Hanoi developed a denser network of metro lines. Notably, public surveys show that passengers are generally satisfied with the metro line. Thus, Mr Thanh deemed it “fundamentally an economically viable project”. He also noted that given China’s efficient execution and affordable financing options, the Vietnamese government is reportedly exploring the development of the North-South High-speed Railway project with support from China.
In the Q&A session, the two speakers responded to the audience’s questions regarding, among others, the cost-benefit analysis of the Laos-China railway, Laos’ debt commitments to China, the technical and legal challenges associated with the construction of the A2 line, revenue generated by both projects, and the insights that Vietnam and Laos can gain from their respective experience with China-funded railway projects.