No Turning Back Once the Arrow Is Drawn — Laos Has Borrowed 80% of Its GDP to Build Railways and Power Stations

Director Yang is standing on the bank of the Mekong in Vientiane; on the far side of the river lies Thailand. Two days earlier he had ridden the train down from Yunnan. The China-Laos railway currently runs only as far as Vientiane — to reach Thailand you have to change trains at Nong Khai across the water, and buying tickets means juggling several apps. He says he hopes the line will soon be connected all the way to Singapore — before his tone shifts: behind each of these countries lie their own little calculations, and that is unavoidable.

That image of standing on the riverbank sets up a larger question: can a landlocked country with a territory the size of Guangxi but a population only the size of Hong Kong's pull itself out of poverty by building railways and power plants?

A Territory the Size of Guangxi, a Population the Size of Hong Kong's

Laos is a textbook landlocked country: no access to the sea, mostly mountainous, with less than 5% of its territory suitable for farming. Its natural endowments cannot compare with those of neighboring Thailand or Vietnam. Its land area is roughly that of Guangxi, yet its population is only that of Hong Kong — just over 7 million people, more than 60% of them tied to traditional agriculture with almost no mechanization, essentially subsistence farming.

Riding the train all the way down from Yunnan, you can see clearly how geography shaped this country. The collision of the Eurasian and Indian plates thrust up the Hengduan Mountains; water flowing from high ground to low sliced the Indochina Peninsula into fragments, leaving ribbon after ribbon of river valleys and deep, primeval forest — precisely the kind of marginal terrain where people could escape the reach of great empires.

Populations, too, were layered in one wave after another. Today's Lao people share the same roots as the Thai of Thailand, the Dai of China, and the Shan of Myanmar's Shan State — all descendants of the ancient Baiyue peoples of the middle and lower Yangtze, speakers of Kra-Dai languages who migrated into Indochina during the Tang and Song dynasties. Before them came the Austroasiatic Mon-Khmer peoples — a founding component of Cambodia and Vietnam — moving up from the southwest. Director Yang jokes that this is like the Baipu tribes of his hometown Chongqing, squeezed aside by the expansion of the ancient state of Chu. Before them still were the Negritos, whose genetic traces remain relatively common in the islands of the Philippines today.

The Lao ancestors carved paddy fields into the mountains and built small city-states called muang — many place names in Yunnan still carry this word today. One of them, Muang Sua, evolved around the Ming dynasty into the kingdom of Lan Xang. "Lan Xang" in fact carries the meaning of "elephant" — a million of them — while "Vientiane," written in Chinese as 万象 ("myriad elephants"), originally means "city of sandalwood": a name half transliteration, half translation, holding an ancient Lao memory. The capital stood at today's Luang Prabang, whose name came later, after the kingdom received a great Buddha image sent by the Khmer — the name simply means "the great Buddha."

Laos's history has, in truth, been a bleak one. Fleeing Burmese invasion, the Lan Xang kingdom moved its capital to Vientiane, only to end up next door to its Thai cousins; in the 19th century Vientiane was sacked by Siam and its population was deported to what is now Isan, northeastern Thailand. These people were never close to the Thai state, and Bangkok has kept its guard up against them — one of the reasons the railway's onward extension later moved so slowly.

60% of the People Farm the Land — and Produce Only 20% of GDP

Director Yang cracks open Laos's economic ledger: agriculture absorbs 60% of the population yet generates less than 20% of GDP, and almost all of it is informal employment — in plain terms, people working for their own households; there is work to do, but everyone is broadly poor. Services account for 40% of GDP: retail, food and beverage, tourism, and now a growing slice of higher-value-added logistics.

The weakest link is industry. What little industrial output Laos has comes overwhelmingly from energy and mining — sectors that simply draw on natural endowment. Manufacturing, in his words, "makes nothing."

China Comes to Create Something Out of Nothing

That is exactly why the industrial parks China is building are there to "create something out of nothing" — a phrase he repeated for emphasis, and no exaggeration. North of Vientiane lies the Saysettha Development Zone, a national-level project of the two countries, with Yunnan Construction and Investment Holding on the Chinese side; companies in solar photovoltaics, oil refining, and electronics have already moved in. For Laos, this is a fundamental turn: from having nothing at all, to having someone help you assemble modern industry.

Thailand next door, however, has other ideas. Thailand is Southeast Asia's manufacturing power: it absorbs Laos's young labor force and exports goods to Laos — especially consumer goods — but it has no interest in helping Laos build an independent industrial system; it would rather Laos remain dependent on it forever. Here lies the significance of the China-Laos railway: once it runs through end to end, Thailand can never again sustain that semi-monopoly of influence.

Then again, because Laos lacks any local industrial supporting base, Chinese enterprises there tend to position themselves as "both ends outside" — importing inputs and exporting outputs, doing processing and assembly without transplanting full supply chains to take root. What are they after? Laos's cheap electricity.

Power in the Rainy Season, Blackouts in the Dry

Electricity is cheap because hydropower is plentiful in the rainy season. From Luang Prabang, Director Yang took a boat 25 kilometers up the Mekong and watched a large hydropower project under construction with an installed capacity of more than 1,400 megawatts. Before that, China had already built a cascade of seven stations on the Nam Ou, a Mekong tributary, with a combined capacity of over 1,200 megawatts, supplying the northern provinces of Phongsaly and Luang Prabang. Add the future mainstream-Mekong stations, and Laos's hydropower advantage will be amplified further.

Hydropower is already half of Laos's industrial base. In the rainy season the country generates more than it can use, and exports the surplus to Thailand and Vietnam for foreign exchange.

But here, too, lies the problem. Come the dry season and the low-water period, hydropower output falls; the grid lacks peaking capacity, and the country has to import electricity instead. To patch this weakness, Laos is also developing wind and solar — the 600-megawatt Monsoon Wind Power Project, built by PowerChina, is designed precisely to exploit the strong dry-season winds, complementing hydropower across the seasons.

Overall, though, supply remains unstable. Director Yang himself got caught in a blackout just days earlier. For precision manufacturing this is fatal: factories require highly stable power, and if it cuts out without warning, no high-end production line is worth anything. Apart from energy and labor, Laos is essentially a blank slate; much has to be shipped in from China, supply chains stretch long, and resilience to risk is naturally weak.

Debt at 80% of GDP, and the Currency Still Falling

To break out of this bind, Laos is gambling on its national destiny — borrowing heavily to fund infrastructure and energy projects. The price: public debt has climbed to more than 80% of GDP, with nearly half of the claims held by China.

As bad luck would have it, the US Federal Reserve's rate hikes of recent years pushed dollar rates up and abruptly magnified Laos's debt-servicing pressure. Export earnings are limited to begin with; foreign reserves were drained, the local currency — the kip — plunged, and everything that depends on imports, from fuel to daily necessities, surged in price. Inflation turned truly vicious: prices soared and ordinary life grew hard. For Laos's one-party system, this is a severe test.

But Director Yang quoted the old saying — "no turning back once the arrow is drawn." Having chosen the path of importing modern industry through infrastructure and upgrading the economy step by step, Laos must endure this period of pain; only then can it escape backwardness, and only then can it lure home the young people who left to work elsewhere. In truth, everyone carries an attachment to their home soil — if the hometown really can be built up, people will come back.

Learning Chinese in the Temples

He also mentioned something quite interesting: every Lao man is expected to be ordained as a monk at some point in his life, and temples are everywhere. These temples in fact offer cultural classes — children from poor families in remote mountain areas can study for free, and many temples partner with NGOs to teach computing and foreign languages.

Following this thread, he offered a suggestion: China could greatly expand Chinese-language education, though not necessarily along the traditional Confucius Institute path — business Chinese plus vocational skills would do the job. Once these monks return to lay life, they could become a talent pool for local Chinese enterprises. Helping Laos keep the roots of its human capital at home — that is the long-term, durable win-win.