Construction of the new high-speed rail link from Kumming to Singapore via Laos has stalled for the moment because of funding issues

11 July 2016: In 2013 plans for the Pan Asia Railway Network looked set to become an imminent reality with President Xi Jinping announcing that the Chinese state had an ambitious plan to finance new road and rail links across the continent to facilitate a huge increase in trade across South East Asia, with a longer term objective of reversing the down turn in the Chinese economy. In 2013 the President’s verbal commitment was backed up by some concrete actions: the commencement of the construction of the Railway Terminus in Kumming (Southern China) and a high level agreement with the Laos government over financing for the section of the line to go through Laos before heading to Bangkok. The Chinese said that they would pay for it with a $7 billion dollar loan.

Slow Progess

Moving forward 3 years, the high speed train project has failed to ‘leave the station’. The train station in Kumming is nearing completion, and associated infrastructure has been built, but it is very unlikely that any southbound services will be departing from station for at least 5 years.

The terrain in Laos presents significant challenges for railway builders
The terrain in Laos presents significant challenges for railway builders

The problem appears to be that none of the surrounding countries in South East Asia are willing to accept the loan terms being offered by the Chinese government.

Financing South East Asia’s New Train Lines

As we reported back in May 2016, the Thai Government has decided to directly finance the part of the planned Kumming to Singapore line which runs from the Laos border to Bangkok because of a breakdown in talks over a Chinese loan. The sticking points were the rate of interest which the Chinese government wanted to charge and the demands for rights to develop land alongside the new railway tracks. One consequence of the Thai Government going it alone in terms of finance is that, initially at least, there will only be enough money available to build the new line from Bangkok to Nakhon Ratchasima, about half the total distance from Bangkok to Laos.

Breakdown of Negotiations with Myanmar and Laos

Negotiations have also broken down between the Chinese authorities and the governments of Myanmar and Laos. Myanmar pulled out of railway loan talks with China in 2014 citing ‘environmental’ concerns and in Laos there appears to have been a bitter disagreement amongst members of the ruling Communist Party over the terms of what has been agreed with China thus far. Laos’s Deputy PM, who led the initial negotiations with China, has been removed from the committee making decisions on the future of Laos’s proposed high speed railway line. The likelihood is the Laos Government is now going to pull out of the project unless the terms of the deal are amended.

Questions about the Future

The question is where this now leaves the project as a whole? Our best guess is that the project is going to change with a greater focus on bilateral trade between ASEAN countries and the wider Asian/European trading blocs with more of the funding coming from sources in Europe, India and Japan. Thailand has shown itself ready to be a potential leader in this. The Thai Government has funded railway projects in poorer neighbouring countries before (for instance, the short section of railway line in Laos was funded by Thailand) and is actively discussing transport links with its ASEAN partners. For example, on the 8th July 2016 Vietnamese Prime Minister Nguyen Xuan Phuc met with Thai Foreign Minister Don Pramudwinai specifically to discuss better transport links from Thailand to Vietnam via Cambodia. We note that none of the plans involved going via Kumming in China, or seeking Chinese finance. China is starting to look as if it may end up being left out of the project which its President was hoping would revitalise its flagging economy.

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