In early December 2021, Laos inaugurated the Boten-Vientiane railway, a 414-kilometer (km) electrified high-speed railway that runs between the capital Vientiane and the town of Boten on the Laos-China border.

This US$6 billion project (equivalent to one-third of Laos’ GDP) is backed by China as part of its Belt and Road Initiative (BRI) and is a linchpin of the deepening ties between the two countries. Traveling to the Chinese border now takes less than four hours compared to the 15 hours by car and costs US$33 for a second-class seat.

At Boten, the line heads north some 595km before ending in Kunming, the capital of China’s Yunnan province, and could significantly transform connected this landlocked mountainous country and attract greater foreign investment and tourists. Logistics costs from Vientiane to Kunming are expected to drop by some 40 to 50 percent.

The southern part of the line will connect the Thai province of Nong Khai to the capital Bangkok.

The new railway can transform Laos from a landlocked country that was the least industrialized in ASEAN into a land-linked hub that connects to the wider region. The northern part of the country, where the railway passes through, has been relatively removed from centers of business and commerce.

The majority of China-ASEAN trade (worth more than US$600 billion in 2020) relies mainly on maritime routes with the Laos-China trade representing less than two percent of the total China-ASEAN trade. As such, according to a World Bank report, transit trade through Laos could reach 3.9 million tons by 2030 from 1.6 million tons in 2016 and shift an estimated 1.5 million tons of maritime transport to the railway.

With the pandemic impacting Laos’ economy in 2020 (a decline of 0.4 percent), the railway will also bolster new investments in the country. The government has started the development of Laos’ first-ever integrated logistics facility as it prepares for the shift from sea trade to road and rail. The same World Bank report states that only 2 million tons were transported via Laos from a total of 40 million worth of trade between China, Thailand, Malaysia, and Singapore in 2016.

The new facility will include the expansion of Thanaleng dry port by end of 2021 and the expansion of the greenfield Vientiane logistics park to be completed by 2030. In addition, the government will build export processing zones around stations and targeted investments in agriculture and tourism could be new export opportunities for the country.

Prior to the pandemic, Laos was attracting between 800,000 to 1 million Chinese tourists annually and this figure could rise by up to 50 percent once international travel resumes.

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This article was first published by AseanBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected].

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ASEAN Briefing features business news, regulatory updates and extensive data on ASEAN free trade, double tax agreements and foreign direct investment laws in the region. Covering all ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam)

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