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By JANE PERLEZ and BREE FENG
OUDOM XAI, Laos — Wang Quan, the new Chinese owner of a hotel in this farm town tucked into the tropical mountains of northern Laos, is hoping that the first of 20,000 Chinese workers will arrive here soon to start construction on a new railroad.
The Chinese-financed railway is to snake its way through dozens of tunnels and bridges, eventually linking southern China to Bangkok, the capital of Thailand, and then on to the Bay of Bengal in Myanmar, significantly expanding China’s already enormous trade with Southeast Asia.
But Mr. Wang may have to wait a little longer to make his fortune from all the Chinese expected to descend on this obscure corner of Laos about 50 miles from the nearest border with China. Even though the project has run into some serious objections from international development organizations, most experts expect it to go ahead anyway. That is because China considers it vital to its strategy of pulling Southeast Asia closely into its orbit and providing Beijing with another route to transport oil from the Middle East.
The crucial connection would run through Oudom Xai between Kunming, the capital of China’s southern province of Yunnan, and the Laotian capital, Vientiane.
“China wants a fast-speed rail — Kunming to Vientiane,” George Yeo, a former foreign minister of Singapore, said in a recent speech to the Association of Southeast Asian Nations Business Club in Bangkok.
Mr. Yeo, chairman of Kerry Logistics Network, a major Asian freight and distribution company, is considered one of the best-informed experts on the expansion of new Asia trading routes. “The big objective is Bangkok,” he said. “It’s a huge market, lots of opportunities. From there, Bangkok to Dawei in Myanmar — that will enable China to bypass the Malacca Straits,” a potential choke point between the Indian Ocean and China’s east coast.
But China is not particularly interested in sharing much of the wealth the railroad would generate. Most of the benefits, critics say, would flow to China while most of the costs would be borne by the host nation. The price tag of the $7 billion, 260-mile rail project, which Laos will borrow from China, is nearly equal to the tiny $8 billion in annual economic activity in Laos, which lacks even a rudimentary railroad and whose rutted road system is largely a leftover from the French colonial era.
In mid-November, when Prime Minister Wen Jiabao of China visited Vientiane for a summit meeting of European and Asian leaders, he was expected to attend a groundbreaking for the railroad. The ceremony did not take place.
An assessment of the rail project by a consultant for the United Nations Development Program said the terms of the financing offered by China’s Export-Import Bank were so onerous they put Laos’s “macroeconomic stability in danger.” At the same time, construction through northern Laos would turn the countryside into “a waste dump,” the consultant’s report said. “An expensive mistake” if signed under the terms offered, the report concluded. As collateral for the loan, Laos was bound to provide China with minerals, including potash and copper.
Other international donors echoed the findings. “Partners, including the Asian Development Bank and the World Bank, expressed concern, and the International Monetary Fund was here and said, ‘You have to be very careful,’ ” said an Asian diplomat briefed on the reservations expressed to the Laotian government.
Nonetheless, the National Assembly has approved the project as part of a much broader trans-Asian rail agreement signed by nearly 20 Asian countries in 2006. While the workings of the Communist Party that runs Laos are extremely opaque, diplomats here said, the project is most strongly backed by the pro-China deputy prime minister, Somsavat Lengsavad. Efforts to interview Mr. Somsavat were unsuccessful.
China’s exploding trade with Southeast Asia reached nearly $370 billion in 2011, double that of the United States in the same year. By 2015, when the Southeast Asian countries aim to have completed an economic community, China projects that its trade with the region will equal about $500 billion.
Even as it exports a variety of goods to the region, China relies on imports from its neighbors in Southeast Asia — natural resources and intermediate goods — to fuel its export machine, said Yolanda Fernandez Lommen, principal economist for the Asian Development Bank in Beijing.
The European Community, the United States and Japan are still China’s largest trading partners, she said, but “Southeast Asia is geostrategically and economically important to China, an increasingly important partner from both the trade and investment perspectives.”
Laos offers a perfect launching pad for China’s stepped-up regional ambitions. China has poured new investments into the capital, including in dozens of luxurious villas built on the banks of the Mekong River to house the European and Asian leaders who attended the November summit meeting.
A fancy new convention hall, part of a new complex called Vientiane New World, gives a 21st-century veneer to the shabby capital. In Luang Prabang, a popular tourist destination through which the railroad will run, China has built hospitals and upgraded the airport.
Some Laotians, unhappy with the unmistakable Chinese presence, complain that their country is becoming little more than a province of China or, more slyly, a vassal state.
Veterans of the Pathet Lao, the guerrilla movement that fought alongside North Vietnam during the Vietnam War, dominate a government that keeps its distance from Washington. Secretary of State Hillary Rodham Clinton visited in July, the first visit by the United States’s top diplomat since the 1950s. The move was part of the Obama administration’s effort to forge stronger economic and military ties in the region as a counterweight to China.
In Laos, opposition to government policies is often squelched. The director of Helvetas, a Swiss development organization, was expelled on 48 hours’ notice last month, accused of an unfriendly attitude to the government. The director, Anne-Sophie Gindroz, had raised the issue of the government’s forcing peasants to sell their land at very low prices, a practice that is now seen as mainly serving the interests of Chinese-financed developers.
In Vientiane, the well-known Laotian director of a civil society group, the Participatory Development Training Center, disappeared last month after taking part in a People’s Forum where land issues were discussed on the sidelines of the November summit meeting. Diplomats said the director, Sombath Somphone, appeared to be in police custody.
Despite the sudden opposition to the Chinese railroad, a manager of a Chinese state-owned company in Vientiane, who declined to be named because he was not authorized to speak to the press, said he had every expectation that it would go ahead. He said Hu Jintao, China’s departing president, “made the decision two to three years ago.”
A foreign diplomat agreed, saying that Vientiane and Beijing would find a way to paper over their financing dispute. “The Chinese will have their way,” he said.
Here in Oudom Xai, where a Chinese language school founded by Chinese businessmen has 400 students and 28 teachers, some paid by the Chinese government, Mr. Wang, the hotel owner, expresses confidence that the project will start within the next few weeks. Since arriving in Laos three years ago, Mr. Wang said, he has also acquired a wood processing plant.
Chinese immigrants have leased about half of the agricultural land around the town, he said.
“You can rent land for however many years you have money for,” Mr. Wang said. “People here recognize money, not people.”