Export-Import Bank of China (EximBank), the official export credit agency of the Chinese government, has suspended loans for infrastructure and construction projects in Laos, saying it would prefer to only finance mining and hydro-power ventures, according to Lao sources.
The move is seen by some as an indication of Beijing's concern over its neighboring communist ally's ability to repay loans for such projects as roads and bridges in the absence of immediate guarantees.
In the mining sector, for example, natural resources act as ready collateral.
EximBank, a top financier of projects that have been awarded to Chinese companies, conveyed the decision on the suspension of loans to the Lao government recently, the sources said.
Last month, the Laos-China Cooperation Commission, an agency under the Lao Ministry of Planning and Investment which manages bilateral relations, explained in a note to the Lao Ministry of Public Works and Transport the reasons behind EximBank’s decision.
The bank said it would only support projects in the mining and hydro-power sectors "that give maximum economic results,” according to the notice by the commission, one source told RFA’s Lao Service.
Nine projects shelved
The notice resulted in the Ministry of Public Works and Transport suspending nine road and bridge projects in the country that were linked to Chinese firms with potential financing from EximBank.
A commission official confirmed with RFA that the Chinese bank had suspended the loans but refused to provide details.
But Santisouk Simmalavong, the head of the Ministry of Public Works and Transport, sounded uncertain when asked to comment on the issue.
“It is not clear yet,” he said. “We have to wait and see. We do not know.”
He also said he was in the dark about the ministry’s order to halt the nine projects.
Lao news reports have said that the country has great potential for development of the hydro-power and mining sectors but faces a shortage of financial and engineering companies investing in such areas.
China is the top investor in Laos and most of its money has been pumped into the mining and hydro-power sectors. But it is not financing any of the two controversial dams in Laos— the Xayaburi and Don Sahong dams.
Rail project
It is not clear whether EximBank's decision might also impact the planned U.S. $7.2-billion rail project linking the Lao capital Vientiane to southwestern China. Laos is banking on a Chinese loan for the ambitious project.
“If the bank is going to suspend loans to smaller projects such as road and bridge projects, the assumption is that it would also not finance the mammoth rail project,” one source said.
During Lao Prime Minister Thongsing Thammavong's April visit to China, the two sides agreed that the railway project was crucial to boosting economic and trade cooperation and vowed to look for an "effective method of cooperation" on the project.
Reported by Ounkeo Souksavanh for RFA's Lao Service. Translated by Ounkeo Souksavanh. Written in English by Parameswaran Ponnudurai.