Laos
Laos exhibits debt-trap dynamics: 100%+ debt-to-GDP with China holding half of external debt, $3.9B in idled hydropower capacity, 90% of grid sold to Chinese buyers.
Laos demonstrates what happens when a small economy attempts infrastructure transformation financed by a single dominant creditor. Southeast Asia's only landlocked country became one of the heaviest Belt and Road borrowers relative to GDP, with debt now exceeding 100% of national output. China holds nearly half of Laos' sovereign external debt—approximately $5.25 billion—and has repeatedly deferred payments to prevent formal default.
The 'Battery of Southeast Asia' strategy aimed to convert Laos' Mekong River position into regional power exports. Instead, it produced catastrophic overinvestment. The state utility accumulated $5.4 billion in debt. An estimated $3.9 billion in power generation capacity sits idle—roughly a quarter of Laos' entire GDP. China financed half of Laos' 60 Mekong tributary dams. Most projects were funded by Export-Import Bank of China and China Development Bank.
The $6 billion Laos-China Railway, opened in 2021, epitomizes the transformation promise and debt risk. It could convert landlocked status to 'land-linked' advantage, connecting Vientiane to China's Yunnan province. But debt service payments to China run approximately $700 million annually through 2028. If China stopped deferring payments, total debt service would reach $1.7 billion in 2025—roughly 90% of Laos' foreign exchange reserves.
The response has been asset liquidation. In 2024, Laos sold a 90% stake in its domestic electricity grid company to Chinese buyers. Inflation reached 31% in 2024 (highest in Asia), though it eased below 10% by 2025. China now controls upper Mekong dam operations, major infrastructure, and holds veto power over Laos' financial survival. A sovereign nation has become something closer to a subsidiary.