As Laos teeters on the brink of financial collapse, its biggest creditor and arguably the architect of its debt crisis—China—is now positioning itself as the nation's economic savior.

Bloomberg reports that Beijing has agreed to extend a financial lifeline as part of "mutually beneficial cooperation" to ease pressure on Laos, which saw its debt payments double to $950 million last year.

In an attempt to put a positive spin on Loa's deepening crisis, a spokesperson from China's Ministry of Foreign Affairs has framed this cooperation as "significant social and economic development support."

With over half of Laos's $10.5 billion external debt owed to China and the total public debt reaching a staggering 108% of GDP, concerns mount over potential default.

Although China has offered temporary assistance, economists caution that this is not an act of charity.

Infrastructure projects led to Laos debt crisis

Much of Laos’ debt stems from infrastructure projects under China's Belt and Road Initiative (BRI), including a nearly $6 billion high-speed railway connecting Laos to China.

While the railway has been touted as a success story for the BRI, it has also contributed to Laos's debt crisis.

"There is no country in the world with more debt exposure to China than Laos. It is a very, very extreme example… Laos went on a borrowing spree and got in over its head,” said Brad Parks, executive director of AidData, a research lab that tracks China's lending,

Laos faces a currency crisis as well, with the Laotian kip hitting record lows against the US dollar and inflation soaring.

There are widespread fears that if the current economic crisis spirals out of control, Laos could face a financial collapse. China’s assistance comes in the nick of time, but it comes with strings attached.

In exchange for debt relief, Beijing has allegedly gained a foothold in Laos's electricity infrastructure and even secured the right to deploy security forces within the country to protect its investments.

China denies involvement in ‘debt trap diplomacy’

China's intervention in Laos's debt crisis has reignited the debate around what Western critics have termed "debt trap diplomacy."

The AidData research lab estimates that China has lent around $1 trillion to developing countries, significantly altering the global financial landscape and raising concerns about the long-term implications of such extensive lending practices.

Critics argue that China's lending practices leave vulnerable countries with few options when they struggle to repay their loans.

They allege that Beijing coerces these nations into relinquishing critical infrastructure assets, which can further China's geopolitical ambitions and establish a permanent presence in these countries.

Sri Lanka is often cited as a prime example, with China gaining control of the Hambantota Port when the South Asian nation defaulted on its debts.

China dismisses these allegations as anti-Chinese propaganda promoted by the West.

A Foreign Ministry spokesperson denied accusations of "debt-trap diplomacy," calling it America's rhetoric aimed at undermining Beijing's cooperation with developing nations.

"It cannot deceive the majority of developing countries," the spokesperson said.