In the scenic ancient capital of Luang Prabang, tucked away in the northern part of Laos, the local tourism industry is seeing a significant upswing thanks to an influx of Chinese tourists following the full opening of a cross-border railway in April 2023.

This railway, a pivotal link between China and Laos, has catalyzed a surge in visitors eager to explore the city’s rich cultural and architectural heritage and picturesque temples. But this boon to tourism, crucial for the local economy, is juxtaposed with the challenge of rising inflation, posing a substantial hurdle to Laos’ broader economic recovery.

One morning in late January, hundreds of tourists gathered on Sisavangvong Road in central Luang Prabang to participate in the traditional almsgiving. Luang Prabang, the historic royal capital and spiritual heartland of Laos, known for its venerable Buddhist temples and designated as a World Heritage Site, is a prime tourist destination in the Southeast Asian nation.

Chinese tourists are notably prevalent. A male employee from Guizhou province, China, Quxin, 34, visited the city on a group tour, during which he expressed excitement about visiting temples and night markets and going trekking.

Sichua, 27, a female employee at Kunming Hotel in the city, said that reservations from Chinese tourists have increased, boosting sales.

Driving the surge in Chinese tourists is the railway that fully opened in April 2023, connecting major cities in Laos with China.

Around 3 p.m. on Jan. 27, the railway station in Luang Prabang was overflowing with Chinese tourists after a train arrived. Nearly 50 large vans and other vehicles lined up in front of the station, with Chinese on group tours boarding one after another. Use of the railway by Chinese tourists has increased as the Lunar New Year holiday in February draws near, leading to nearly full buses.

The railway stretches approximately 1,000 kilometers from the Lao capital, Vientiane, close to the Thai border, through Luang Prabang to Kunming in Yunnan province, China. Construction is estimated to have cost $6 billion, with about 60% covered by loans from the Export-Import Bank of China as part of Beijing’s much-ballyhooed Belt and Road Initiative.

According to the Lao government, the number of foreign tourists who visited the country from January to September 2023 ballooned to 2.49 million — 3.8 times more than the same period last year. Though not reaching the pre-COVID levels of 2019, the inbound tourist count in the first nine months of 2023 surpassed the 1.29 million foreign tourist arrivals in 2022. Chinese travelers accounted for nearly 20% of the total with 470,000 visitors.

The Lao government has designated 2024 as the year to ramp up efforts to lure tourists. Kenichiro Yamada of the Japan External Trade Organization (JETRO) Vientiane Office noted, “The Lao government aims to use its increased exposure as the ASEAN chair to boost the country’s foreign currency earnings, mainly through tourism.”

However, while the nation’s tourist industry perks up, Laotians grapple with economic hardship as the rising cost of living squeezes incomes.

The consumer price index spiked 31.2% in 2023 — about 8 percentage points higher than the previous year. According to the World Bank, Laos’ public debt reached 125% of gross domestic product at the end of 2022, raising concerns about a possible fiscal crunch.

The value of the kip, the nation’s currency, plunged to 20,710 kip per dollar as of Jan. 25 from 8,875 kip at the end of 2019. The drastic depreciation has driven up prices in the country, which relies on imports from its neighbors for many daily necessities.

Phonesak, a 34-year-old behind the wheel of a bus waiting for passengers at the Luang Prabang railway station, works as a bank employee during the week. But to make ends meet, he has started driving a bus on weekends. “I feel that prices have doubled or tripled. Life is getting harder,” he said.

His sentiment was echoed by Hong, a 21-year-old employee of Sunrise Hotel. “Even though the number of tourists has increased, the burden of food and electricity costs has grown heavier,” Hong said. The hotel is saving foreign currency such as U.S. dollars, Thai baht and Chinese yuan received from international tourists in response to the sinking kip.

Yamada from JETRO said, “To ensure economic recovery, Laos, in addition to attracting tourists, needs to pursue a comprehensive economic policy that features measures to increase domestic production of agricultural products and industrial goods to reduce imports.”

Meanwhile, it could be some time before the benefits of economic recovery start to trickle down to the general public.