Transnational railways are vital instruments for enhancing infrastructure connectivity under the Belt and Road Initiative, contributing significantly to cross-border supply chain integration and economic development in countries along the corridors. This study examines the China–Indochina Peninsula transnational railway from three dimensions—transport efficiency, cost, and reliability—highlighting the evolving trade relations among participating countries. Based on the GTAP model, it simulates the economic impacts of the railway in three stages: partial connectivity, full operation, and network integration. Results show that the central corridor (China–Laos–Thailand) demonstrates superior performance in transport time and cost. The western corridor (China–Myanmar–Indian Ocean) offers strategic value by bypassing the Strait of Malacca. In terms of stability, the Laos–Thailand section outperforms others, while the eastern line (Vietnam) is hindered by limited political trust and weak people-to-people ties, and the western line faces significant disruption due to Myanmar's political instability. GTAP simulations suggest that railway development enhances GDP, social welfare, and terms of trade in countries along the route, while producing mixed spillover effects on non-participating economies. Furthermore, it facilitates industrial upgrading in Laos, Vietnam, and Cambodia, enabling a shift from primary resource-based sectors toward processing and manufacturing industries. The study provides valuable policy implications for promoting the domestic–international dual circulation development pattern and advancing the opening-up of China's western border regions through transnational railway integration.