Vietnam rethinks scepticism in China’s Belt and Road Initiative as Laos, Cambodia reap benefits

Vietnam’s access to financing by Japan and South Korea, as well as public distrust in China, are factors why it does not host any flagship projects. But as Chinese-backed investments transform the geoeconomic landscape of Laos and Cambodia, it is reviewing its position.

In October, Vietnam’s President Vo Van Thuong attended the third Belt and Road Initiative Forum (BRF), which commemorated the 10th anniversary of the Belt and Road Initiative – a hallmark strategy that signifies China’s ascent as a global economic powerhouse.

During his meetings with Chinese leaders, Thuong underscored the importance of harnessing Beijing’s infrastructure programme to enhance connectivity and trade linkages between Vietnam and China. Yet despite Vietnam’s official support for the Belt and Road Initiative through high-level joint statements and its leaders’ attendance at the BRF, the country does not host any flagship projects. In fact, it lags behind neighbouring Cambodia and Laos in this regard.

According to Lowy Institute data, Chinese investments in Laos and Cambodia surpassed those in Vietnam in several sectors – energy; water and sanitation; communications; industry; construction and mining; and transport and storage – in terms of the number of projects and disbursed finances between 2015 and 2021. Chinese-funded infrastructure projects in Vietnam were mostly coal-fired power plants, railway system improvements and a metro line in Hanoi.

Vietnam’s relatively limited involvement in the Belt and Road Initiative can be attributed to several factors. It allocates substantial public spending at 6 per cent of GDP to infrastructure development and also has access to alternative financing from Japan, South Korea and multilateral development banks.

Past controversies with Chinese-funded projects – such as the Cat Linh-Ha Dong metro line, the Thai Nguyen steel plant and bauxite mining in the Central Highlands – have contributed to scepticism about the Belt and Road Initiative, even though many of these problems originated from governance challenges within Vietnam itself.

This scepticism is underpinned by a prevailing lack of trust in China among the Vietnamese, despite the former’s proven engineering prowess. According to the ISEAS – Yusof Ishak Institute’s 2019 State of Southeast Asia survey, Vietnamese respondents displayed the highest level of distrust in the Belt and Road Initiative among Asean member states.

A case in point was the cancellation of international bidding for the North-South Expressway project in 2019. The decision was ostensibly made on national security and defence grounds, but it was arguably due to the overwhelming dominance of Chinese firms in the initial bidding process.

While Hanoi maintains a cautious approach, China’s extensive infrastructure developments in Laos and Cambodia are bringing about significant transformation in the geoeconomic landscape of Vietnam’s immediate neighbourhood.

China-funded port, railway, highway and waterway projects have enhanced the logistics capabilities of Laos and Cambodia. This has and will continue to affect Vietnam’s national competitiveness, including its self-proclaimed role as an economic bridge between China and Asean. Two prominent projects illustrate this evolving dynamic.

First, the 414km Boten-Vientiane railway linking China’s Kunming province with Laos’ capital city, which started operations in 2021, has become a pivotal part of the belt and road economic corridor connecting China to Southeast Asia.

In its first year of operation, the railway handled a cargo volume of 11.2 million tonnes – double Vietnam’s total national volume of 5.7 million tonnes. Many Thai agricultural exporters now opt to use Laos’ railway due to its time efficiency, bypassing transshipment through Vietnam. Vietnamese officials have raised concerns about the railway intensifying competition faced by Vietnamese farm exports to China from other Southeast Asian countries.

Second, the proposed Funan Techo Canal in Cambodia could have significant repercussions on Vietnam’s economic and ecological well-being, according to preliminary assessments. The 180km waterway aims to harness water from the Mekong River to enable Cambodia’s direct access to the sea for goods transport, bypassing the need for conventional transit through a Vietnamese port. The Vietnamese government is undertaking a multidimensional impact assessment of the canal project on the country.

As these transformative projects have and will redefine the dynamics of regional connectivity, the Vietnamese government is in a complex predicament. It must weigh the potential benefits of riding the belt and road train to enhance its national competitiveness, as Laos and Cambodia have, against the perceived economic and security risks − as well as potential public backlash. Despite substantial public spending on infrastructure, Vietnam still faces an annual shortfall of US$15 billion-US$18 billion to sustain its economic growth.

There have been indications of Vietnam becoming more receptive to belt and road projects, especially in rail connectivity with China. In February this year, the Vietnamese Politburo issued a decision setting the direction for the country’s railway development. In October, the Vietnamese government issued a follow-up resolution up resolution emphasising, among other things, the imperative to work with China on cross-border rail transport and to increase Vietnam’s exports to third countries using Chinese railways.

The focus remains on enhancing railway connectivity between Vietnam’s northern economic hubs and the Chinese bordering regions, especially the Hanoi-Lao Cai-Hai Phong express railway link with Kunming. Infrastructure construction and transport connectivity were highlighted in the joint statements issued during General Secretary Nguyen Phu Trong’s 2022 visit to Beijing and Prime Minister Pham Minh Chinh’s trip to China in June.

On a subsequent visit to Nanning in September, Chinh held meetings with major Chinese firms, including China Railway Corporation, Power China and Huawei, and welcomed their involvement in Vietnam’s infrastructure projects. During Chinese President Xi Jinping’s recent visit to Hanoi, both sides signed a number of connectivity-related agreements, focusing on cross-border rail and road transport.

While these developments may suggest Hanoi’s evolving stance, it remains to be seen whether they will translate into substantial Chinese-funded infrastructure projects. This uncertainty stems not only from Vietnam’s constraints but also the level of priority that China affords Vietnam within the Belt and Road Initiative, given their mutual mistrust and geopolitical tensions.

The low disbursement of Chinese financing to Vietnam serves as an indicator of Beijing’s hesitance. Going forward, a key indicator of Hanoi’s participation in the Belt and Road Initiative will be the extent of China’s involvement in building Vietnam’s ambitious north-south high-speed railway. Chinese conglomerates, including the China Communications Construction Company, have expressed their keen interest, but the Vietnamese government is still leaning towards Japan for the time being.

By Hoang Thi Ha – The South China Morning Post – December 17, 2023