Late to the party: Vietnam and the Belt and Road Initiative

Chinese-funded investments into Laos and Cambodia have transformed the geo-economic landscape in Vietnam’s immediate neighbourhood. This has caused Hanoi to give China’s Belt and Road Initiative another look.
Vietnam's President Vo Van Thuong (in blue tie and spectacles) arrives at Beijing Capital International Airport ahead of the Belt and Road Forum in the Chinese capital on 17 October 2023. (Parker Song/AFP)
Vietnam's President Vo Van Thuong (in blue tie and spectacles) arrives at Beijing Capital International Airport ahead of the Belt and Road Forum in the Chinese capital on 17 October 2023. (Parker Song/AFP)

In October 2023, Vietnam’s President Vo Van Thuong attended the 3rd Belt and Road Forum (BRF), which commemorated the tenth anniversary of the Belt and Road Initiative (BRI) — a hallmark initiative that signifies China’s ascent as a global economic powerhouse.

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

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 BRI...

Lack of trust in China's BRI

According to Lowy Institute data, Chinese investments in the energy, water & sanitation, communications, industry, construction & mining, and transport & storage sectors between 2015-2021 in Laos and Cambodia surpassed those in Vietnam in terms of the number of projects and disbursed finances (Figure 1). Chinese-funded infrastructure projects in Vietnam included mostly coal-power plants, railway system improvements and a metro line in Hanoi.

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Source: Lowy Institute Southeast Asia Aid Map (Graphic: Jace Yip)

Vietnam’s relatively limited involvement in the BRI can be attributed to several factors. It allocates substantial public spending at 6% 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 BRI, even though many of these originated from governance challenges within Vietnam itself. This scepticism is underpinned by a prevailing lack of trust in China among the Vietnamese, despite China’s proven engineering prowess.

According to the State of Southeast Asia 2019 Survey, Vietnamese respondents displayed the highest level of distrust in the BRI among ASEAN countries. A case in point is the cancellation of international bidding for a 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 development in Laos and Cambodia is bringing about significant transformation in the geoeconomic landscape of Vietnam’s immediate neighbourhood. China-funded port, railway, highway and waterway projects have, among others, enhanced the logistics capabilities of Laos and Cambodia. This has and will continue to impact Vietnam’s national competitiveness, including its self-proclaimed role as an economic bridge between China and ASEAN. Two prominent projects illustrate this evolving dynamic.

Many Thai agricultural exports to China now opt for the new railway due to its time efficiency, bypassing transhipment through Vietnam.

Vietnam's neighbours welcome Chinese investment

First, the 414-km Boten-Vientiane railway linking China’s Kunming province with Laos’ capital city has become a pivotal part of the North-South economic corridor connecting China and Southeast Asia. The railway commenced operations in 2021.

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

Second, the proposed Funan Techo Canal in Cambodia could wield significant repercussions on Vietnam’s economic and ecological well-being, according to preliminary assessments. The 180 km 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 multi-dimensional impact assessment of the canal project on the country.

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This photo taken on 26 October 2023 shows cows next to construction equipment on a building site for the Can Tho-Ca Mau highway in Can Tho city in southern Vietnam. (Nhac Nguyen/AFP)

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 BRI train to enhance its national competitiveness, as Laos and Cambodia have done, 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$15-18 billion to sustain its economic growth.

Opportunities in rail connectivity

There have been indications of Vietnam becoming more receptive to the BRI especially in rail connectivity with China. In February this year, the Politburo issued a decision setting the direction for the country’s railway development. In October, the Vietnamese government issued a follow-up resolution stating, among others, 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 to the Chinese bordering regions, especially the Hanoi-Lao Cai-Hai Phong express railway link with Kunming.

Going forward, a key indicator of Hanoi’s participation in the BRI will be the extent of China’s involvement in building Vietnam’s ambitious North-South high-speed train.

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Passengers alight from the train at Boten train station along Laos-China Railway. (SPH Media)

Infrastructure construction and transport connectivity were highlighted in the joint statements during General Secretary Nguyen Phu Trong’s visit to Beijing in 2022 and Prime Minister Pham Minh Chinh’s visit to China in June 2023. In a subsequent visit to Nanning in September, Chinh held meetings with major Chinese firms, including China Railway Corporation (CREC), 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 BRI, given their mutual mistrust and geopolitical tensions. The low disbursement of Chinese financing to Vietnam serves as an indicator of China’s hesitance.

Going forward, a key indicator of Hanoi’s participation in the BRI will be the extent of China’s involvement in building Vietnam’s ambitious North-South high-speed train. 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.

This article was first published in Fulcrum, ISEAS – Yusof Ishak Institute’s blogsite.

Related: Even as the US obstructs its way, how can China build trust for the BRI? | Belt and Road Forum: A show of China’s influence