03/20/2019, 17.27
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Debt and inefficiencies come with Chinese infrastructural investments in Vietnam

by Peter Tran

Hanoi's priorities include a North-South Highway with a 118 trillion đồng (US$ 5.3 billion) price tag, with less than half from China. Chinese interest rates are among the highest and come with several fees. Chinese companies win contracts by outbidding others, but their costs multiply as a result of delays and slow work.

Hanoi (AsiaNews) – China’s eyes on Vietnam’s major infrastructure projects, on which the country’s development depends, are raising concerns among experts that it might fall into a debt trap and pay the price for the shortcomings of China’s developmental model.

For Vietnam, a paved six-lane Highway remains a priority, linking the northern city of Nam Định, which is located some 90 kilometres south-east of the capital, to the southern province of Vinh Long, is a case in point.

Stretching for 2,000 km, the road will cross 13 provinces. According to the plans of the National Assembly, it should be completed by 2021 at a cost of 118 trillion of đồng (4US$ 5.3 billion). Of these, 55 trillion (US$ 2.5) will come from China, whilst 63 trillion (US$ 2.8 billion) will be provided by the central government.

The new road will pave over more than 3,700 hectares of land, 1,000 previously dedicated to rice cultivation.

Since the North-South link is Vietnam’s lifeline, Pham V, a member of the National Assembly's Legal Committee, recently advised the authorities to carefully evaluate Chinese contractors.

His concerns are not unique. Increasingly, Asian countries are worried by China’s so-called debt trap. More and more Asian leaders are convinced that Beijing’s business model, which underpins its Belt and Road Initiative (BRI), threatens their national interests.

Vietnam’s Ministry of Planning and Investment recently noted that China’s loans have an annual interest of 3 per cent compared to between 0 and 2 per cent for those from South Korea. Loans from India carry an interest of 1.7 per cent.

According to Pham, the country "has not yet come to this situation (i.e. the debt trap). However, Vietnam is facing many risks from China’s investment projects.”

Chinese concessional loans come with a "commitment commission" of 0.5 per cent and a management fee of equal amount. China’s concessional credit loans are issued through China’s Export-Import Bank (China Eximbank).

A report by the Planning Ministry notes that projects funded by Chinese loans, using Chinese equipment and workers, show slow progress with no guarantee of quality, pushing up costs and reducing investment efficiency.

For this reason, Vietnamese companies are often called upon to finish work started by Chinese companies.

By accepting Chinese loans, Vietnam is required to accept companies from across the border. This is a non-negotiable condition of any agreement.

Dr Lê, a well-known Vietnamese economist, wants the government to reconsider the legislation on investments and tenders.

"Because of Vietnam’s Bidding Law gives priority to those who bid low, Chinese contractors often bid at very low prices, so they always win bids. After they win the bid, they will extend the time of the construction period. Of course, these projects or works will increase prices and costs many times” the original price.

One example is the Cát Linh-Hà Đông railway, based on an agreement reached in 2008. It involved US$ 419 million in Chinese capital with Vietnam putting up US$ 133 million.

Due to delays and slow work, the project’s total cost ballooned to US$ 891 million. It was supposed to be in operation by 2014. As of March 2019, no train has yet to travel on its rails.

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