Chinese Initiatives in Vietnam under One Belt One Road (OBOR)

1. Vietnam joined the OBOR formally during the state visit of Party General Secretary Nguyen Phu Trong to China in Jan’ 2017. Subsequently, during the visit of Chinese President Xi Jinping to Vietnam, both countries signed a Memorandum of Understanding (MoU) in November 2017 for promoting the connection between the “Two Corridors, One Economic Ring” framework¹ and OBOR after two years of hectic negotiations. The ‘Cat Linh-Ha Dong metro line’ in Hanoi (Hanoi Metro), which has been under construction since Oct’ 2011, is categorized unofficially as an OBOR project by both countries.² In addition, China also unilaterally classified its largest invested project in Vietnam, Vinh Tan-1 power plant, as an OBOR project.ⁱ Except for the Hanoi metro, no new infrastructure project has been officially or unofficially labeled as OBOR-funded by Vietnam till date.

2. Vietnam and China are working on a cross-border economic cooperation zone namely ‘Two Corridor and One Economic Ring’. The two countries have set up working groups for cooperation in infrastructure in order to make overall plans and offer guidance in implementing connectivity projects such as the Lang Son-Hanoi Highway, Mong Cai-Ha Long Highway and Lao Cai-Hanoi-Hai Phong railway.ⁱⁱ The proposed Vietnam (Ho Chi Minh City)-Cambodia (Phnom Penh) rail link is also being considered under OBOR as it will complete the missing link in fulfilling China’s dream of the eastern route of Kunming–Singapore railway or Trans-Asia railway.ⁱⁱⁱ Interestingly, in 2019, Vietnam’s Ministry of Transport decided to exclude foreign investors from bidding on North-South Expressway from Hanoi to Can Tho, to mainly prevent Chinese companies from participating. National security concerns and public backslash on account of a strong anti-Chinese sentiment in the country were the driving factors.^iv

3. On the trade front, Vietnam became China's largest trading partner among ASEAN members with a record high trade volume of nearly USD 190 billion in 2020. Both the countries are also party to the ASEAN-China Free Trade Agreement and Regional Comprehensive Economic Partnership (RCEP). However, there is continual increase in the trade deficit (around USD 35 billion) of Vietnam with China in 2020.

4. Chinese investment in Vietnam mainly focuses on the energy, processing & manufacturing industries with a majority of the investment focused on labour-intensive industries.^v In addition, China has also significantly invested in the real estate sector of Vietnam. China, from being the 4^th largest investor in Vietnam in 2019 became 3^rd by total capital (USD 2402 million) after Singapore & South Korea, and 2^nd by the number of projects (342) in 2020 after South Korea. China is also pushing its investment through Hong Kong, Taiwan and Macao as Vietnam became more cautious about Chinese investment.^vi In January 2021, State Bank of Vietnam granted approval to Bank of China (Hong Kong) for the opening of the Hanoi representative office.^vii Major merchants and urban ATMs of Vietnam also provide facility to Chinese citizens to pay in Yuan or withdraw Vietnamese Dong using China’s UnionPay cards.^viii Vietnam’s Vietcombank and Sacombank also offer Unionpay debit and credit cards.^ix

5. China accounted for the largest number of foreign tourists in Vietnam in 2019, roughly 5 million accounting for 32.2% of the total international tourists.^x Despite the increase in Chinese tourists, the benefits to Vietnam are insignificant as most Chinese tours are organised by Chinese tourist companies wherein tourists stay at Chinese-run hotels, while shopping at Chinese outlets and paying through Chinese e-wallet services like Unionpay. In addition to this, currently, there are 11,000 Vietnamese students studying at Chinese universities while some 2,000 Chinese nationals are studying in Vietnam. The Confucius Institute at Hanoi University, established in 2014, has attracted nearly 2,000 Vietnamese students, and more than 35,000 people have taken part in Chinese cultural events/competitions. ^xi

6. Chinese companies have dominated Vietnam’s digital economy, especially in e-commerce and online gaming segments. Vietnam also joined the Asia Pacific Gateway (APG) submarine fibre optic cable line initiated in 2009, in partnership with Chunghwa Telecom (Taiwan-China), China Telecom (China), China Unicom (China) and other Asian companies.^xii The ongoing US-China trade frictions and COVID-19, has made Vietnam a preferred choice for global companies moving their production out of China, in sectors like electronics, mobile phones, furniture, refrigerators, and car tires.^xiii

7. Vietnam has endorsed the OBOR but is cautious about the economic, political and strategic implications of this initiative. Nevertheless, Chinese investment has made remarkable progress in recent years. Vietnam, however, is still awaiting the positive outcome of these investments before making further decisions on investment under OBOR.

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