This Background Brief considers the pros and cons of Chinese investment in Vietnam and the possible threat; to social stability if the Chinese gained more control over real estate, factory property and infrastructure. Three pros are identified: investment supports economic growth, interdependence gives China a stake in Vietnam’s stability, and relocation of Chinese companies to Vietnam to evade U.S. sanctions. Three cons are identified: U.S. tariffs on Vietnam’s export of Chinese sourced materials such as steel, vested interests develop between Chinese investors and local Vietnamese counterparts, and popular backlash against increased Chinese presence and influence in Vietnam.
This Background Brief considers the pros and cons of Chinese investment in Vietnam and the possible threat; to social stability if the Chinese gained more control over real estate, factory property and infrastructure. Three pros are identified: investment supports economic growth, interdependence gives China a stake in Vietnam’s stability, and relocation of Chinese companies to Vietnam to evade U.S. sanctions. Three cons are identified: U.S. tariffs on Vietnam’s export of Chinese sourced materials such as steel, vested interests develop between Chinese investors and local Vietnamese counterparts, and popular backlash against increased Chinese presence and influence in Vietnam.
This Background Brief considers the pros and cons of Chinese investment in Vietnam and the possible threat; to social stability if the Chinese gained more control over real estate, factory property and infrastructure. Three pros are identified: investment supports economic growth, interdependence gives China a stake in Vietnam’s stability, and relocation of Chinese companies to Vietnam to evade U.S. sanctions. Three cons are identified: U.S. tariffs on Vietnam’s export of Chinese sourced materials such as steel, vested interests develop between Chinese investors and local Vietnamese counterparts, and popular backlash against increased Chinese presence and influence in Vietnam.
Chinese Investment in Vietnam: Implications Carlyle A. Thayer December 31, 2018
We are preparing a report about the role of Chinese money in Vietnam We request your assessment of the following: what are the pros and cons (including possible threats to social stability) if Chinese interests get more control of real estate, factory property or infrastructure? ANSWER: The official policy of the Vietnamese government, given its large trade deficit with China, is to encourage more Chinese direct investment in Vietnam (and to open its markets to Vietnamese exports). The pros of more Chinese investment are growth in the areas where the funds are directed. Vietnam particularly welcomes funding for infrastructure and nominally has expressed support for China’s Belt and Road Initiative. Vietnam also encourage investment in manufacturing with new technology and processes. Another pro is that as Chinese investment and interdependence grow with Vietnam so does China’s corporate interest in Vietnam’s stability. A welcoming Vietnamese environment for investment has a political spin off in creating a better atmosphere for bilateral relations. At the micro-level, the tourist industry in Hoi An, for example, readily welcomes the influx of Chinese visitors and their cash. Finally, given the tariff war between the United States and China, Vietnam benefits by the relocation of Chinese companies to base their operations in Vietnam. The cons of Chinese investment include exposure to U.S. tariffs for Chinese sourced raw materials. This is the case with Trump Administration tariffs on Vietnamese exports of steel and aluminum that originate in China. A second con is that Chinese investors will seek out Vietnamese counterparts such as local government officials or influential Vietnamese businessmen for special protection or favours. This will result in vested interests that could exert some influence on Vietnamese policy and relations with China. Such was the case of Chinese investment in bauxite mining in the Central Highlands over a decade ago. Local province leaders welcomed the investment because they saw a financial benefit. Local workers were up in arms because they were locked out of jobs as Chinese workers were contracted; some were given upgraded certificates of their skills by corrupt Vietnamese authorities so they could enter Vietnam visa free. 2
Environmentalists protested at the likelihood of downstream pollution of the water
system. As the deadly riots of 2014 demonstrated, Chinese actions in the South China Sea could provoke a nationalist response directed at Chinese firms and commercial interests. The word “control” is important because foreigners cannot own land but can lease it. This could result in deals in which Vietnamese officials or entrepreneurs act as front men for Chinese investors. If Chinese investors created ghettos in Vietnam, there is a risk of a popular backlash such as that evidenced when the draft Law on Special Administrative and Economic Zones was brought before the National Assembly. The protests were spawned by social media unconfirmed reports that Chinese businesses would be given ninety- nine year leases, including in Quang Ninh province adjacent to the China border.
Suggested citation: Carlyle A. Thayer, “Chinese Investment in Vietnam: Implications,” Thayer Consultancy Background Brief, December 31, 2018. All background briefs are posted on Scribd.com (search for Thayer). To remove yourself from the mailing list type, UNSUBSCRIBE in the Subject heading and hit the Reply key. Thayer Consultancy provides political analysis of current regional security issues and other research support to selected clients. Thayer Consultancy was officially registered as a small business in Australia in 2002.