China far to keep pace with key FDI investors in Vietnam

Illustrative photo. (Source: VOV)

Statistics released by the Foreign Investment Agency under the Ministry of Planning and Investment indicate that Chinese foreign direct investment (FDI) only made up 8 per cent of the total FDI inflows into Vietnam throughout 2012. Seven years later, the ratio has inched up to 10 per cent.

During the first half of 2019, Hong Kong (China) topped the list of FDI investors with the investment capital totaling US$5.3 billion, while investors from mainland China was ranked third with a combined registered investment capital of US$2.29 billion.

Nguyen Duc Thanh, director of the Vietnam Institute for Economic and Policy Research (VEPR), claimed that China remains a moderate FDI investor in comparison with “major players” such as Japan and the Republic of Korea (RoK).

Each country follows its own FDI strategy. For instance, Japan keeps a close eye on energy investments while Taiwan (China) seeks to pour investment inflows into plastics production, and the RoK aims to boost electronics manufacturing.

Meanwhile, China has been following no clear FDI scheme. The majority of China’s overseas investment outflows have allegedly been poured in Asia, Thanh noted.

According to the VEPR, broad discussions on Chinese investment into Vietnam have been made. This would also raise discussions about Chinese-financed projects under Engineering, Procurement and Construction (EPC) contracting arrangements.

Delayed progress, technical matters, and adverse impacts on the environment are major factors that make many Chinese-financed projects and loans headaches. VEPR cited a report as claiming that 25 out of 86 hydropower plant projects nationwide have been suffering from delayed progress. Of which, five reported sluggish progress due to shortcomings of their contractors, including those from China.

VEPR experts raised concerns about the negative impacts of EPC projects, especially coal-fired power ones, claiming that a range of issues including corruption, financial reliance, environmental pollution, and economic losses caused by EPC projects should be reviewed and handled.

Pham Sy Thanh, head of the VEPR China Economic Research Program, said capital sources from China enjoy an advantage in low interest rates but they are blamed for additional costs, including those for implementing contracts and guarantees.

He exemplified his stance by stating that Cam Pha thermal power plant, executed by Chinese firm Songling Power Environmental Equipment, has suffered from a number of serious incidents since it was put into operation in 2011.

The plant was forced to halt operation for four months as a fan of the power generation set No.2 was out of order. In 2016, it also saw a blaze in the accumulator management unit and a broken fan within power generating units. These incidents made the plant pause operations for six months and halve its total power output.

In addition, Vinh Tan 2 thermal power plant project implemented under the Chinese EPC contracting arrangement caused negative impacts on the environment. It was fined US$62,000 by the Vietnam Environment Administration for its violation of legal regulations regarding the disposal of waste and discharge systems. Meanwhile, two hydropower plants, namely An Khe-Kanak and Thuong Kon Tum, executed by Chinese contractors, also had to endure a delay to their progress.

Pham Sy Thanh suggested that the management of FDI inflows as well as loans, and projects under EPC contracting arrangements should be intensified to reduce negative impacts, such as an excessive capital reliance, low economic efficiency, and environmental issues.

Truong Dinh Tuyen, former Minister of Trade, urged for thorough consideration for economic cooperation with Chinese investors when mentioning widespread rumors about the negative impacts caused by Chinese investment inflows.

Investors are looking to remove their obsolete technologies out of their homeland, and Chinese investors are not an exception, Tuyen said, stressing that: “We are entitled to select and approve projects and contractors on our own.”