Thayer Consultancy Background Briefing:

ABN # 65 648 097 123

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.