Inspection, supervision and acceptance of investment projects from China needs to be enhanced

Hai Duong Thermal Power Plant invested by Chinese contractor is behind schedule. Illustrative photo

FDI not the main factor

VEPR’s experts said that since reforming and opening up the economy, Vietnam has become a bright spot for investment in Southeast Asia, attracting investment capital from more than 100 countries.

China has seen a rapid increase in investment capital and scale in Vietnam in recent years. China’s investment (including Macau and Hong Kong) covers all sectors, focusing on processing, manufacturing and engineering, procurement, and construction (EPC) contracts.

According to Associate Prof. Nguyen Duc Thanh, Director of VEPR, research of Chinese investment in Vietnam showed that the way China’s capital pours into Vietnam was very special, not only from FDI and ODA.

"China's FDI capital into Vietnam cannot be compared with Northeast Asian countries like Japan and South Korea, but Chinese investors mainly invest in Vietnam through EPC contractor packages," Thanh said.

Regarding FDI capital, Thanh said in 2012, the investment from Hong Kong accounted for about 8% of the total FDI capital into Vietnam. Of which Chinese enterprises’ investment though Hong Kong accounted for 2% and Hong Kong enterprises accounted for 6%.

In 2019, the investment from Hong Kong into Vietnam accounted for 10%, of which, Chinese enterprises’ investment into Vietnam through Hong Kong accounted for 4%, Hong Kong enterprises was about 6%.

"However, it is difficult to distinguish Hong Kong and Chinese investment sources," Thanh said. The flow of investment from mainland China and Hong Kong into Vietnam is real in recent years. The US-China trade war also caused FDI inflows from China to Vietnam to increase rapidly.

According to Thanh, China has only become a capital exporting country recently, after the 2010 world economic crisis. Most of China's investment is in Asia, most of which is in Hong Kong. China’s capital into Africa, Europe and North America is not significant.

China’s capital into the remaining countries, including Vietnam, accounted for a small percentage and is not significant compared to its flow into Hong Kong, but is relatively stable. China’s capital flows into Vietnam are spread throughout the country, mainly focusing on textiles, petrochemical refinery, mining, chemicals and metal production.

“Through FDI data of Northeast Asian countries, China is a latecomer in the FDI playground and is trying to grow. The presence of China’s capital in Vietnam is clear, but FDI is not the main factor,” Thanh said

Accounting for a large proportion of EPC contracts

Director of VEPR's Chinese Economic Studies Program said that one of the conditions for accessing loans from China is an EPC contract.

Research on China’s investment in the form of EPC through the case of the coal power industry has indicated the inadequacies of this capital flow such as slow progress, technical problems and the risk of environmental pollution.

Accordingly, data from power plants by country of the general contractor shows factories invested by China as a general contractor account for 21%, and the total EPC contract value by country of China amounted to 69%.

Regarding the main issues related to Chinese contractors, Mr. Pham Sy Thanh said that nearly 70% of China's EPC projects are behind schedule. For example, Hai Duong thermal power plant signed an EPC contract in 2015 and only reached 30% of the schedule by 2019.

Regarding technical issues, Mr. Pham Sy Thanh gave an example of Cam Pha Power Plant. Since it began operating in 2011, many incidents have occurred with serious economic consequences such as fires and explosions in the battery room, the fan of generator group 1 was broken and had to be transported to China for repair, so in 2016, the plant stopped operating for six months, reducing electricity productivity by 50%.

Regarding the impacts on the environment, of the 30 operating factories, 19 factories (accounting for 63.3%) caused environmental problems. The number of factories stating environmental impacts by country reached 74% of Chinese factories.

Pham Sy Thanh said that China's investment is a broad concept, not only investment activities but also EPC projects of which capital is borrowed by Vietnam from other countries (such as Japan) but that are implemented by China.

Dung Quat Customs with major investment projects VCN- The great pleasure of the Dung Quat Customs Branch (under the Quang Ngai Department of Customs) ...

According to Pham Sy Thanh, China's FDI inflows into Vietnam increased year by year, but still accounted for a relatively small proportion compared to investors from Japan and South Korea, but impacted environment, society and the labour market. Therefore, it is impossible to prevent China’s capital from its input but there needs to be enhanced inspection and supervision of construction and acceptance.