Careful with Capital Flows from China

2:40:58 PM | 26/7/2019

“Is Chinese capital really cheap, green, clean?” the question heard at the Workshop on announcement of research results on “Opinions on Chinese investment in Vietnam” organized by the Vietnam Institute for Economic and Policy Research (VEPR) in Hanoi.

Cautious with EPC fund flows from China

Dr. Nguyen Duc Thanh, Director of VEPR, cited data released by the Foreign Investment Agency under the Ministry of Planning and Investment that investment value from Mainland China, Taiwan (China) and Hong Kong (China) topped in Vietnam with US$8.2 billion in the first six months of 2019.

Dr. Pham Sy Thanh, Director of China Economic Research Program under VEPR, said, although Chinese investment fund in Vietnam has risen significantly in the past time, it is uncertain because, in addition to M&A deals, Chinese contractors also brought their investment money into Vietnam via engineering, procurement and construction (EPC) contracts. These very EPC contracts caused a lot of incidents that blemished Vietnam's economic performance. He cited that Na Duong Thermal Power Plant, built by Japanese contractors, had no technical faults since its construction and operation, but Cam Pha Thermal Power Plant, constructed by Chinese contractors, repeatedly broke down since its operation, such as battery room explosion and turbine propeller breakdown. Besides, according to VEPR statistics, 25 out of 86 hydropower projects are now behind schedule, with eight slowing cases caused by contractors, including five Chinese (involved in An Khe - Kanak Hydropower Project, Thuong Kon Tum Hydropower Project, etc.)

The most typical and most persistent case in this story is the capital inflation of Cat Linh - Ha Dong urban railway project. According to contract terms, the EPC contractor had to complete the US$315 million project. Construction officially began in 2010 and was initially planned to be completed in 2014, until several delays dragged the project to a yet unknown date of completion. This prolonged project has led to serious, persistent consequence for Vietnam such as corruption, social impacts, financial dependence, environmental issues and economic efficiency.

Is Chinese capital really cheap?

At the meeting, Mr. Truong Dinh Tuyen, former Minister of Trade, frankly acknowledged that, right from the time he was a minister, he was quite cautious about Chinese capital inflows. To date, negative impacts engendered by ODA, FDI or EPC packages are partly attributed to Vietnamese authorities. In fact, investors not only from China but from any other country want to bring obsolete technologies abroad. Thus, without proper care for choosing contractors, it is very easy to take ‘bitter fruits’. And, the lesson from Chinese EPC contracts is still very clear.

Dr. Tran Thi Ngoc Quyen from University of Foreign Trade said, two years ago, an American researcher once warned that Vietnam needed to be careful with Chinese capital because it contains many risks. And, at that time, many Southeast Asian countries were quickly shifting to European capital. Therefore, if it is impossible to block Chinese capital inflows from source, it is necessary to strengthen post-inspection, construction supervision and acceptance, she emphasized.

Meanwhile, according to Dr. Pham Sy Thanh, under the guise of cheap loans, Chinese contractors often charge additional fees such as contract signing, enforcement and handover. And, when extra items are added, plus interest rates, the value is equivalent to that quoted by contractors from Europe or Japan. For that reason, whether Chinese capital flows are really cheap or not, business partners, including Vietnamese, need to consider carefully, he recommended.

Anh Phuong