Enterprises' Illicit Investment in China

While China has had more than 400 projects in Vietnam with a total investment capital of more than US$700 million, Vietnamese enterprises’ investment in China remains little in both registered and realised capital.

 

According to statistics by the Department of Foreign Investment, the Ministry of Planning and Investment of Vietnam, by April, 2006, Vietnamese enterprises had invested in 153 projects in foreign countries with a total investment of more than US$655 million. Of the figure, Vietnamese enterpises had invested in seven projects, capitalised at US$4 million, in China, including Hong Kong and Chinese Taipei. In China alone, Vietnamese enterprises had invested in one project with a total investment capital of around US$1.9 million. This is a project set up by a joint venture of the Viet Trang Import and Export Joint stock Company and a Chinese partner in September 2005. The project, called the Mekong Investment, Import and Export Joint venture Company, specialises in building trade centres, and office and apartment buildings, bonden warehouses, has a duration of 50 years. , Vietnamese enterprises had invested in four projects with a total investment capital of more than US$1.5 million in Hong Kong, and two projects with a total of US$470,000 in Chinese Taipei.

 

Vietnamese enterprises’ projects in China are registered to specialise in services, mainly import and export. The projects have little investment capital, in which the Vietnamese side’s contribution is very small. Among three 100 per cent Vietnam-owned projects, two projects, developed by private enterprises, have capital of some hundred thousand of US dollars. Only a project by EVN Telecom is capitalised at US$1 million.

 

Statistics from authorised agencies in China are much different from those provided by Vietnamese authorised agencies. According to China Trade Economic Year Book, since 1992 Vietnamese enterprises have paid their attention to investing in the Chinese emerging market. 1994 saw a peak of Vietnamese enterprises’ investment in China with 141 projects, capitalised at US$123 million. By late 2003, Vietnamese enterprises had invested in 400 projects in China with a total of registered capital of US$294 million, and realised capital of US$57.3 million.

 

At a seminar on Vietnam-Chine border trade in November 2006, Dinh Trong Hanh from the Academy of Finance, Vietnam, said the difference in statistics of Vietnam and China on the number of projects developed by Vietnamese enterprises resulted from the fact that, many enterprises in Haiphong, Ho Chi Minh City, Hanoi and some provinces sharing borderline with China had invested in China, including Hong Kong and Chinese Taipei, without permission from and registration with Vietnamese authorised agencies. Vietnamese investors mainly concentrate in southwestern region of China, developing projects on restaurant and services with an average investment capital of US$0.75 million for each project. Their realised capital is equal to 19.3 per cent. The figure is small in comparison with a total investment capital mobilised by China. The figure, however, from a point of view of investment in foreign countries by Vietnamese enterprises, is significant. In particular, in comparison with the number of projects developed in foreign countries and the total volume of officially registered capital in China, the figure is also significant.

 

Associate Professor and Dr Dinh Trong Hanh, Vietnamese enterprises’ financial strength remain low. On average, the capital scale of each Vietnamese enterprise in 2003 was put at more than US$1 million. Due to their small capital scale, enterprises have not paid attention to long-term investment strategies and the diversification of their investment. Vietnamese enterprises have been aware of investment opportunities in China, but they have just studied the market, their investment time in the country remains short. The implementation of many projects remains slow.

 

In addition, Vietnamese enterprises’ understanding about the market, investment opportunities, and management mechanism in China. Therefore, they are cautious with their investment decisions.

 

Another big challenge is poor competitiveness of Vietnamese enterprises. Therefore, they hesitate in making decisions to invest in China. Furthermore, Vietnam has yet to have policies and mechanisms to guarantee and encourage Vietnamese enterprises’ investment in foreign countries. The registration for licences of investment in foreign countries remains too complicated, taking much time from enterprises. Money transfer to foreign countries and the access to loans remain difficult. The liberalisation of investment in China and Vietnam remains weak, which can be seen via non-transparent and unpredictable policies.

 

According to experts, co-operation opportunities between Vietnamese and Chinese enterprises and economies have increased. Apart from perfecting infrastructure for boosting co-operation between Vietnam and China, acting as a bridge between China and ASEAN, Vietnam should promote investment of Vietnamese enterprises in China. Accordingly, the Vietnam Investment Promotion Department should review and standardise the number of projects developed by Vietnamese enterprises in China. This is a neccesity for the planning of the encouragement policies, thus helping promote investment by Vietnamese enterprises in each territory to guarantee benefits of enterprises while they invest in foreign countries, and to increase State agencies’s management. In particular, measures should be taken to put an end for investment in foreign countries without registration at authorised agencies.

 

Even though on August 9, 2006, the Vietnamese Government has issued the Decree N⁰ 78/2006/ND-CP on encouraging Vietnamese enterprises to invest in foreign countries to replace the Decree N⁰ 22/1999/ND-CP, documents providing guidelines have yet to be issued by ministries and authorised agencies. Therefore, Hanh said, the documents should be issued to provide guidelines on enterprises’ licences, capital guarantee, money and asset transfer to foreign countries for investment and supervision mechanisms and taxation policies. At the same time, licence granting and management of enterprises investing in foreign countries should be decentralised to provinces and cities, thus helping tighten the management of projects developed in foreign countries.

 

In particular, investment support sytesm between Vietnam and China should be further perfected. Also, Vietnam-China joint venture banks and branches of Vietnamese commercial banks should be established in localities sharing the borderline with China to serve trade activities and investment of Vietnamese enterprises.