Investment

Since the launch of the market opening policy, Vietnam has attracted more foreign investors to exploit, created more opportunities for them to participate in bidding for domestic projects or cooperate with them in many areas. Especially, China's direct investment in Vietnam in recent years has made remarkable progress. Since 2000, China's investment has grown

77

rapidly in terms of quantity, scale and location. During the first 9 years, the average investment capital of a small project is about $1.5 million. In recent years, the average investment capital of a project is about $4.3 million; even there are many projects from $1 million to $10 million. Projects with investment capital of $10 million to $100 million were mainly launched since 2007 (Institute of Chinese Studies, 2010). For Vietnam, this has twin effects. On the one hand, this has brought great economic results. On the other hand, it created more pressure and increased competition for domestic companies, and in turn affected in Vietnam's current economic growth. It is not about quantity, but quality.

In fact, there are many big and important packages of Vietnam now fall into foreign hands, especially Chinese contractors. Up to 90% of Engineering Procurement and Construction project (EPC) in Vietnam are undertaken by Chinese contractors, mainly in petroleum, chemicals, electricity and knitting. And there are nearly 30 Chinese enterprises involving in national key projects (Hoang Lan, 2014, May 12). For electric power, there have been many billion dollars projects falling into Chinese contractors, for example: the project of Quang Ninh 1 & 2 power stations with a value of $400 million, My Tan 2 electricity projects with $1.3 billion, Duyen Hai 1 electricity projects with US$4.4 billion (Hoang Lan, 2014, May 12).

In April 2014, the Research Institute of Mechanics (Ministry of Industry and Trade) announced statistics in terms of Vietnam has 20 thermal power projects, of which 15 works are Chinese contractors, and thus the basic localization rate is 0%. There are 10 major projects in Vietnam undertaken by Chinese contractors: Cat Linh - Ha Dong urban railway, Ha Noi - Hai Phong expressway project, Noi Bai – Lao Cai expressway, bauxite mining in Central Highlands, Lao Cai iron and steel plant, Duyen Hai I thermal power plant, Mong Duong 2 thermal power plant, Song Bung 4 hydropower plant, Golden Westlake, textile factory in Laiwu industrial zone (Hoang Lan, 2014, May 12).

78

The main reason for the above situation is that bidding documents for big projects are often assigned to foreign consultants. Standards are documented mechanically, reproduced from documents rated as qualified international standards. Except the appointed cases, therefore, there are very few Vietnamese enterprises qualified for the bidding or even subcontractors because if the Chinese company wins the contract, they will supply almost all of materials including unskilled worker. For small packages, although some Vietnamese businesses are eligible for the bid, they again face the cost of filing standards and the extremely large 'cost of relations' (Hoang Lan, 2010, August 7).

Indeed, China is an investor who brings both opportunities and challenges. In the first three months of 2017, China’s FDI in Vietnam reached a record level over the same period last year, both in terms of number of newly licensed projects, registered capital and disbursed capital. However, the ranking of investment countries has changed when China overtook Japan and Singapore to become the second largest foreign investor in Vietnam after Korea.

Although foreign direct investment from China increased strongly in Vietnam but it is not quite a good thing.

In recent years, many Chinese enterprises provided capital for Vietnam, which is often identified as to catch the opportunity of Trans-Pacific Partnership agreement (TPP).

However, as the United States withdrew from the agreement, the fact that China continued to increase its investment in Vietnam has many concerns. This is because in the last few years, China has changed the technological process to cleaner environment. This leads to the risk that backward technology from China could be brought to Vietnam. In an interview with VnExpress newspaper, Doctor Ngo Thang Loi - a professor of National Economics University, said that the direct investments from China are disquiet because their projects are often with cheap labor, erode resources and destroy the environment (Cam Tu, 2017, April 8). He also argues that while the investment environment of Vietnam now needs quality, as

79

estimated, the influx of FDI from China into Vietnam may not be guaranteed. In particular, technology from China can be low-tech or energy-intensive technology.

Although the flow of capital from China does not bring much benefit to Vietnam in terms of environment and technology, Vietnam cannot refuse. If it continues, however, Vietnam will face the risk of increasing trade deficit. Furthermore, this might affect energy security and national security.

In a flat world, the economic binding or interactions are an objective necessity. Also, in the context of international economic integration, Vietnam needs to diversify its partners to seize opportunities. As proved by history and practice, however, the over-reliance on a given market might lead to risks of volatility. To a large extent, in order to ensure the national security, Vietnam needs to actively build an independent, autonomous economy through appropriate steps, routes and ways to deal with the risk of excessive reliance on China.

As discussed above, economic pragmatism is indeed a vital element of Vietnam’s hedging strategy vis-à-vis China. Nevertheless, the implementing process, practice influences and corollary of this component ten years ago might be considered as an obvious evidence for the unsuccessful operation of Vietnam’s hedging strategy. It not only affects the implementation of other component – hard balancing, but also produces a new risk of national security.

In order to have a close look at influences that economic pragmatism creates during the implementation of hedging strategy, the thesis introduces a case study of Mekong River Basin: