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JCER DISCUSSION PAPER
No.150
January 2020
Japan Center for Economic Research
Enhancing infrastructure connectivity in Vietnam
under Japan’s Free and Open Indo-Pacific Strategy
versus China’s Belt and Road Initiative
Japan Center for Economic Research
Vietnam Academy of Social Sciences
Nguyen Thi Hong Nga
1
Enhancing infrastructure connectivity in Vietnam under Japan’s Free and Open
Indo-Pacific Strategy versus China’s Belt and Road Initiative1
NGUYEN THI HONG NGA2
Abstract
Amid the rise of China’s Belt and Road (BRI), Japan has adopted Free and Open Indo-Pacific
Strategy (FOIP), which aims to pursue peace and prosperity in the Indo-Pacific and to some
extent, counter China’s ambitions by promoting alignments with other regional countries.
Given its favorable geo-strategic location and a long, troubled history with China, Vietnam
appears to be an appealing partner to Japan. It even makes more sense as one of the three
pillars of Japan’s FOIP also refers to “improving connectivity through infrastructure
development” across regional economies while infrastructure connectivity is also a key
component of China’s BRI approach. This paper thus examines how Japan has fostered
infrastructure connectivity in Vietnam under the FOIP Strategy in response to China’s BRI
and its recent transformations, and which choices Vietnam would make to benefit from both
sides. The study shows that in addition to enhancing high quality infrastructure projects in
Vietnam, Japan should also take further steps to work with a “high quality” BRI and “digital
connectivity” strategy under BRI’s Digital Silk Road. The transformation of China’s BRI
also sets off alarm bells for Vietnam to have second thoughts about the approval of China-
funded infrastructure projects, which however, does not mean Vietnam should turn its back
on Chinese capital. Essentially, a trilateral collaboration with the engagement of a private
sector in infrastructure development could be a solution to strike a balance among Japan’s
FOIP, China’s BRI, Vietnam’s national interests and international basic standards. In
particular, Japan and China could consider to team up on “smart cities development” projects
and spread out this model across Vietnam to improve infrastructure connectivity in the
country.
Key words: Free and Open Indo-Pacific Strategy, Belt and Road Initiative, infrastructure
connectivity, Japan, China, Vietnam
1 I would like to express my deepest appreciation to the generous support granted by Nikkei Asia Scholarship and Japan
Center for Economic Research (JCER). My wholehearted gratitude goes to Ryuichi Ushiyama for his intensive supervision, valuable comments, and constant encouragement; and to Yoko Kondo for her dedicated and enduring supports. I also convey special thanks to all those who have significantly assisted my research work throughout the entire period of my stay in Japan. 2 The views expressed are the author's own, and do not necessarily represent those of JCER and Vietnam Academy of Social Sciences.
2
1. Introduction
China’s rise with its massive Belt and Road Initiative (BRI) appears to be charming to many
developing economies which have always been willing to welcome China’s generous
investment packages, albeit warnings of heavy reliance on Beijing economically and
politically in return. On the other hand, the mysterious expansion of BRI has imposed
increasingly serious threats to a number of nations, stretching from the world’s major powers
to small and medium sized countries. As China’s neighbors, Japan and Vietnam are not the
exception.
Against the backdrop, Japan has inaugurated Free and Open Indo-Pacific Strategy (FOIP),
which focuses on three pillars: i) Promotion and establishment of rule of law, freedom of
navigation and free trade; ii) Pursuit of economic prosperity (improving connectivity through
infrastructure development, etc.); and iii) Commitment for peace and stability. This strategy
aims to improve Japan’s alignments with other nations in the Indo-Pacific, consisting of the
leading partners (the Quad) and “the rest of the region”, remarkably Southeast Asia (SEA) –
the centrality of the Indo-Pacific architecture, and in various ways, can be perceived as a plan
to counter the ambition of China (Berkofsky 2019). Interestingly, Limaye & Kikuchi (2016)
point out that it would be more useful if Japan or the United States could “approach ASEAN
groupings on an individual country basis”. This finding plainly implies that strengthening
bilateral cooperation with a separate ASEAN country would work more effectively than
dealing with the bloc in its entirety. Among ASEAN nations, Vietnam has increasingly
become a key node of Japan’s engagement in SEA and a locus of Japan’s foreign policies
(Parameswaran 2018; Rossiter 2018).
From the Vietnam’s viewpoint, China’s BRI may bring opportunities and benefits for further
improvements in infrastructure in Vietnam, but also challenges and risks such as debt trap
and project quality. In addition, China’s continuously escalating assertiveness in the South
China Sea has stimulated national resilience and encouraged the government to promote
multilateralism policies with major countries, most importantly through partnerships with
Japan. However, similarly to some other ASEAN countries that hugely depend on China in
many aspects, Vietnam avoids taking sides and leaning too much in either Japan or China or
any Sino-containment blocs/initiatives.
Notably, since April 2019, under the international pressure of debt distress, China has been
transforming its strategy into a so-called “high quality BRI” and developing a “digital BRI”
– Digital Silk Road. In this circumstance, the question is raised as to how Japan can facilitate
infrastructure development in Vietnam under the FOIP and newly-transformed BRI, and
which choices Vietnam should make in response to FOIP versus BRI to benefit from both
sides and put itself into a conflict-free situation with China.
3
Beyond the United States’ FOIP with a strong prominence on regional security linkage and
democracy-related goals, Japan’s FOIP goes further with the objectives of comprehensive
engagements through financial aid, ‘quality’ infrastructure investment, free trade facilitation
and people-to-people connectivity among other things. Meanwhile, the emphasis of Japan’s
FOIP has so far come to security rather than the economic realm (Wilson 2018). At the same
time, the articulation, activities and mainstreaming literature on Japan-Vietnam cooperation
under the FOIP have predominantly touched on security ties, especially maritime security,
but underexplored economic cooperation. In filling this void, this paper will thus concentrate
on the economic dimension, particularly Japan’s investment in infrastructure connectivity in
Vietnam compared to China’s. It argues that Japan’s investment in high quality infrastructure
connectivity and its collaboration with China in infrastructure projects would be a soft, long-
term and effective approach to increase Japan’s power in the Indo-Pacific and achieve the
success of FOIP.
The study will start off by examining the relationship between Japan’s FOIP and China’s
BRI and ASEAN countries’ reactions to both strategies. The subsequent sections discuss the
importance and development of Japanese investment in infrastructure connectivity in
Vietnam under the FOIP compared to China’s BRI. Lastly, this paper will point out prospects
and challenges to Japan’s plan to promote infrastructure connectivity in Vietnam and
conclude with some recommendations for both countries to foster infrastructure connectivity
in Vietnam towards the realization of FOIP and in the context of newly transformed BRI.
2. Methodology
The information and analysis of this research are based on both primary and secondary
sources.
The primary information comes from personal interviews with experts, professors and
government officials, which has been collected at Ministry of Foreign Affairs, Japan
International Cooperation Agency (JICA), Japan External Trade Organization (JETRO),
Embassy of the Socialist Republic of Vietnam in Japan, Aoyama Gakuin University,
University of Tokyo, University of Waseda, Japan Institute of International Affairs, Vietnam
Academy of Social Sciences and other relevant research organizations. The interviewees
have diverse backgrounds and majors of interests, such as Japan’s foreign policies towards
Southeast Asia, international relations in East Asia and Southeast Asia, Japan – Vietnam
relations, Japan’s investment promotion in Vietnam, China economic and political affairs,
China’s BRI, etc. Besides research experience in this field, many of them have worked in
both Japan and Vietnam or Japan and China as onsite officials, so they have broad and
insightful knowledge of these countries as well as their bilateral/trilateral relations.
4
In addition, the study also employs secondary sources such as data, statistics, country reports
and materials provided by the above-mentioned organizations and from previous literature.
As Japan and China have invested in infrastructure development across many nations,
discussions and assessments based on comparative points of view from different host
countries can complement the primary information, which to some extent might be subjective
or biased. Moreover, as direct and official data on investment and capital, especially from
the Chinese side in the most cases is unavailable, inaccurate or difficult to obtain, previous
research works can provide statistics on Chinese and Japanese capital to understand the
comprehensive picture of investment flows into infrastructure development from the two
countries.
3. Literature review
3.1. Japan’s FOIP versus China’s BRI: Competitive or complementary?
The vast majority of literature have regarded FOIP and BRI as two contrasting and
competitive strategies where Japan and China have been playing the game to exaggerate their
influence in the Indo-Pacific region (Shoji, 2018). It becomes clearer on the ground that the
Sino-Japan rivalry exists in a long history of territory disputes and also in their competition
for infrastructure investment, trade and security ties with SEA countries (Furuoka 2018,
Harris 2019, Mazza 2015). Some Chinese scholars labelled Japan as an enemy and claimed
that the grant of Japanese ODA, “quality infrastructure” investment and its efforts to intensify
security cooperation with ASEAN countries were supposed to advance Tokyo’s strategic
position and promote its alignment in the region to constrain Beijing’s growing economic
and military outreach as well as its BRI (Jain 2019, Wuthnow 2017). Although Japan’s direct
opposition to China’s BRI cannot be explicitly found in any official speeches or statements,
the initial refusal to join AIIB (Asian Infrastructure Investment Bank) nor to bilaterally
cooperate with China in infrastructure development under the framework of BRI has
implicitly portrayed Japan’s concerns and suspicions on China’s initiative. Later, Japan
agreed to partner with China’s BRI “under certain conditions”, which Japan nevertheless was
assumed to “already know [those conditions] are unacceptable” (Berkofsky 2019). More to
the point, the stress of high-quality infrastructure3 as core values of Japan’s FOIP also
differentiates itself with BRI’s reputation of closedness, coerciveness and opacity among
Japan’s like-minded countries (Brown 2018).
3 High quality infrastructure includes: (1) effective governance and economic efficiency in view of life-cycle
costs as well as safety and resilience against natural disasters, terrorism and cyber-attack risks; (2) job creation,
capacity building and the transfer of expertise and know-how for local communities; (3) addressing social and
environmental impacts; (4) alignment with economic and development strategies including aspects of climate
change and the environment at the national and regional levels; and (5) effective resource mobilization including
through PPP
5
The Sino-Japan relationship under the FOIP and BRI was presumed to be warmed up by
Abe’s strategic shift on BRI in 2018 since he overtly switched gear to open FOIP to every
country, and highlighted the essentials of cooperating with Beijing in the implementation of
FOIP (Rossiter 2018). In addition, he facilitated Japan’s proactive engagement into BRI by
deciding to join hand with China in infrastructure investment projects in third countries.
Notwithstanding, this movement was described as rhetoric rather than actual intention.
Indeed, Prime Minister Abe derailed from what he said by boosting security cooperation with
Vietnam and other countries around China and restricted Huawei and ZTE from
governmental procurement. This can be interpreted that Japan’s motivations to cooperate
with China targeted at checking Beijing’s power and observing/supervising its projects
(Nagao 2019). Neither China nor Japan would support or sign the other’s initiative, especially
when it comes to the United States factor and given current rising tension between the two
largest economies, Japan would certainly turn to the US’s side and play a confrontational
card against China (McGhee; Solís & Reinert 2019). In this scenario, there is little hope that
FOIP and BRI would cooperate; instead, both parties would severely compete to leverage
their alignments with ASEAN countries.
On the contrary, if we look at the goals of Japan-led FOIP and China-led BRI, the two
initiatives sound complementary with similar objectives of enhancing cooperation and
connectivity among state members. Both are aiming at providing public goods (improving
infrastructure connectivity for developing countries), promoting free trade and investment,
and facilitating people-to-people exchange/collaboration, etc. (Ministry of Foreign Affairs
2017; Oztur 2019). Some scholars believe FOIP and BRI can be cooperative strategies and
even raise high hopes for a rosy picture where the two could go along and complement each
other. Takahara (2019) proposed that despite competitive geo-strategic and geo-economic
goals, the two initiatives could overlap and coexist if they focus more on the economic aspect.
For the sake of FOIP’s future, Japan must build up FOIP with a scent of cooperation in order
to woo SEA countries to join rather than distance them by constructing a competitive
initiative against China (Kamiya 2019).
3.2. Southeast Asia’s position and responses to Japan’s FOIP versus China’s BRI
Compared to the rest, SEA has evolved as a new center of gravity in the Indo – Pacific thanks
to geographical proximity to both China and Japan and lack of major powers’ presence in the
region (Kliman 2019, Shoji 2018). Japan has attempted to insert ASEAN states into various
economic and military initiatives that underpin the FOIP, and the FOIP cannot be achieved
without the participation of ASEAN (Rossiter 2018).
There has long been a competition between two actors in financing infrastructure across
ASEAN countries, which is called “a race to the bottom” or infrastructure war (Berkofsky
6
2019, Dalpino 2017, Prasad 2018). By stark contrast, Sino-Japan infrastructure war is not
completely a bad thing as it seems to. Many SEA countries have reaped benefits from the
investment tussle between two powers, especially from infrastructure programs to enhance
physical connectivity in the region (Goto 2019, Zhao 2018). Plus, joint infrastructure
investment projects between China and Japan could also be expected to help secure high
standards for those projects and reduce China’s strategic control capacity over recipient
countries under the BRI (Harris 2019).
The unveiling of China’s BRI and Japan’s FOIP, however, has triggered concerns among
SEA nations. Scholars hold different views on this issue in the way that there have been
fragmented responses to the FOIP among SEA countries so far. For instance, Sciorati (2019)
saw positive attitudes from Singapore, Indonesia and Vietnam, negative views from
Cambodia and Philippines, and “wait and see” approach from Brunei, Laos and Myanmar.
Likewise, Lee (2018) argued that Thailand, Singapore, Indonesia and Vietnam seemed to be
not opposed to FOIP even taking China into consideration; whereas Cambodia, Philippines,
Laos and Malaysia still kept silent. Others believed that the entire region has remained and
will be neutral to the FOIP and the BRI by virtue of their high reliance on and mutual interests
from both sides (Shoji 2018). Yet some ASEAN member states (for example, Malaysia)
begun to display mounting cautions to the BRI and China’s infrastructure investment on
account of “debt distress”, thus opening wider arms to Japan’s FOIP would be their preferred
choice (Shoji 2018).
From the perspective of Vietnam, Vietnam has employed a hedging strategy against Beijing
by diversifying partnerships with other major powers, including Japan to undermine
vulnerability and risks away from China (Manyin 2014). Vietnam showed its supportive
attitude towards China’s BRI, but only in a diplomatic manner rather than specific actions
(Le 2018, Nomura 2018). Although Vietnam remained silent on the endorsement of FOIP,
maritime defense ties between Hanoi and Tokyo have been surprisingly cemented recently,
ranging from frequent visits to defense interactions (Chand et al. 2018, Parameswaran 2018).
Other major powers, especially the United States also endorsed Japan’s engagement into
Vietnam in the Indo – Pacific region. The United States Ministry of Defense’s Indo-Pacific
Strategy Report issued on June 1st 2019 indicated that “improving security relations among
the Indo-Pacific region is critical to regional integration. [...] Key countries in the region are
working together more closely on conducting training, exercises, and even joint operations
with an example of expanded Japan-Vietnam maritime cooperation.” (United States Ministry
of Defense 2019). Some scholars proposed triangle cooperation between Vietnam – Japan
and other actors, specifically with the rest of the Quad. Recognizing the key role of Vietnam
and Indonesia in the Indo-Pacific, Limaye & Kikuchi (2016) suggested that the US, Japan
and Vietnam should consider the establishment of a separate trilateral dialogue in light of
7
their “ripe relationship” for engagement. Panda (2019) expressed his optimistic view on the
India-Japan-Vietnam “triangular” relationship in the Indo-Pacific region since the
cumbersome maritime relationship with China could make Vietnam as a “strong prospective
candidate”.
The conceptualization of FOIP comes firstly with the pursuit of securing regional security in
the Indo-Pacific; meanwhile the FOIP is actually a geo-economic and geo-political strategy
(Bovy 2019, Takahara 2019). It is noteworthy that despite the interconnectedness among the
three pillars of FOIP, “economic affairs is put before peace and stability” (Sahashi 2019).
Therefore, focusing merely on security and military cooperation represents only part of the
story. In practice, both the US’s rebalance to the Asian Pacific and Japan’s FOIP have paid
extraordinary attention to security and military activities; consequently, SEA expressed their
strong demand for the two countries’ involvement in the region’s social and economic
development (Limaye & Kikuchi 2016). Moreover, the recently adopted ASEAN’s Outlook
of Indo - Pacific Strategy also puts more emphasis on economic cooperation and refrains
from strategic competition (Hoang 2019), which reflects the region’s preference for
economic approach to Indo-Pacific architecture over security or military approaches.
4. Making sense of Japan’s strategy on promoting infrastructure connectivity in
Vietnam under FOIP
The pursuit of connectivity
The primary aim of Japan’s FOIP is to enhance connectivity between two continents and
between two oceans in order to ensure stability and prosperity for Indo-Pacific countries
(Japan Ministry of Foreign Affairs 2017). Japan would like to play the leading role as a key
mediator in this region - connecting itself with the rest and facilitating connectivity among
regional countries. The Pillar 2 of FOIP also emphasizes on “pursuing economic prosperity”
by improving regional “connectivity” through infrastructure development (Japan Ministry of
Foreign Affairs 2017) or in other words, infrastructure “connectivity”. Especially, Japan’s
approach to the Mekong region and Vietnam under FOIP also gives high priority on
economic connectivity.4
Located at the very heart of the Indo-Pacific, Vietnam proves itself to be an ideal partner for
major powers, including Japan. Among ASEAN countries, Rossiter (2018) noted that
Vietnam occupied a special spot in Japan’s security engagement in the SEA region. Further,
while Vietnam sits at the centrality of SEA, Japan is known as the most active player of the
Quad, the connection between two actors can thus build a “heart to heart” tie between the
Quad and SEA, bridging the two most crucial groupings in the FOIP Strategy. In addition,
4 Personal Interview at Ministry of Foreign Affairs (in-person meeting July 9 2019)
8
with a long coastline and a number of seaports along the country (some are even
developed/upgraded by Japanese assistance), Vietnam serves as a convenient gateway for
Japan to get access to the SEA mainland – the Greater Mekong sub-region (GMS), which
has recently become a main focus of Japan’s foreign policies and Japan’s FOIP (Robinson
2018). Vietnam has its unique advantage of the shortest port-to-port distance with Japan
(albeit following Philippines) and direct accessibility to GMS nations. Japan also puts high
expectations on close relations between Vietnam and Laos and Cambodia, which may help
Japan deepen cooperation with Indochina countries.
Vietnam and Japan have relatively long-standing and close relationship without any conflicts
or tensions in the past (unlike Vietnam-China), which paints a bright future for bilateral
relation between two countries and joint strategies/initiatives. While Japan looks at Vietnam
as an attractive destination with windows of economic opportunities - not only a cheap
manufacturing factory but a large consumption market, Vietnam regards Japan as a valuable
material power - the largest ODA donor and important FDI investor. This justifies how
Japanese investment receives a “red carpet” welcome from Vietnam to enhance national
prosperity and promote regional connectivity through regional production networks and
supply chains. Japan’s financial assistance for infrastructure development in Vietnam also
contributes to national and regional connectivity, which can be perceived as both a means
and an end for the achievement of FOIP.
Balancing out China’s growing influence
During an official visit in Hanoi in January 2017, Prime Minister Abe highlighted that
“nothing can obstruct the free passage along this route” and Japan-Vietnam are two neighbors
connected by the free ocean.5 Japan and Vietnam should collaborate to create a free and open
Indo-Pacific region, while ensuring the significance of freedom of navigation and overflight”.
Without naming China, the statements can be linked to China’s assertiveness in the South-
East China Sea and manifest the two countries’ common interests of diminishing heightened
threats from China and its BRI.
The ultimate goal of “connectivity” under Japan’s FOIP implicitly refers to countering
balance with China’s BRI in the Indo-Pacific region, not only in terms of security but also
economic power. Labelled as the main axis of BRI, SEA has also been flooded by hundreds
of billions in investment and financial flows from China. Infrastructure development in SEA
is also regarded as a core element of China’s approach to tie hands with regional countries.
As such, Japan has been taking steps to cultivate its linkages and alignment with SEA
countries, including Vietnam by providing financial and technical assistance for quality
5 South China Sea and East China Sea to the Tokyo Bay
9
infrastructure projects and maritime security. It should be noted that economic involvement
goes hand in hand with security engagement, therefore, economic tools sometimes can also
be employed to gain political interests and in this case, they are used to denounce Chinese
growing unilateralism.
Since trade activities between Japan and SEA countries mostly rely on sea transport, China’s
assertive behaviors in the waterway triggered a wave of criticisms and oppositions from
regional countries. Therefore, they are mindful at the necessity of major powers engagement
into the SEA region to minimize China’s coercive capacities and secure a free and open trade
route in South-East China Sea. Given the ambiguity of the US strategy towards ASEAN in
recent years and increasingly dynamic trade flows between Japan and SEA economies, Japan
becomes the most active and dedicated actor to ensure a rule-based order, stability and
connectivity in the regional maritime. Although ASEAN member states (excluding
Cambodia) have suffered border disputes with China, Vietnam has been the most experienced
nation. Japan and Vietnam have common concerns over long-term maritime territorial
tensions with China and potential enormous consequences of its emergence. Furthermore,
while Japan plays as a pivotal actor in Vietnam’s omnidirectional foreign policy, Vietnam is
set to be a target of Japan’s Look South and Pivot to SEA policy and the central to Japan’s
SEA strategy. On this ground, a close partnership between the two countries could help serve
as a counterweight to China’s rise in the region.
In addition, impressive economic growth and enlarging consumption market in Vietnam are
expected to bring positive spill-over effects to Japan’s economy through FDI projects and
business opportunities, which boosts Japan’s competitiveness capacities to China’s economic
power and limit Chinese economic influence in the region. This also means that enhanced
infrastructure connectivity in Vietnam could fuel Japanese business growth and economic
development in both countries to counterbalance with China for the former and escape from
its shadow for the latter.
5. Infrastructure connectivity in Vietnam under Japan’s FOIP versus China’s BRI
5.1. Background
Since development assistance for infrastructure projects are well-known as a diplomatic and
political tool of large powers to gain influence in recipient nations, SEA countries, including
Vietnam have thus witnessed a race of financial assistance between Japan and China in the
region over the past decades. The Sino-Japan competition has become fiercer since the launch
of FOIP and BRI as both initiatives attempt to enhance their own regional connectivity via
infrastructure development. While China declared to adopt a trillion USD program for
infrastructure investment across country members, Japan announced 116 billion USD plan
10
for “high quality” infrastructure in Asia under the “Partnership for Quality Infrastructure”.
This fact reflects a huge gap in financial aid schemes between China and Japan. China shows
its deep pocket and generosity for infrastructure development, whereas Japan stresses on the
importance of project quality.
By contrast, Japan remained ahead of China with regard to the total volume and the number
of projects of infrastructure investment into ASEAN-6 region (Figure 1). Among regional
countries, Vietnam and the Philippines are the two economies where Japan-backed
infrastructure investment outnumbered its counterparts. As of June 2019, Japan’s investment
of pending infrastructure projects into Vietnam were worth nearly USD 150 billion, over
two-fold larger than that of China (USD 69.8 billion). In addition, Vietnam also took the lead
as Japan’s largest recipient country in SEA, accounting nearly 30% of Japan’s total outward
investment.
Figure 1. Investment in infrastructure
projects in ASEAN-6 countries: Japan vs
China (pending projects), as of June 2019
Table 1. Japan’s and China’s number of
infrastructure projects in SEA countries
Country China Japan
Vietnam 25 74
Cambodia 28 14
Indonesia 55 51
Laos 23 4
Malaysia 31 10
Myanmar 16 16
Philippines 8 29
Singapore 13 24
Thailand 9 15
Total 208 237
Source: Fitch Solutions (2019) and author’s calculation
It is also noted that 70% out of Japan’s ODA have been granted for Indo-Pacific countries,
and 5 of top 10 Japan’s ODA recipient countries are ASEAN countries, including Vietnam.
Over the 2014-2018 period, the total value of Japan’s ODA into Vietnam estimated to be JPY
29,693 million (approximately USD 280 million), consisting of grants, yen-loans and
technical cooperation.6 Due to Vietnam’s tight public debt management policy, Japan’s ODA
into Vietnam has plummeted recently and its yen-loans even dived to zero in 2018 (Table 2).
This trend is expected not to last long nevertheless given a high capital demand for
development in Vietnam.7 On the other side, according to a report published by Vietnam’s
6 JICA (2019). Japanese ODA in Vietnam (Provided by JICA’s officials on personal interview, June 12 2019) 7 Personal Interview on July 9 2019 and June 12 2019
0
50
100
150
200
Vietnam
Indonesia
Philippines
Singapore
Thailand
Malaysia
USD bn
Japan
China
11
Ministry of Planning and Investment 2018, during the 2016-2017 period China emerged as
Vietnam’s fifth largest ODA donor with the total of ODA and concessional loans jumping to
USD 281.38 million (Ministry of Planning and Investment of Vietnam, 2018). However, it
is difficult to acquire reliable data on Chinese capital in Vietnam from both sides as
information seems to be disclosed and confidential due to state secrets and other “sensitive”
reasons.8
Table 2. Japanese ODA in Vietnam
2014-2018 (100 million yen)
Year LA GA TC
2014 827 4 77
2015 1,928 27 102
2016 1,871 11 90
2017 698 26 67
2018 0 5 64*
Total 27,145 907 1,641*
Note: LA-yen loan (including investment
cooperation) GA-grant and TC-technical
cooperation; and (*)-2018 tentative data
Figure 2. Structure of Japanese ODA in
Vietnam, by industry 1997-2017
Source: JICA (2019). Japanese ODA in Vietnam
Looking at the statistics on Japanese ODA in Vietnam by industry, during the 1997-2017
period, more than 70% of the total was allocated into hard infrastructure, especially
transportation and electricity sectors (construction of thermal plants, ports, road, etc.)
(Figure 2). 9 In recent years, Japanese ODA has made considerable contribution to
infrastructure development in Vietnam, remarkably Noi Bai International Airport Terminal
2, Noi Bai International Airport to Nhat Tan Bridge Connecting Road Construction, and
port infrastructure construction in Hai Phong (Lach Huyen port) and Ba Ria Vung Tau (Cai
Mep - Thi Vai port), etc.
In the meantime, the lion’s share of Chinese infrastructure investment into Vietnam have
come to engineering, procurement and construction contracts (EPC), where thermal power
plants, fertilizer and chemical factories, and road construction projects are mainly focused.
Such EPC deals revealed a series of problems that have been lingering for years ranging
from project delay, low bidding but additional unexpected costs, loss-making to low
domestic content (due to abundant Chinese workers, equipment and materials) and
backward technologies. For instance, the Chinese-aided Cat Linh – Ha Dong Metro Line
8 Personal interview on June 19 2019. 9 JICA (2019). See above.
Transportation
46%
Electricity,
gas 24%
Social
Services
14%
Mining and
Manufacturing
2%
Communication
2%
Agriculture
1% Others 11%
12
Construction Project has suffered
from a cost overrun of USD 316
million to USD 868 million
coupled with delays and
environmental issues.
Under the FOIP Strategy, the
Japanese government has
provided support for four hard
infrastructure investment projects
in Vietnam related to key
geographical locations,
consisting of Lach Huyen Port
Infrastructure Construction (Hai
Phong) and North South Express
Construction (under
construction), Long Thanh
International Airport
Construction (Ho Chi Minh City) and North South Highspeed Construction (under survey)
(Figure 3). Moreover, Japan’s FOIP also encompasses actual and planned economic
corridor development in SEA regions for infrastructure, including transport links (ports,
roads, railways) and economic zones, etc. As prescribed in the second pillar, Japan stressed
on connectivity in ASEAN and giving examples of the reinforcement of road networks for
East-West Economic Corridor (passing by Quang Tri, Thua Thien Hue and Da Nang) and
Southern Economic Corridor (covering Ho Chi Minh City - Vung Tau, Ha Tien - Ca Mau
- Nam Can). In addition, Japan’s soft infrastructure investment projects are observed in
human resource development programmes, for instance, Human Resource Development
for Officials Project and Maritime Security and Safety Capacity Improvement Project
(operating). (Ministry of Foreign Affairs of Japan, 2018).
On the other hand, except the ongoing Cat Linh – Ha Dong Metro Line Construction
Project that China counted as an infrastructure investment project under the BRI (even
though it was officially launched in 2011), neither BRI-funded projects nor AIIB loans has
been implemented or even proposed in Vietnam so far, whereas, China has conducted 18
BRI infrastructure projects across SEA countries, namely Brunei (1), Cambodia (5), Lao
PDR (3), Malaysia (3) and Thailand (1). Although Vietnam ranks as the second largest
receipt country of China’s capital in the SEA region under BRI (Figure 4), it has been still
Figure 3. Hard infrastructure projects in Vietnam under
Japan’s FOIP and China’s BRI
Source: Author’s compilation using data from Japan’s
Ministry of Foreign Affairs (2018)
13
absent on the list of 1,800 BRI projects all over the world and China’s top 10 biggest BRI
projects in the SEA region (CIBM ASEAN Research Institute & LSE IDEAS, 2018).
Figure 4. China’s total capital for SEA countries under BRI
Source: CIBM ASEAN Research Institute & LSE IDEAS (2018).
Take a closer look at Vietnam’s ODA donors over the past decade, Japan has far
outweighed China in all dimensions, ranging from volume of aid, number of projects to
transparency, implementation process, and project effectiveness and quality (Table 3).
Chinese ODA in Vietnam accounted for a relatively small proportion of China’s total
outward investment, compared to its commercial loans, foreign direct investment and other
official funds. Indeed, while Japan offers a 40-year loan with a grace period of 25-40 years
and a low interest rate of 0.4 – 1.2%, China’s loans are always given at around 3% interest
rate with extra fees (e.g. management fee of 0.5% and commitment fee of 0.5%). This
“market-interest rate” turns Chinese financial assistance into commercial loans rather than
concessional aids, especially when it comes with much shorter maturity (15 years) and
short grace period (5 years). 10 Plus, many Chinese-backed deals imposed tight loan
conditions on Vietnam, including 100% contractors and sub-contractors from home
country. This term creates favorable opportunities for investors to import Chinese out-of-
date technologies, equipment and workers, which aggravates low domestic content of
Chinese infrastructure projects in Vietnam.
It is also observed that Japan’s financial aid comes mainly from Asian Development Bank
and private banks with high expectation of developmental goals and economic benefits. At
the same time, Chinese infrastructure projects are mostly funded by state-controlled
financial institutions or policy banks, specifically China Development Bank, the Bank of
China, and the Industrial and Commercial Bank of China, so they are always driven by
political wills and strategic purposes. Yet the picture has been changing since the
establishment of AIIB in 2015 (two years after the advent of BRI) which becomes one of
10 Personal interview on June 19 2019.
14
the capital mobilization mechanisms for BRI’s projects. Over the years, AIIB has been
expanding its membership (currently 97 state members, 230 full-time staffs from 44
countries), and its relationship (cooperating with various international financial institutions
such as Japanese-led ADB, the World Bank and other development banks and funds, and
also private actors). Especially, ADB and AIIB have worked on five co-financed projects
in Bangladesh, Georgia, India, Pakistan and Myanmar. The multilateralism and
inclusiveness of AIIB as its crucial trait is expected to increase the transparency, fairness
and efficiency of its funded projects and refrain them from political motivation.
Regarding the procedure, Japan’s ODA projects follow a strict procedure (doing survey,
conducting economic, social and environmental impact assessments, making commitments
and implementation), whereas China’s financial aid mechanism operates in a different
way. Chinese government leaders tend to make promises without survey nor assessment
rather than deliver aids. China is well-known as a typical actor of the game where there is
always discrepancy between ODA commitments and actual investment.
Table 3. Comparison of Japan and China’s financial assistance in Vietnam
Japan China
Conditions
Long loan period (40 years), long
grace period (25-40 years) low-
interests (0.4%-1.2%),
government guarantee, no
political strings attached
Reasonable and cost effective
Short loan period (15 years), short
grace period
(5 years), high interests (approx. 3%),
no government guarantee, political
bargain
Expensive (high interests and various
fees such as management fee 0.5% and
commitment fee 0.5%)
Comply to high standards (as a
DAC member)
Comply to low standards (non-DAC
member)
Various contractors and
equipment (Japan, China, etc.)
100% Chinese contractors and
equipment, outdated technologies
Procedure Survey, economic and social
assessment, commitment and
implementation
Promises without
delivery/reimbursement, no study, no
impact assessment, unable to use (high
interest), but more accessible
15
Types Grant, loans, and technical
cooperation (ODA)
ODA (minority), commercial loans,
etc... (majority)
Financial
sources
ADB and private backed banks AIIB and state-run banks
Impacts Reputation of high quality, safety
and environment standards,
reliability and high local
engagement (job generation,
technology transfer and technical
training) and infrastructure
upgrades (highways and ports)
Accusation of low implementation,
debt trap and lack of local engagement
(material imports and labor from
China), lack of transparency (high
corruption), social and environmental
negative consequences
Outcomes Effective projects, high efficiency,
contributing to national
development
“Ghost” projects and political-pressure
companies
Source: Author’s compilation from various sources
Unlike Japan, as a non-DAC member, China enjoys the impunity from high standards of
transparency and accountability in aid. Consequently, many developing countries including
Vietnam have experienced poor records of Chinese backed projects, such as debt burden,
implementation difficulties, project delay, negative social and environmental impacts, and
poor quality. In this sense, Chinese capital is “neither cheap nor easy” or “only cheap in terms
of initial investments” as it triggers a huge amount of maintenance costs later (Le, 2018). As
of late-2018, the Vietnam’s public debt from China was estimated to jump to around USD 6
billion (private debt excluded) and four out of 12 grand loss-making projects with massive
debts in Vietnam were funded by Chinese ODA.11 Lessons from Sri Lanka and Djibouti as
recipient countries of Chinese capital and its debt trap should not be overlooked.
5.2. New trends of infrastructure connectivity under FOIP and BRI
FOIP is now three years old since its birth in 2016, but hardly any major change of this
strategy has been noted. Japan showed its passiveness and staggering walk to turn the idea
of FOIP into action. Currently Japan has been carrying out follow-up joint infrastructure
projects in Vietnam to strengthen their bilateral cooperation and foster regional connectivity
towards the vision of FOIP. On the contrary, except from its name change several times
(formerly known as Silk Road Economic Belt and Maritime Silk Road, or One Belt One
11 Ha Bac Fertilizer Plant, Ninh Binh Fertilizer Plant, Dung Quat Shipbuilding Industry Co., Ltd and Thai
Nguyen Iron and Steel Plant
16
Road), China has recently stepped into a new phase of BRI – BRI 2.0 with two major
modifications:
High quality BRI: Quality infrastructure is one of the key patterns of Japan’s FOIP and a
comparative advantage of FOIP’s investment projects over BRI, which makes FOIP’s
“quality infrastructure” become a big challenge to China’s BRI. However, China has recently
been changing the game by transforming BRI towards a high quality and more sustainable
initiative. This adjustment started with the introduction of “Debt Sustainability Framework
for Participating Countries of the Belt and Road Initiative” and “Initiative for Clean Silk
Road” at the 2nd Belt and Road Forum for International Cooperation in April 2019. At this
forum, the term “high quality” appeared for the first time, but mentioned several times on Xi
Jinping’s keynote speech. The Chinese President also emphasized China’s commitments to
transparency and building “high-quality, sustainable, risk-resistant, reasonably-priced, and
inclusive infrastructure.” There is much skepticism about whether China is really aware of
the importance of transparency and sustainability for its infrastructure investment projects
and actually would like to go “open, green and clean” or Beijing just pays a lip service to
cool down the accusation of dept trap, poor governance, and opaque financial practices for
its BRI. Yet, the setting of these new standards may revitalize the image of Chinese
investment and justify government officials in developing countries for their decisions on
utilizing Chinese capital and approving Chinese-financed projects in coming years. It should
be noted that China’s newly amended ambition may open up more space for Japan and its
like-minded countries to cooperate with China in infrastructure development in third
countries, but on the other hand it warns Japan and Vietnam could pay more attention to
China’s “intention behind” if it just tries to put old wine in new bottles.
Digital BRI: Digital Silk Road (DSR) was first known as the “Information Silk Road”
launched in March 2015 as a third component of China’s BRI, which is designed to
supplement the BRI’s physical infrastructure (Chipman 2019). This sub-initiative aims to
develop digital connectivity over the globe with four objectives: i) enhance physical digital
infrastructure through 5G cellular networks and internet infrastructure (fiber optic cables and
data centers) across member countries; ii) develop advanced technologies for geo-economic
purposes such as AI, satellite navigation systems and quantum computing; iii) consolidate its
national economic power by developing e-commerce and digital free trade zones; and iv)
establish international standards on the future digital world by promoting digital diplomacy
and internet governance (Cheney 2019).
Over the past four years, thanks to the government support, China has been extending its
digital infrastructure connectivity networks over the globe while SEA remains its main focus.
This is proved by a mushrooming of China’s digital infrastructure projects built up across the
17
region, ranging from installing fiber optic cables in Malaysia, Myanmar, Singapore, Thailand
and Vietnam; building smart cities and 5G network technologies in Malaysia and Philippines;
developing telecommunications equipment in Cambodia, to establishing a Digital Free Trade
Zone in Malaysia – the world’s first digital free trade zone (Figure 5) and fostering the
regional network of cross-border e-commerce. Chinese tech giants also took equity shares in
all seven tech unicorns in SEA.
Figure 5. China’s ICT infrastructure projects under Digital Silk Road
Source: MERICS and The International Institute for Strategic Studies, 2019
Although the above map illustrates that Vietnam just opened its market for Chinese internet
cables and no Chinese digital infrastructure project has so far been named under the DSR,
China has actually been pushing the strategy of information and communications technology
(ICT) infrastructure development. This recent trend is observed by the significant presence
of Chinese national tech champions and their venture capital into Vietnam’s local ICT
companies and emerging e-commerce market.
China not only stands behind Tiki and Shopee – Vietnam’s two largest local e-commerce
websites (ventured by two Chinese tech giants - JD.com and Tencent), and Singapore-based
Lazada (Alibaba-backed e-commerce company), but also involves in many other types of
digital infrastructure. Zalo, the most popular national chat app, similarly to China’s Wechat,
with 80 million users out of the country’s population of 94 million, is owned by a local
18
company – VNG, albeit backed by Tencent. Bphone – a Vietnamese made-in smart phone is
also built in with China’s BeiDou Navigation Satellite System (instead of using Global
Positioning System (GPS) owned by the U.S government). Also, Chinese tech behemoths
have been spreading out their business in a variety of sectors in Vietnam including financing,
e-payment, insurance, ride hailing, restaurant review and express delivery services, for
example, Zalopay (Tencent), Alipay (Alibaba), Airpay, Grab (Didichuxing, Tencent),
foody.com and giaohangtietkiem.vn (acquired by Singapore’s internet company SEA Group,
but backed by Tencent). Especially, Chinese mobile brands are also moving fast in this race
as the market share of Huawei, Oppo, Xiaomi and Vivo has been rising at a rapid pace in
SEA and particularly Vietnam in recent years.
In terms of 5G connectivity - a core element of China’s digital economy, Chinese telecom
companies have engaged in 5G development across the SEA region, which may aim to build
a new infrastructure for their own global, single and integrated digital economy. The
Philippines and Malaysia have decided to use Huawei’s 5G technologies, while Cambodia,
Indonesia, Myanmar and Thailand expressed their willingness to welcome Huawei and ZTE
for 5G network development cooperation. On the contrary, Vietnam seems to fight the tide
by avoiding Huawei technologies and attempting to develop its own ones. As a major local
mobile carrier, Viettel has successfully tested 5G mobile internet connectivity and announced
to produce about 80% of the tech themselves by 2020.
Meanwhile, Japan has implemented two so-called digital infrastructure projects in Vietnam,
namely “Co-research Projects for KPIs with Evaluation Method for Building Smart Cities in
Vietnam” and ASEAN – Japan Cybersecurity Capacity Building Centre Project (Cambodia,
Laos, Myanmar, Thailand and Vietnam) under the Tokyo Strategy 2018 for Mekong – Japan
Cooperation (Ministry of Foreign Affairs of Japan 2018). In the project of building smart
cities, the Japanese government collaborated with more than 20 companies (e.g. Sumitomo
Corporation, Mitsubishi Heavy Industries, Panasonic, Daikin Industries, Aeon and KDDI,
etc.) and a local Vietnam BRG to launch the “Hanoi Smart City Project”, expected to be
completed by 2023. In other fields, Japanese companies have stepped into Vietnam’s digital
economy with Japan-based Softbank Group Corp’s investment into Grab and VN Pay (a
mobile payment gate), and Docomo with Matchmove Pay (a mobile wallet platform).
5.3. Prospects and Challenges
Although Japan’s FOIP is still at an early stage of implementation, its ambition to improve
infrastructure connectivity in Vietnam has a bright future. The driving factors not only lie in
their close relationship and a long history of infrastructure cooperation, but also come from
Japan’s deeper cooperation in infrastructure development with China and the private sector,
as well as the slowdown of BRI’s infrastructure development projects, etc.
19
First, bilateral cooperation between Japan-Vietnam have been cemented intensively in many
aspects and at all levels, from government-to-government, business-to-business, to citizen-
to-citizen. According to the Pew Research Center’s survey result, 82% of Vietnamese
respondents showed their favorable opinion of Japan while the figure for China merely 19%
(Pew Research Center, 2015). In the same vein, the latest survey conducted by ISEAS-Yusof
Ishak Institute (2019) indicated that 65.9% of the respondents in SEA have trust on Japan,
whereas 51.5% expressed their distrust on China (ISEAS-Yusof Ishak Institute 2019). Also,
more than half of Vietnamese respondents showed negative views on China’s BRI on the
ground that this initiative aims to take SEA members closer to China’s orbit (58.7%) and
BRI’s projects bring little benefits to local communities (20.7%). In addition, Vietnam and
SEA countries in general are thirsty for infrastructure investment, there are still abundant
opportunities for engagement and building in Vietnam. From Japan’s perspective, Vietnam
is in the spotlight of FOIP (Koga 2019) and Japan has been attempting to bolster
infrastructure connectivity within Vietnam and between Vietnam and other countries.
Second, Japan has developed an “inclusive” FOIP which opens to all nations including China,
especially the establishment of China-Japan Forum on Business Cooperation in Third
Countries (52 MOUs of business-to-business cooperation between two countries were
signed). This shift sets out a new vision for Japan and China to grow together in the Indo-
Pacific region and go closer to promote joint infrastructure development projects in third
countries.
Notably, together with China and the US, Japan is currently likely to invite more capital from
big private financial institutions and private companies for its infrastructure development
across the region. In fact, Japan Bank for International Cooperation (JBIC), JICA and Nippon
Export and Investment Insurance (NEXI) enhanced their risk-taking capabilities to attract
more private investment to the Quality Infrastructure Project. The private sector’s
engagement in infrastructure projects not only helps Japan deal with financial problems, but
increase projects quality as they mostly are better at designing, constructing and maintaining,
as well as management and cost-efficiency than the government.
Third, the escalation of Sino-US trade war will have caused more difficulties to the future of
BRI, especially financial-related problems. Apart from shrinking foreign exchange reserves
– a main source for BRI’s connectivity projects, trade tensions and China’s economic
recession as its consequence will slow down Chinese infrastructure investment in the next
few years. Private companies are turning more selective and cautious with outward
investment. The share of private firms out of total investment in infrastructure projects in the
first half of 2018 dropped by 12% to 28% compared to the same previous last year (Zhou
2018). Chinese bankers are also considering the rejection of funding some BRI projects due
20
to rising risks from the tariff war. The competitive advantage of BRI over FOIP as a “deep
pocket” initiative has been deteriorating. Even in a better scenario of a soft landing, Beijing
is still facing many concerns on the mystery of BRI and its negative image. This could be an
opportunity and advantage for Japan in the race of infrastructure development, and for the
vision of other regional cooperation mechanisms as FOIP.
However, challenges to Japan’s ambition to improve infrastructure connectivity in Vietnam
under FOIP still linger, in particular:
First, the emergence of China as a leading digital connector and 5G technology provider
(Chanda 2019). While China has been expanding its control over digital infrastructure
networks across the globe and SEA, Japan’s digital connectivity strategy and its responses to
China’s DSR stay unclear and uncertain. The DSR fueled a growing concern about Chinese
governance, electronic surveillance, data exploitation and censorship in regional countries.
China’s “gift voucher” for helping SEA nations build 5G networks or develop e-commerce
and digital economy can be perceived as a tool that Beijing uses to increase its influence and
digital governance in the region. At the same time, the recipient countries are likely to take a
leapfrog in digital development, howbeit pay a high price of a heavy dependence on China
and its tech.
In a race of digital infrastructure development with China in SEA, Japan seems to lag behind.
Besides two projects related to smart cities and the engagement of several Japanese
companies in the e-payment industry, Japan’s digital infrastructure investment into Vietnam
remained limited. However, there is tiny room for Japan to step into because it is impossible
to compete with Chinese low-cost tech equipment, generous offers of digital connectivity
support and its established strong digital footprint in the region. The manipulation of Chinese
technologies may tie the hands of SEA countries leaving the regional digital platform under
China’s sole control and promoting their own game rules and preferred standards. This
scenario may not only challenge digital connectivity between Japan and SEA countries
including Vietnam, but also threaten the core of Japan’s FOIP Strategy, specifically “free and
open flow of data”.
Second, financing issues in infrastructure projects in Vietnam. In the event of a high public
debt, Vietnam adopted tight measures on public debt management, which means that
Vietnam needs to limit external borrowings for infrastructure development despite its
financial deficiencies to build infrastructure. With this background, there is no choice but
encouraging a public private partnership (PPP) scheme, particularly the partnership between
Vietnam and Japan. PPP projects are likely to become an important means to deal with
substantial infrastructure development gaps in Vietnam; however, private and foreign
investment in infrastructure and PPPs remained limited while government supports have
21
been uncertain, especially land acquisition and compensation-related issues, time-consuming
procedures of project approval, impaired regulatory environment and a relatively
underdeveloped financial sector, etc. (ADB & Agence Française de Développement 2012).
Also, Japan is expected to take on a pioneering role in the PPP projects in the infrastructure
field in Vietnam. To date, several PPP infrastructure projects between two countries have
been implemented or undergone pre-feasibility study, to name a few Lach Huyen
International Port, Long Thanh Airport, Phap Van-Cau Gie expressway and Trung Luong-
My Thuan expressway, etc. Yet, Japanese investors are still uncertain about Vietnam’s PPP
system and PPP policies, for example, how to distribute risk between public and private
sectors in infrastructure projects. 12 This downside hinders many Japanese companies’
motivations to join PPP infrastructure projects in Vietnam.
Third, high quality infrastructure is put in the spotlight under FOIP, financing for such
infrastructure projects nevertheless becomes a big problem, especially when Japan is facing
a mountain of national government debt and aging population. Collaboration with the private
sector could be an effective solution, but mobilizing private investment for public
infrastructure is not always easy since there are many risks in those projects, including long
term returns and a high possibility of failure.
6. Conclusion and implications
To sum up, enhancing infrastructure connectivity plays a crucial role in the realization of
Japan’s FOIP Strategy, particularly in the case of Vietnam, which is to some extent more
cautious to any types of maritime security cooperation and political alignments. Over the
decades, Japan has long experience in physical infrastructure development in Vietnam with
a prestigious reputation of the most trustworthy sponsor and high-quality projects. However,
the emergence of China as a generous financial donor, albeit a latecomer has been changing
the game. The ambition of BRI and its new transformation with the flagship of “high quality”
and “digital connectivity” implies that China appears not only to boost up its influence, but
to challenge Japan’s position and set up their own game rule in the region. After ups and
downs in their relationship over FOIP and BRI, China and Japan decided to work together
through private economic cooperation via China-Japan Forum on Third Country Business
Cooperation, where the two countries would peacefully share the regional infrastructure pie
and contribute to overseas infrastructure development. Over more than 500 deals signed
between China and Japan under the Business Cooperation Forum, there nevertheless has been
no agreement on infrastructure connectivity in Vietnam. This leaves room for both countries
12 Personal interview at Ministry of Foreign Affairs (in-person meeting July 9 2019)
22
to consider a joint project on “promoting smart city development” in cities and provinces
throughout Vietnam. The feasibility of this tripartite project lies in:
With regard to Japan, first, this proposal would elevate Sino-Japan relations since both
powers regard third-country infrastructure development as a cornerstone for their
rapprochement rather than security or political ties which are always hard to mend. At the
same time, Sino-Japan agreement on this project would facilitate infrastructure connectivity
in Vietnam - a core element of Japan’s FOIP and China’s BRI. In addition, the two countries
have also implemented a collaboration project on promoting smart city development in
Chonburi province, Thailand with the engagement of Japanese and Chinese enterprises,
which would be good experience for similar projects in Vietnam. The project would bring in
both sides' strengths where it could take advantage of Japanese technologies and international
standard-based quality infrastructure as well as Chinese huge finance and digital advances.
Second, the promotion of collaboration mechanisms between Japan and China in third
countries including Vietnam also helps Japan deal with financial problems and seek funding
sources for FOIP’s infrastructure connectivity, particularly from the Chinese government and
the private sector. For example, a joint financing mechanism between the Japan Bank for
International Cooperation and China Development Bank has been established to provide
financial supports for infrastructure projects in third country markets. Third, in terms of
digital infrastructure in the joint “building smart cities” project between Japan and China in
Vietnam, Japan would supervise China’s growing footprint digital governance and
surveillance, ensure China to respect the rule of law, data protection and basic human rights
of privacy in Vietnam and increase the presence of Japanese cutting-edge technology and
telecommunication corporations such as NTT Docomo, Softbank, etc. To date, several
Japanese tech corporates have involved in digital infrastructure projects in the SEA region
including Vietnam (Softbank, Docomo) and some related to the development of e-payment,
digital economy and smart cities have been launched. Japanese private tech businesses could
partner with Chinese and local tech firms (Tendent, Baidu, FPT Software, Viettel, etc. which
have also engaged in developing e-commerce and smart cities in Vietnam) to fertilize
innovation and digital infrastructure connectivity in Vietnam.
With regards to Vietnam, first, this proposal would complement Vietnam’s national strategy
and local authorities’ development orientation on building smart cities or smart towns (in
Hanoi, Ho Chi Minh City, Da Nang, Binh Duong, etc.). Some of smart city development
projects are underway with the collaboration between Japanese and local companies. For
instance, Vietnam and Japan teamed up to develop the smart city project in North Hanoi with
the cooperation between Vietnam’s BNG and Japan’s Sumitomo. In this project, the smart
city will be beneficial to Japanese high-tech products such as a self-driven shuttle bus system
by Mitsubishi Heavy, a metro network connecting Noi Bai International Airport with this
23
smart town, smart facilities by Panasonic, energy efficient aircon network by Daikin
Industries, 5G smart telecommunication devices by KDDI, smart supermarkets by Aeon and
Summit, etc. Chinese companies would join these building smart city projects in Hanoi or in
other cities, for example, Baidu would cooperate with Panasonic in projects on developing
smart facilities for apartments and condos, Sinopec participate in renewable energy for smart
cities, and China Railway on metro line construction, etc. Local firms - Vingroup, Ecopark,
VNPT, FPT Software, Viettel have also carried out smart city projects across the country
(such as Vinhomes Smart City, Smart City at Ecopark) and are willing to cooperate with
foreign firms in this field. Second, a joint project between China and Japan could provide
Vietnam financial and technical assistance for infrastructure development and free Vietnam
from taking sides so that it could welcome infrastructure development support from both
countries. As the two nations are key partners of Vietnam, Vietnam could be at the crossroads
of FOIP and BRI where the former offers high quality infrastructure and the latter provides
a large quantity of capital without any commitments. It should be kept in mind that there is
no free lunch or free “gift vouchers”. On one hand, Vietnam should not let China build a
“Great Wall of Debt” by attractive investment promises, but on the other hand it should avoid
turning itself into a “Forbidden City” where Chinese investment is unable to access, even in
metro network construction projects. Rather, Vietnam should apply Japanese standards for
infrastructure investment, for instance, interest rate for loans, grace period, debt credibility,
government guarantee, social and environment impacts assessment, etc. The involvement of
Japan in this project could urge China to respect the international basic standards of openness,
transparency, quality, efficiency, sustainability, project viability, and the right to privacy./.
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