Articles & Commentaries

EXECUTIVE SUMMARY

• Vietnam’s digital subprime lending industry is rapidly growing amidst public concern for reckless lending and aggressive and unregulated debt collection practices.

• Disgruntled, harassed and vengeful digital borrowers express their discontent about predatory lending apps on social media platforms including Facebook groups.

• These Facebook groups function as: a) forums where members coalesce for guidance on navigating the expanding and labyrinthic landscape of lending apps; b) milieus of expression and comfort for over-indebted, isolated and harassed members; c) and spaces where members express their desire to challenge and take revenge against digital lenders and debt collectors that victimise them.

* Nicolas Lainez is Visiting Fellow at ISEAS – Yusof Ishak Institute and an Adjunct Faculty at NUS in Singapore; Tô Thu Phuong lives in Hanoi and holds a Bachelor in Human Rights and Political Science from Columbia University and Sciences-Po Paris; and Bui Thi Thu Doai lives in Hanoi and is studying towards a BA in Development and Economics at the London School of Economics.

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INTRODUCTION

Consumer finance is rapidly growing in Vietnam, a country undergoing financial transformation.[1] Digital subprime lending is a thriving new market,[2] and dozens of lending apps are available for download on smartphones.[3] These allow borrowers to enjoy a ‘fast and easy’ credit experience and obtain subprime unsecured loans with high interest rates within minutes. This expanding lending landscape stirs ambivalent emotions. On the one hand, it generates excitement over the prospects for accelerating financial inclusion, formalising lending practices and repelling ‘black credit’—a catch-all for unlicensed moneylending, high interest rates, and strong-arm collection practices.[4] On the other hand, it raises public concern over unlawful lenders who promote reckless and predatory lending and use harsh recovery methods that create grounds for debt entrapment and social discontent.[5]

This article examines how disgruntled, harassed and vengeful borrowers express their discontent in Facebook groups that antagonize over digital subprime lending. It shows how, for mainly young and active working-age borrowers, participating in these groups constitute a politicisation from below of digital subprime lending. These borrowers’ groups do not challenge dominant narratives about credit liberalisation as vectors for progress, neither do they promote the emancipatory ideology that anti-debt movements spread in Europe[6] and North America[7] in the aftermath of the 2008 financial crisis. Instead, they reflect the need for a newly formed community of borrowers to assist each other and share practical knowledge on how to navigate lending apps, express frustration about abusive practices, and beat ‘predatory’ lenders at their own game. Their posts and micro-actions make practical knowledge accessible to large communities of borrowers and lenders who monitor discussions, thereby encouraging collective action and reaction.

But even if these micro-actions reflect public discontent and trigger regulatory changes, it is unlikely that they will reverse the growth of digital subprime lending and financial transformation all-together. Be that as it may, these social media groups provide insights into under-regulated digital subprime lending in Vietnam, and highlight the need for will, leadership and direction in facing the challenges of financial transformation and fostering political change.

Findings for this article were retrieved by surveying posts across three private Facebook groups dedicated to digital borrowers in Vietnam.[8] Due to technical constraints associated with data processing limits, five days’ worth of user posts were sorted from most to least recent, and exported for thematic analysis. Each of the groups surveyed harbours around 12,000 members, and there are hundreds more of smaller and bigger, active and inactive groups available through a keyword search on Facebook. They carry similar names, usually with the expression ‘evading debt’ (bùng app) incorporated. Members are mainly borrowers who use lending apps from banks, financial companies (such as FE Credit), p2p platforms, dubious loan companies and moneylending gangs, lenders who advertise their products, and debt collectors who seek defaulting borrowers.

NAVIGATING APPS: GROUPS AS SPACES OF GUIDANCE

The borrowers’ groups primarily function as a forum where members come together to seek advice and encouragement on how to navigate the expanding and labyrinthic landscape of lending apps. To start with, these groups provide guidance for borrowers to access ‘easy money’ from digital lenders. Newcomers will commonly seek advice on which apps are easier and safer to borrow from, what personal data to provide or give access to in order to reassure lenders while protecting borrowers’ privacy, and how to fulfil requirements to ensure approval. Generally, application requirements are more stringent for banks and p2p platforms, and minimal for financial companies and illegitimate lenders. Experienced borrowers often address practical and technical requests, such as how to check and improve one’s credit record. Notably, these groups do not deter but encourage mass digital borrowing. The reason is that by repeatedly borrowing, maximising, and repaying their credit, borrowers are able to build trust and credit history with lenders, giving them access to cheaper, larger and more flexible loans. Therefore, instead of informing about the dangers of digital subprime lending in terms of over-indebtedness, group members share tricks on how to take full advantage of the system or ‘exploit the apps’ (cày app).

A popular topic of discussion is over-indebtedness, especially debt entrapment and heavy harassment. Many members invite over-indebted borrowers to dip their feet further into the mud, borrow more, default and hope for resolution through debt restructuring. By doing so, they promote further entrenchment with digital lending schemes, encouraging juggling – borrowing here to repay there – instead of steering away from mass-borrowing. Some members advertise side-services, advice and collaboration on how to borrow more and engage deeper with lending behaviours, especially to new members who have had their loan application rejected. They offer personal document fraud and fake identities to borrow under a different name, referees-for-hire or the provision of a reference number for borrowers to put forward in their loan apps, and surrogacy services whereby members offer to borrow for borrowers in exchange for a percentage of the debt payment. Some members also publicise their desire to cooperate and ‘build a good record together’. In these arrangements, a creditworthy borrower cooperates with a non-creditworthy borrower to take a high loan to be split and then default together. One of these posts reads: “Hi everyone, I’m holding a ‘good profile for borrowing purposes, inbox me if you want to participate, we will split 5/5”.

Discussions about over-indebtedness also deal with default and debt evasion. Tips and methods for how to stifle debt collectors’ harassment and evade loans are passed along from more experienced members to newcomers. To prevent or put a stop to threatening messages and cyber-bullying tactics used by debt collectors, borrowers are advised to meticulously erase their phone and social media data, as well as tighten and reduce their online presence to a minimum to stop the flow of information supplied to their harassers. In addition, experienced members classify lenders based on how easy it would be to default them. Traditional banks are the hardest to default because of their stringent application demands. Financial companies such as FE Credit come second due to their well-developed pressuring methods and large networks of debt collectors. Ranking last in members’ implicit difficulty scale are dubious lending apps – the most cited are Doctor Đồng, Tamo, VDong, and Cash24 – that have limited resources to persecute late borrowers. These illegitimate lenders are preferred and most-recommended because, as one user writes, they “won’t go to your homes or collect your debt in real life. Apps only text and call to threaten you. All their staffs bluff and pretend to be gangsters. They only scare women and little children”. In any case, close observers note that debt collectors stop harassing late borrowers with phone calls and social media smear posts two or three months after the latter defaulted. In a last recourse, experienced members advise harassed and over-indebted borrowers to ‘evade their debt’ (trốn nợ). Extreme techniques of loan evasion involve moving away from one’s old place of residence and faking one’s own death.[9] In short, borrowers’ groups play a vital function for sharing practical and vital knowledge to navigate lending apps.

LAMENTING OVER APPS: GROUPS AS SPACES OF COMFORT

Beyond sharing advice and guidance, borrowers’ groups form much-needed milieus of expression and comfort for members who lack experience in dealing with digital lenders and debt collectors and are isolated from their usual support systems. Many members show apparently genuine concern, solidarity and compassion for over-indebted borrowers who share their ‘harassment journeys’. Members publish posts that profess struggle, pain and desperation resulting from heavy indebtedness and cyber-bullying from collectors. In one of the groups surveyed, multiple members expressed being reputationally isolated and persecuted by their families for falling into debt. These groups and the illusion of collective understanding therefore become a source of social support for lost and isolated borrowers who share their story to seek uplift and encouragement. Across the litany of posts detailing harassment journeys can be found posts such as one by a member professing to have reached an end point:

Is anyone else here also like me? I was caught in a financial bind, so I took out high-interest loans. Then I borrowed from lending apps to get rid of those debts, and I wound up with more debt. I can’t tell my family. I am blacklisted by the banks. Now neither my brothers and sisters nor my friends will lend me money. I am losing 30 million in daily interests, and there’s no way for me to escape or get a fresh start in life. I can’t sleep most nights because I feel as humiliated as a tramp. I am constantly worried about debt collection.

These cri-de-coeur are more often than not met with compassion, and at times, sincere commiseration from other members. One user commented: “nobody living a happy, peaceful life would think to turn to borrowing from mobile apps and defaulting. In these groups, aside from loan sharks and scammers, everyone has had to live through the pressure of defaulting and evading debts from lending apps”. Members are open and candid about the cyber-harassment that results from defaulting and evading debts, often sharing screenshots of threatening text messages, recordings of threatening phone calls and instances of social media defamation by collectors. They do this to ask for advice, and at times to consult the group on the severity of the threats, some of which border on being death threats:

Warning to Debtor [name], National ID [ID Number]. We have bought back your debt contract, if we don’t receive the money today, we will send our gang down to your house, don’t blame us then for being heavy-handed.

These posts are often met with an outpouring of support and demonstrations of support whereby members would collectively insult and demean the lender and debt collector. Overall, these Facebook groups generate virtual – yet generous – social support to over-indebted borrowers who have become alienated from their families and society.

CHALLENGING THE APPS: GROUPS AS SPACES OF CONTENTION

Borrowers’ groups are also spaces where members express their desire to challenge digital lenders and collectors that victimise them. One way through which members do so is by classifying, analysing and dismantling their rhetoric and methods. Comments downplaying the legitimacy of a threat, such as “real gangs do not work like this, they don’t go around sending threatening paragraphs [of text] (…) These are little boys posing as gangs” abound under members’ posts on the harassment they suffer. If these comments provide some comfort, they also highlight an antagonising mindset of ‘us versus them’ which borrowers adopt against lenders and collectors, as well as debtors’ willingness to get beneath and dismantle creditors’ practices.

Borrowers’ primary method to contend and take revenge against lenders and collectors is by instrumentalising the act of mass-borrowing. To “relieve people’s suffering” and bankrupting lenders, borrowers must continually borrow and default and/or evade debt en masse. Advocates for this approach speak of “teaching the mobile apps a lesson”, and encourage other members to default as well: “exactly, evade the loan to show them how cutthroat interests work”, as one member puts it. Some members have articulated an ‘eye-for-an-eye’ desire to even things with digital lenders:

The apps are so stupid. Why didn’t they talk properly from the beginning? They’re calling and swearing at people in my contacts, now they’re turning to soft text messages asking me to repay the principal. What’s the point? You can redeem the money, but I can’t redeem my reputation. I’m not going to pay until you die.

This tendency towards borrowing to take revenge is spurred on further by collective action. More specifically, some members organise among themselves to share or buy into a profile or a SIM card with favourable scores. Members will often trade SIM cards with three months or more of call history to apply for loans and default collectively, hoping to put the lender under financial stress.

The desire to undermine lenders’ threats is taken to the extreme when members respond to debt collectors’ threats with taunts and provocations, by daring debt collectors to come to their residences or by sending condescending words to them. Some go so far as to call collectors to meet physically, to which the latter never show. One user writes: “does anyone know the working address for VDong? I want to come over to find them, so they wouldn’t waste their efforts on finding me, I’ve been waiting for so long”. Other group members organise among themselves to report debt collectors to the police. Most of the time, however, the majority of these reporting activities happen within the Facebook groups themselves. Members adopt a fiercely hostile and insulting attitude towards lenders and collectors, and threads reporting them often garner significant engagement in the form of outraged and angered comments such as: “loan sharks need to be boycotted immediately”.

Despite launching themselves into activities that could be considered controversial if not illicit, members view their actions in a Robinhood-esque narrative of rightfully taking from predatory digital lenders, their henchmen or debt collectors, and the ‘rich’ mobile apps to “fund their own livelihoods”, as expressed by several members. Members also justify their actions based on the mistreatment and harassment suffered at the hands of exploitative lenders. In brief, groups act as spaces for resisting and challenging lenders and collectors who are perceived as evil.

CONCLUSION

To sum up, the recent explosion of digital subprime lending in Vietnam is a double-edged sword. On the one hand, it democratises credit access in a country where 70 percent of the population is un(der)banked and consumer finance was non-existent until a few years ago. On the other hand, it fuels a traditional and digital lending market inhabited by old and new, lawful and unlawful, decent and predatory lenders driven by the demand for short-term profit-seeking and dubious practices. Facebook borrowers’ groups relay growing concerns about predatory finance as well as the financial insecurity of a young generation of tech-savvy borrowers in Vietnam. These groups provide a space where digital borrowers seek advice, services and comfort, and voice their anger and desire to undermine predatory lenders. The borrowers are confronted with a new era of financial transformation that is increasingly capturing aspects of their everyday life and transforming their borrowing practices and relationship to lenders, finance and technology. As their stories, testimonies and micro-actions show, digital subprime lending can also turn against abusive lenders and trigger a politicisation from below which may draw large support and prompt regulatory changes without challenging subprime lending and financial transformation. We can only hope that the Vietnamese government will continue to regulate consumer finance, including p2p platforms that operate in legal limbo, lending practices such as personal data collection, and the debt collection industry which will continue to grow despite the recent banning of the ‘debt collection business’. In the meantime, Facebook borrowers’ groups will continue to pop up and escalate the outcry against predatory finance.

ISEAS Perspective 2021/72, 28 May 2021

ENDNOTES

[1] Hong-Kong Nguyen et al., “The New Politics of Debt in the Transition Economy of Vietnam,” Austrian Journal of South-East Asian Studies 12, no. 1 (2019): 91–110.

[2] I borrow the term ‘digital subprime’ from Joe Deville, “Digital Subprime: Tracking the Credit Trackers,” in The Sociology of Debt, ed. Mark Featherstone (Bristol: Bristol University Press, 2019), 145–74. Digital subprime refers to “subprime, payday lending markets in various different countries [that] are lending at high rates of interest to borrowers who often have either poor credit histories or, in some cases, no credit histories at all” (p. 145).

[3] Nicolas Lainez, “Navigating Vietnam’s Lending App Maze,” Fulcrum, January 6, 2021, https://fulcrum.sg/navigating-vietnams-lending-app-maze/.

[4] Angela Di Rosa, “Vietnam Fintech Report 2020” (Singapore: Switzerland Global Enterprise, Fintechnews.sg, 2021).

[5] VietnamNet, “Chinese Lending Apps Leave Vietnam Quietly,” Intellasia, August 1, 2020, https://www.intellasia.net/chinese-lending-apps-leave-vietnam-quietly-797636; Tuoi Tre News, “In Vietnam, Instant Online Personal Loans a Poisoned Chalice for Borrowers,” March 18, 2019, https://tuoitrenews.vn/news/business/20190318/in-vietnam-instant-online-personal-loans-a-poisoned-chalice-for-borrowers/49318.html.

[6] Quentin Ravelli, “Debt Struggles: How Financial Markets Gave Birth to a Working-Class Movement,” Socio-Economic Review, August 3, 2019, mwz033, https://doi.org/10.1093/ser/mwz033; Marek Mikuš, “Contesting Household Debt in Croatia: The Double Movement of Financialization and the Fetishism of Money in Eastern European Peripheries,” Dialectical Anthropology 43, no. 3 (September 2019): 295–315, https://doi.org/10.1007/s10624-019-09551-8.

[7] Noelle Stout, “Indebted: Disciplining the Moral Valence of Mortgage Debt Online,” Cultural Anthropology 31, no. 1 (October 23, 2015): 82–106, https://doi.org/10.14506/ca31.1.05; Marcos Angelovici, Pascale Dufour, and Héloïse Nez, eds., Street Politics in the Age of Austerity: From the Indignados to Occupy, Protest and Social Movements 8 (Amsterdam: Amsterdam University Press, 2016).

[8] Hội bùng app vay tiền online (‘Online Lending App Evasion’), Bóc phốt tín dụng đen online-Chia sẻ Kinh nghiệm Vay App, Bùng App (‘Revealing the Faults of Online Black Credit and Experience-sharing for Online App Lending and Evasion’), Hội vay tiền App web Bị khủng bố-Tín dụng đen-Giúp đỡ ACE đối phó (‘Harassed Lending App/Black Credit Borrowers’ Support Group’).

[9] Tuoi Tre News, “Vietnamese Woman Stages Own Funeral to Evade Debt Collectors,” Tuoi Tre News, April 1, 2021, http://tuoitrenews.vn/news/society/20210401/vietnamese-woman-stages-own-funeral-to-evade-debt-collectors/60107.html.

EXECUTIVE SUMMARY

• Vietnam’s Socio-Economic Development Plan 2021-2030 highlights infrastructure development as one of the three strategic breakthroughs.
• However, financing for infrastructure development remains constrained. State resources fund approximately 90 per cent of the country’s infrastructure projects, and mobilising private capital has proven difficult.
• There are currently many foreign-financed connectivity initiatives in the region, such as China’s Belt and Road Initiative, Japan’s Expanded Partnership for Quality Infrastructure, and projects supported by America’s International Development Finance Corporation.
• While competition among these initiatives provides Vietnam and regional countries with more funding options, they also come with challenges. Vietnam therefore has approached them with some reservations.
• Moving forward, it is crucial for Vietnam to adopt stringent standards in approving new projects, improve the legal environment to attract private infrastructure investment, develop better national infrastructure master plans, diversify infrastructure investment sources, and refrain from taking sides in pursuing international infrastructure development cooperation.

*Do Mai Lan is Research Fellow at the Center for Regional Studies and Foreign Policy, Institute of Foreign Policy and Strategic Studies, Diplomatic Academy of Vietnam. Hoang Oanh is Deputy Director of the Center for Regional Studies and Foreign Policy at the same institute.

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HUGE DEMAND FOR INFRASTRUCTURE INVESTMENT

Infrastructure competitiveness plays a central role in attracting investment and promoting economic growth. However, Vietnam is lagging behind some regional countries in this regard. For example, the World Economic Forum’s 2019 Global Competitiveness Report ranked Vietnam 67^th out of 141 economies for national competitiveness and 77^th for infrastructure quality.[1] Only 20 per cent of the country’s national roads are paved,[2] much lower than neighbouring countries such as Malaysia (80.9%),[3] India (63.24%),[4] and Indonesia (89.7%).[5] Vietnam’s Ministry of Planning and Investment estimates that the country will need approximately US$480 billion in infrastructure investment from 2017 to 2030,[6] while the 2019 Global Infrastructure Investor Survey report ranked Vietnam, together with India, China, Brazil, and Indonesia, among the top five developing countries with the largest infrastructure markets in the next five years.[7]

Comprehensive infrastructure development has been highlighted as one of the three strategic breakthroughs for Vietnam’s 2021-2030 Socio-Economic Development Plan. The need to upgrade physical infrastructure and logistics services has become even more urgent due to increasing competition among regional countries to attract investors who wish to diversify their manufacturing base away from China. Post-pandemic economic recovery has also underscored the importance of infrastructure development as one of the most effective measures to stimulate economic growth. The Vietnamese government has targeted a growth rate of at least 6 per cent for 2021, with public spending on infrastructure development identified as one of the key measures to achieve this target.

CONSTRAINED BUDGETS

However, Vietnam is facing difficulties in mobilising infrastructure investment from the private sector, causing it to rely heavily on state resources, which currently fund about 90 per cent of its infrastructure projects.[8] According to the World Bank’s Private Participation in Infrastructure (PPI) database, Vietnam has approved only 116 public-private partnership (PPP) projects totalling US$19.4 billion since 1990, accounting for less than 10 per cent of the country’s total infrastructure investment during the same period.[9] Private infrastructure investment remains limited, at less than 1 per cent of Vietnam’s GDP in the past decade.[10] By 2020, although several road-building PPP projects have been implemented, some of them were later renegotiated and eventually converted to public-invested ones due to project delays, incompetent investors, or financial irregularities. Recently, two North-South Expressway component projects have also been converted from PPP to public investment due to the lack of interest from private investors.[11]

Be that as it may, according to the Asian Development Bank (ADB), Vietnam is the biggest infrastructure spender in Southeast Asia. Between 2010 and 2014, infrastructure spending from both the public and private sectors made up 5.7 per cent of the country’s GDP, compared to the 2-3 per cent of its neighbouring countries.[12] In Asia, Vietnam ranks second only to China (6.8 per cent). The large infrastructure spending puts Vietnam under significant fiscal pressure as its tax base weakens due to the Covid-19 pandemic.

In addition, as Vietnam officially graduated from the International Development Association (IDA) in 2017, it has lost access to IDA concessional financing. IDA loans and grants previously financed a majority of Vietnam’s infrastructure projects.[13] The need to diversify financial resources for infrastructure development in Vietnam is therefore urgent, causing the country to welcome regional infrastructure initiatives.

PRUDENT APPROACH TO REGIONAL INITIATIVES

Many significant infrastructure development initiatives have been introduced in recent years. For example, China introduced the ambitious US$1 trillion Belt and Road Initiative (BRI) in 2013 to support “affordable infrastructure” in developing countries, primarily in transportation and power.[14] Japan quickly responded with its “quality infrastructure” drive and ramped up lending under its 2015 Partnership for Quality Infrastructure (PQI) campaign. Accordingly, Japan pledged to increase its investment in Asian infrastructure to roughly US$116 billion for the period 2016-2020, a 30 per cent increase compared to the previous five years. In 2016, Japan announced the Expanded Partnership for Quality Infrastructure, the High-Quality Infrastructure Export Expansion Initiative, as well as reforms to improve its loan-granting process and to provide additional guarantees against risks, to encourage private sector investment. The annual budget for Japan’s infrastructure exports has since 2017 nearly doubled from ¥110 billion to ¥200 billion (approximately US$1.8 billion).[15]

In order to operationalise the economic dimension of the Free and Open Indo-Pacific (FOIP) strategy, the US Congress passed the Better Utilization of Investment Leading to Development (BUILD) Act in October 2018. Under the Act, Washington established the US International Development Finance Corporation (DFC) and doubled its development finance capacity to US$60 billion worldwide.

Other notable initiatives include the EU Strategy for Connecting Europe and Asia (2018), Russia’s Trans-Eurasian Belt Development (2015), the India and Japan-led Asia-Africa Growth Corridor (2017), and South Korea’s New Southern Policy (2017). ASEAN, together with the ADB, also established the ASEAN Infrastructure Fund (AIF) to mobilise capital for infrastructure development in Southeast Asia.

Competition among these initiatives brings Vietnam and regional countries more funding options for infrastructure projects. But although Vietnam has expressed its support for these initiatives, it approaches these initiatives with some reservations.

First, different regional infrastructure development initiatives have been launched for some time but all revealed significant limitations. Despite its impressive promises, the BRI faces two main challenges: (i) In many BRI projects, China’s ambition to build connectivity corridors might not always align with the interests of local communities living along these corridors. For instance, in Laos, criticisms have been levelled at the relocation of villages to make way for railroads and dams which are believed to benefit Beijing more than locals.[16] (ii) The initiative has generated debt concerns. According to one study, among 68 countries that are hosting BRI-funded projects, 23 of them are at risk of high debt stress.[17] Eight of them, namely Djibouti, Tajikistan, Laos, Maldives, Mongolia, Pakistan, and Montenegro, are marked as “highly vulnerable”.[18]

The second-largest infrastructure initiative in the region is Japan’s Quality Infrastructure in Asia (PQI). The initiative promotes high-quality infrastructure partnerships and assistance in Asia through the collaboration between Japan International Cooperation Agency (JICA) and ADB to increase the supply of funding and promote relevant international standards. With the target of providing US$200 billion within the period 2015-2020, the scope of this initiative was extended from Asia “to the world,” and the range of projects went beyond infrastructure in a narrow sense to cover different projects, ranging from extracting natural resources to building hospitals.[19] Nevertheless, the PQI also has certain limitations. As PQI cannot compete with China’s BRI in terms of scale, and Japan cannot pursue low-cost projects the way China does, the country has to opt for a high-quality approach. However, the standards for high-quality infrastructure are still not clear while it is still questionable if developing countries can afford the high cost of Japanese projects.

Second,most current initiatives have often been associated with great power strategic competition, particularly between the US and China. For example, the BRI is considered a vehicle for China to expand its political, economic and security interests abroad, with many of its infrastructure projects having the potential for civil-military dual use.[20] On the other hand, US-led initiatives have been widely seen as a mechanism to offset Chinese influence.[21] There is thus a concern in Vietnam that its choices may be wrongly understood as picking sides in the current “alignments of force”.[22]

Third, Vietnam’s concerns about the BRI go beyond the common criticisms against this initiative such as debt burdens, lack of transparency or social and environmental problems.[23] In particular, given China’s maritime ambitions and its increasing aggression in the South China Sea, projects along the Maritime Silk Road have raised concerns over China’s intentions in the South China Sea. Vietnam also has some economic concerns regarding the BRI, including:

1. Unattractive commercial terms and conditions, especially the high interest rates of Chinese loans. According to a report by the Ministry of Planning and Investment, China’s ODA often carries an interest rate of 3 per cent per year, if Chinese contractors are used.[24] This rate is higher than Japan’s (0.4 to 1.2 per cent, depending on the loan terms), Korea’s (0 to 2 per cent, depending on bidding conditions), and India’s (1.75 per cent). Loans provided by the China Export-Import Bank are also subject to a commitment fee of 0.5 per cent and a management fee of 0.5 per cent, while loan terms and grace periods are both shorter than those of other capital markets by five to 15 years.[25]
2. Increased trade with China due to the implementation of China-funded infrastructure projects can exacerbate Vietnam’s trade deficit and economic dependency vis-à-vis China. In 2020, for example, Vietnam’s trade deficit with China amounted to US$32.5 billion. The large trade deficit with China has been increasingly seen by some Vietnamese policy makers as a security issue.
3. There have been many problems associated with China-funded infrastructure projects in Vietnam, including environmental pollution, project delays, cost overruns, low construction quality, outdated technologies, and the unauthorized use of Chinese labourers.[26] The Cat Linh–Ha Dong urban railway project in Hanoi is a case in point. The project, which started in October 2011 and was initially expected to be completed in November 2013, has been delayed for more than seven years. Its cost also doubled from VND 8,770 billion (US$552.86 million) to VND 18,002 billion (US$868 million) by the end of 2020.[27]
4. As Vietnam is speeding up reforms towards high-quality and sustainable growth, the non-transparent practices and relatively lax standards of the BRI[28] are seen as an impediment to such reform efforts.

Fourth, the availability of better alternatives, particularly from Japan, has dimmed the attractiveness of the BRI.

Japan is currently Asia’s biggest source of development finance, providing US$367 billion, compared to China’s US$255 billion.[29] As of June 2019, Japan’s infrastructure investments in Vietnam (including pending projects) amounted to US$209 billion, accounting for more than half of Japan’s total in the region.[30] In particular, between 2005 and 2016, Japan’s ODA to Vietnam surged by three times compared to the period 1993-2004, while its ODA to other Southeast Asian countries generally decreased. Notably, 46 per cent of Japan’s ODA to Vietnam has been channelled into transport infrastructure projects.[31] Some Vietnamese experts were of the view that the high quality of these projects, implemented by innovative companies with strong technical expertise and transparent business practices, adds to Vietnam’s overall reform efforts.[32]

These alternatives to the BRI, however, also present Vietnam with other challenges. Japanese funding comes with increased loan costs,[33] strict approval conditions, and higher spending for Japanese consultants. Projects under the Special Terms for Economic Partnership (STEP), for example, must engage a Japanese company as its general contractor, and source at least 30 per cent of its materials and equipment from Japan.[34]

Japanese ODA projects have also reported cost overruns and slow disbursement.[35] Moreover, high-quality initiatives by Japan, the US, and others mainly draw on the private sector. Vietnam, however, is struggling to create attractive conditions for private infrastructure investment. Although it has made some progress in streamlining regulations on the PPP framework to ensure investor rights, policies on risk-sharing mechanisms, exchange rates and revenue guarantees, which are top concerns among foreign investors, are still lacking.

RECOMMENDATIONS FOR VIETNAM

Vietnam’s participation in international mechanisms and initiatives is guided by its national interests. In addition to economic interests, national security, social stability, reform and innovation are also Vietnam’s priorities. With the labour- and resource-based growth model initiated in the 1980s having reached its limit, Vietnam currently aims to bring about a Doi Moi 2.0 that will lead to an innovation-based growth model. Vietnam thus prioritises sustainably planned FDI projects, especially those with high potential for hi-tech transfers and spill-over effects. It is therefore crucial for Vietnam to adopt more stringent standards in evaluating and approving new projects.

At the same time, Vietnam needs to improve its legal environment to facilitate high-quality partnerships. Vietnam’s new Law on Public-Private Partnerships, which came into effect on 1 January 2021, demonstrates the government’s commitment to attract high-quality PPP projects. However, there is still room for further improvement, such as by introducing regulations with credible penalties to deter offenders. The government should also formulate enforceable anti-corruption laws and implement prudent macroeconomic policies that promote financial prudence and discipline.

Vietnam also needs to develop medium- and long-term national infrastructure master plans that thoroughly assess its needs, priorities and projects in order to make optimal use of its limited fiscal resources. It should also diversify its infrastructure investment sources by encouraging financing from private and foreign investors, as well as by tapping personal savings. It is estimated that the Vietnamese people possess some 500 metric tons of gold as personal savings, which would provide a massive boost to the economy if brought into circulation.[36]

As far as international funding initiatives are concerned, given the intensifying great power competition, Vietnam should refrain from taking sides. Instead, it should maintain a neutral stance and uphold its principles in a consistent manner. It should support open, transparent, inclusive and non-discriminatory cooperation mechanisms and proactively work with regional countries to shape the rules for regional infrastructure initiatives.

Finally, some Vietnamese experts have pointed out several potential benefits that the BRI can bring Vietnam, such as strengthening connectivity and facilitating Vietnam’s access to the Chinese market, or helping Vietnam make the most of its long coastline by connecting Southeast Asian ports to enhance intra-ASEAN trade.[37] Joining the BRI also gives Vietnam opportunities to actively take part in the shaping of rules governing international cooperation. However, when taking part in the BRI, Vietnam should adopt proper management mechanisms to avoid potential problems, such as the transfer of outdated technology, project delays and cost overruns.

ISEAS Perspective 2021/71, 27 May 2021

ENDNOTES

[1] World Economic Forum, The Global Competitiveness Report 2019, http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf.

[2] Ministry of Industry and Trade, “Accelerating Vietnam’s infrastructure development for Sustainable Growth,” Infrastructure Vietnam, 2019, http://infrastructurevietnam.com.

[3] ASEAN, ASEAN regional road safety strategy, 2016, https://asean.org/storage/2016/10/ASEAN-Road-Safety-Strategy_full_24Oct16_rev_clean.pdf

[4] Ministry of Road Transport and Highways, Basic Road Statistics of India 2016-177, 2017, https://morth.nic.in/sites/default/files/Basic%20_Road_Statics_of_India.pdf

[5] ASEAN, ASEAN regional road safety strategy, 2016, https://asean.org/storage/2016/10/ASEAN-Road-Safety-Strategy_full_24Oct16_rev_clean.pdf

[6] Oxford Business Group, “Vietnam looks to the private sector to fund infrastructure,” Vietnam News, 9 June 2017,https://vietnamnews.vn/economy/378057/viet-nam-looks-to-private-sector-to-fund-infrastructure.html.

[7] EDHEC Institute for Infrastructure Research and the Global Infrastructure Hub, The Global Infrastructure Investor Survey 2019, https://www.gihub.org/resources/publications/global-infrastructure-hub-investor-survey-report-2019/.

[8] “90% du an co so ha tang o Viet Nam do nha nuoc dau tu: Khong du nguon von tu nhan?”, Vietnambiz,  5 June 2020, https://vietnambiz.vn/90-du-an-co-so-ha-tang-o-viet-nam-do-nha-nuoc-dau-tu-khong-du-nguon-von-tu-nhan-20200604215244655.htm

[9] Ibid.

[10] “Vietnam eyes private investment in infrastructure projects,” Vietnam Investment Review, 17 January 2019, https://www.vir.com.vn/vietnam-eyes-private-investment-in-infrastructure-projects-65317.html.

[11] “Chuyen doi 2 du an tren cao toc Bac – Nam phia Dong sang dau tu cong”, Dang Cong san Viet Nam, 11 January 2021, https://dangcongsan.vn/thoi-su/chuyen-doi-2-du-an-tren-cao-toc-bac-nam-phia-dong-sang-dau-tu-cong-572662.html.

[12] ADB, “Meeting Asia’s Infrastructure Needs”, 2017, https://www.adb.org/sites/default/files/publication/227496/special-report-infrastructure.pdf.

[13] “Financing for development in Vietnam,” Oxfam discussion papers, Oct 2019, https://oxfamilibrary.openrepository.com/bitstream/handle/10546/620879/dp-financing-development-vietnam-ida-graduation-251019-en.pdf.

[14] Jonathan Hillman, “How Big is China’s Belt and Road?”, Center for Strategic and International Studies, 8 April 2018, https://www.csis.org/analysis/ how-big-chinas-belt-and-road.

[15] Tobias Harris, “Quality infrastructure: Japan’s robust challenge to China’s Belt and Road,” War on the Rocks, 9 April 2019, https://warontherocks.com/2019/04/quality-infrastructure-japans-robust-challenge-to-chinas-belt-and-road/.

[17] John Reed and Kathrill Hille, “Laos’s Belt and Road project sparks questions over China ambitions”, Financial Times, 30 October 2019, https://www.ft.com/content/a8d0bdae-e5bc-11e9-9743-db5a370481bc

[18] John Hurley, Scott Morris, and Gailyn Portelance, “Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective.” Center For Global Development, 04 March 2018, https://www.cgdev.org/sites/default/files/examining-debt-implications-belt-and-road-initiative-policy-perspective.pdf

[19] Amar Diwakar, “China’s Debt-Trap Diplomacy Along the Belt and Road,” The Wire, 10 August 2018, https://thewire.in/world/china-debt-trap-diplomacy-bri

[20] Werner Pascha, “The quest for infrastructure development from a “market creation” perspective: China’s “Belt and Road”, Japan’s “Quality Infrastructure” and the EU’s “Connecting Europe and Asia”, International Economics and Economic Policy 17, 687–704, 5 May 2020, https://doi.org/10.1007/s10368-020-00468-0

[21] Shaun Turton, “China’s Belt and Road ports raise red flags over military plans,” Nikkei Asia, 23 July 2019, https://asia.nikkei.com/Spotlight/Asia-Insight/China-s-Belt-and-Road-ports-raise-red-flags-over-military-plans

[22] Jennifer Lyn, “US Blue Dot Network to counter China’s BRI,” Asia Times, 21 May 2020, https://asiatimes.com/2020/05/us-blue-dot-network-to-counter-chinas-bri.

[23] Le Hai Binh, Tap hop luc luong trong the ky XXI: Xu huong, tac dong va doi sach cua Vietnam (Hanoi: Chinh tri Quoc gia Publisher, 2020), p. 298.

[24] Prashanth Parameswasan, “The real trouble with China’s Belt and Road,” The Diplomat, 11 May 2017, https://thediplomat.com/2017/05/the-real-trouble-with-chinas-belt-and-road.

[25] Ministry of Planning and Investment, “The Management and Usage of ODA 2018-2020 With a Vision to 2025”, 2018, http://vanban.chinhphu.vn/portal/page/portal/chinhphu/hethongvanban?class_id=2&_page=1&mode=detail&document_id=195225   

[25] Nguyen Mai, “Bay no tu cac du an co so ha tang cua Trung Quoc”, Nha dau tu, 18 June 2020, https://nhadautu.vn/bay-no-tu-cac-du-an-co-so-ha-tang-cua-trung-quoc–bai-cuoi-bai-hoc-dat-gia-voi-viet-nam-d38760.html

[26] Nguyen Thi Thuy Ha, “Tac dong tu nguon von cua Trung Quoc qua sang kien Vanh dai va Con duong den cac nuoc dang phat trien,” Ly luan chinh tri,  25 October 2019, http://lyluanchinhtri.vn/home/index.php/quoc-te/item/2957-tac-dong-tu-nguon-von-cua-trung-quoc-qua-sang-kien-%E2%80%9Cvanh-dai-va-con-duong%E2%80%9D-den-cac-nuoc-dang-phat-trien.html

[27] “Gan 10 nam Du an duong sat Cat Linh – Ha Dong: Xuan nay tau se chay?”, Voice of Vietnam,  1 January 2021, https://vov.vn/xa-hoi/gan-10-nam-du-an-duong-sat-cat-linh-ha-dong-xuan-nay-tau-se-chay-827868.vov.

 [28] “China’s flexible belt and road approach leads to ambiguity,” South China Morning Post, 22 April 2019,https://www.scmp.com/news/china/diplomacy/article/3006898/chinas-flexible-belt-and-road-approach-leads-ambiguity.

[29] Eduard Fernandez, “Japan still reigns in South East Asian infra,” Infrastructure Investor, 16 July 2019, https://www.infrastructureinvestor.com/japan-infra-player-in-south-east-asia-china-belt-and-road-initiative.

[30] “China no match for Japan in Southeast Asia infrastructure race”, Bloomberg, 23 June 2019, https://www.bloomberg.com/news/articles/2019-06-23/china-no-match-for-japan-in-southeast-asia-infrastructure-race.

[31] “Nhat Ban – nha cung cap ODA hang dau ho tro phat trien giao thong Viet Nam”, Vietnam Business Forum, 12 November 2018, https://vccinews.vn/news/21064/nhat-ban-nha-cung-cap-oda-hang-dau-ho-tro-phat-trien-giao-thong-viet-nam.html.

[32] “Nhat Ban: Tang cuong dau tu cac du an co so ha tang trong khu vuc,” Banking Plus, 30 January 2019,https://thoibaonganhang.vn/nhat-ban-tang-cuong-dau-tu-cac-du-an-co-so-ha-tang-trong-khu-vuc-84628.html

[33] Japan increased its loan interest rates from 1.2 to 1.5 per cent per year for regular loans and from 0.3 to nearly 1 per cent per year for preferential loans, effective 1 October 2017.

[34] Ministry of Foreign Affairs of Japan, Japan’s Official Development Assistance White Paper 2013, 

[35] “Vay ODA lam duong sat do thi, doi von ty USD, 15 nam bat dong”, Vietnamnet,  2 November 2019, https://vietnamnet.vn/vn/kinh-doanh/dau-tu/loat-du-an-duong-sat-do-thi-doi-von-may-chuc-nghin-ty-cham-tre-trien-khai-584144.html; “Vi sao Metro so 1 doi von 30.000 ty, cham tien do?”, Dai doan ket, 26 October 2017, http://daidoanket.vn/vi-sao-metro-so-1-doi-von-30000-ty-cham-tien-do-383816.html.

[36] “Vietnam’s central bank contemplates ‘mobilizing’ gold from public,” Tuoi Tre News, 7 December 2017, https://tuoitrenews.vn/news/business/20171207/vietnams-central-bank-contemplates-mobilizing-gold-from-public/43027.html.

[37] See, for example, Le Hai Binh, Tap hop luc luong trong the ky XXI, p. 299.