China Belt and Road initiative (OBOR) is a project that aims at promoting global economic integration. Countries in Southeast Asia have mixed reactions concerning the investment, and in the nations that cooperated, there have been misunderstandings regarding China's motives. These states consider the infrastructural investment as a threat to their economy and independence rather than a rewarding business opportunity. The infrastructure project entails of the Silk Road Economic Belt that targets mainland Southeast Asia and the 21st Century Maritime Silk Road that is focused on maritime Southeast Asia. Three projects are currently being implemented in three countries; Myanmar, Laos, and Thailand, but have reported very slow or no progress at all. Vietnam has a long history of partnership with China, and the purpose of this memorandum is to advise the government regarding participating in the Chinese investment. The memo will discuss the risks that the country will be exposed to, outline Vietnam's national interests and recommend policy strategies that the government should implement to realize these objectives. The recommendations are drawn from the experiences of other states in Southeast Asia.
The Chinese investment will provide Vietnam with the necessary basis for economic development through the project's five cooperation goals which are; trade facilitation, policy coordination, financial integration, improved infrastructure and interconnectivity, and the people to people bond. Vietnam is export-oriented, and consolidation with the world will fuel economic advancement. Vietnam's national interests in the project will include promoting domestic growth through improved infrastructure, trade facilitation, local education, the creation of job opportunities, and revenue through taxes.
China's economy is far much ahead of Vietnam, and the investment would expose the country to some risks as is evident in other Southeast Asian states. There is a notable difference between the aspirations and capacities of Chinese and Southeast Asian governments, and it has become a barrier to the progress of the various infrastructure projects meant to serve China's economic and political interests. To implement these ventures to completion, a lot of resources have to be spent funding them. This implies that if the government is unable to raise funds, it will resort to borrowing from the Chinese government, thus committing the nation to excessive foreign debts which might have a negative impact on the economy in future. These projects are vast and ambitious hence the enormous budget. The local government and the Chinese companies assume that the loans will be repaid and end up expanding the scale of realistic projects with the objective of increasing the size of the total contracts. For instance, Laos had to borrow $2.1 billion from a Chinese institution to fund a section of the Sino-Laos railway project. For the start-up capital, Laos borrowed from Beijing an amount that made up five percent of Lao's 2015 Gross Domestic Product.
Failure to repay these loans in a reasonable period will give China full control over the project without spending any money. This increases China's influence on a country's foreign and domestic policy. The cost of labor and raw materials is high, and there are additional expenses incurred when compensating land to the affected residents. China relies on the local government to pay its residents and reluctance to do so may affect the successful implementation of the project and will only build upon government debts. China has made tradeoffs to do with terms of project financing and is seeking for more control over the strategic resources in the Southeast Asia states. Participation in the venture without considering these factors is an implication that the country's territorial integrity, national security, and sovereignty at stake.
The benefits that the Southeast Asian countries are supposed to draw from the investment venture have not yet been fully realized. For instance, in Myanmar, China promises employment of more than 100,000 people during the startup only, tax and port and tax revenues, improved transport, and trade and other corporate social responsibility benefit from the partnership. The time frame, however, remains unclear as to when this happens. As long as the details of the projects remain uncertain, the port will become a transit point for China’s trading activities rather than a center of development as initially planned for. It is the same case for Kyaukpyu seaport where China has taken over full ownership of the port which has worsened the country’s political situation. It is feasible that debates concerning the Chinese infrastructure projects have an unfavorable impact on the politically unstable countries like Burma and Thailand. The interests of China in the initiative are political based, rather than cooperating to meet shared interests between countries. The transport networks will grant China access to the Indian Ocean and the Indochina peninsula and establish companies in these countries as well.
Policy Recommendations
To fully realize its objectives, the Vietnam government should take the following steps to minimize the possible chances of exploitation by China and for the project to reach completion.
1. Enter into a contract that is based on mutual interests and satisfaction. The terms of the agreement should foster a strategic partnership that will lead to sustained and stable economic development in both countries. The fact that China's economy is more advanced than the Southeast Asian nations is a serious concern. This, therefore, is a countermeasure against China's political ambitions.
2. Propose for an independent investment. This involves setting up a separate sub-company that would be responsible for implementing the project to limit the parent company's financial obligations if it fails to deliver the project or is involved in a bankruptcy. In this partnership, China's roles will be limited to supervision, technical assistance and transfer, and design while Vietnam will be in charge of construction and funding. This model is more appropriate in that it will give Vietnam greater flexibility as compared to assigning the engineering company the whole construction process and eventually delivering the finished product to the government.
3. Downsize the size of the project. This is a precaution against the possibility of China and the local government expanding the scope of the total contract which would force the country to borrow hence undermining its financial security. Vietnam should first of all estimate the total costs of the project and commit itself to what it can afford to fund without having to abandon sectors of the economy. This will meet the needs of Vietnam's more realistic aspirations and its inadequate capacity.
4. Utilize local labor and materials. The majority of the workers should be local to facilitate job creation. Foreign labor will only be employed in the case where technical skills are inadequate. Selection of raw materials and equipment too should give preference to local vendors to promote maximum utilization of the nation's resources.
5. Establish Vietnam's position in the control of funds allocated for the project and the project itself upon completion. The contract should state the power each party will have over the venture to protect Vietnam's autonomy. Before granting special rights to China such as access to land and other resources, the government should, first of all, consider the implications on the country's sovereignty and national security.
6. Conduct environmental impact assessment. The local government should determine the ecological impacts of the project. If they are significant, then amendments should be made to the strategy accordingly before implementation.
7. Provide for land compensation in the budget. The residents who are displaced should be compensated immediately to avoid resistance from the locals which could hinder the project implementation. This will also prevent a build-up of government debts.
Conclusion
The Belt and Road initiative is an attractive investment opportunity for Vietnam, mainly because it will facilitate its export activities and create employment opportunities for the residents. Besides, it will boost the country’s economy and improve the livelihoods of the employees and the citizens at large. Ambitious projects implemented in other states have reported plodding progress which is attributed to non-compensation of displaced farmers, lack of transparency, employment of foreign labor and inadequate environmental impact assessments by policymakers. Moreover, there is a chance that the country will be exposed to risks associated with financial security and sovereignty. However; the policymakers can adopt measures such as independent investment and downsizing grandiose projects. This way, the country’s interests will be realized with minimum chances of being exploited by China.
