[Vietnam]China-Vietnam railway to be merged soon, why it's significant
Zhong Feiteng, Researcher, Institute of Asia-Pacific and Global Strategy, Chinese Academy of Social Sciences, and Director, Centre for Regional Security Studies, Chinese Academy of Social Science
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Looking back at history, the rail merger between China and Vietnam reflects the accelerated evolution of a century of great change; looking ahead, the rail merger will be an important symbol of the rise of a China-centric Asian economy.
The construction of a railway network driven by high-level interaction between China and Vietnam has recently attracted international attention.
On 1 November, during the visit to China by Nguyen Phu Trong, General Secretary of the Communist Party of Vietnam Central Committee, China and Vietnam issued a Joint Declaration on Further Strengthening and Deepening the Comprehensive Strategic Partnership between China and Vietnam, which included three references to further strengthening the connectivity between the two sides, particularly to address the issue of different railway gauges between the two countries.
This immediately drew international attention, with a mid-November report in the South China Morning Post quoting Lampton, a leading US expert on China, as saying that Vietnam was concerned about missing out on access to the China-built Trans-Asian Railway network, while China would further strengthen its position at the centre of the East and Southeast Asian economic system.
1.A century of change in the international railway corridor between China and Vietnam
The construction of cross-border railways between China and Vietnam began in the early 20th century, at a time of great change when railways began to extend beyond the European continent to four continents.
After the First China-Japanese War, China's railway building powers were gradually granted to the imperialists, and in 1903 the Qing government and France signed an agreement to build the Yunnan-Vietnam Railway, allowing France to lay the Yunnan-Vietnam Railway in Yunnan with an 80-year railway concession.
The railway, which ran from Haiphong in Vietnam to Kunming at a cost of 95 million francs, was said to be the most ambitious colonial project ever undertaken by France and was nearly 900 kilometres long, including a section of about 500 kilometres in China. It was also the only railway in China to use the 1000 mm gauge and was put into service in April 1910.
During the Second World War, the Yunnan-Vietnam Railway was once controlled by the Japanese. After the end of World War II, the Chinese Government signed an agreement with the French Government to annul the 1903 agreement on the Yunnan-Vietnam Railway.
In April 1961, Premier Zhou Enlai travelled on the Pingxiang-Hanoi Railway and met with Vietnamese leader Ho Chi Minh in Pingxiang.
After entering the 21st century, this section of the railway ceased passenger traffic due to the ageing of the line and operational management problems. And during the same period, China and ASEAN signed the FTA agreement, for which the Nanning Railway Bureau added soft sleepers to the railway between Nanning and Hanoi. This was the precursor of cross-border passenger transport between China and Vietnam in the new era.
The new electrified international rail freight corridor between China and Vietnam began in December 2014 with the opening of a line from Mengzi, the capital of Yunnan's Honghe Hani and Yi Autonomous Prefecture, to Hekou Yao Autonomous County, under the jurisdiction of Honghe, which in turn connected to the Lao Cai municipal in Vietnam's Lao Cai Province. Prior to this, the Yuxi to Mengzi section was opened in early 2013, while the Kunming to Yuxi expansion was completed in 2016. The Chinese-Vietnamese railway was initially integrated into the Trans-Asian Railway route.
However, Vietnamese goods are still transported in the traditional way when crossing China to Europe, as the tracks are different between the two countries and the goods need to be replaced at the border before being transported. The railways in Vietnam follow the narrow 1000mm track designed by the French, while the railways in China use the international standard track of 1435mm. One consequence of the track change is that there is not much rail freight between China and Vietnam.
In November 2015, China and Vietnam signed the Exchange of Feasibility Study on the planning project of the Lao Cai-Hanoi-Haiphong standard gauge railway line in Vietnam, which has a total length of about 390 km, and at the time the estimated investment for the renovation was US$4.4 billion.
However, in the years since, China and Vietnam have continued to debate the rail merger proposal, and third-party forces have stepped in, which do not want to see China and Vietnam fast-track their rail merger plans. For example, in a 2017 assessment report, the Asian Development Bank gave a poor rating to China's proposed Lao Cai-Hanoi-Haiphong standard-gauge railway plan. As a result, although Vietnam officially joined the Belt and Road project in November 2017, it will not formally join the China-European Train project until July 2021
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2.The North-South and East-West lines of Vietnam's rail merger
Enhancing connectivity and expanding the opening of border crossings is an initiative of the Vietnamese side. During his visit to Beijing, Nguyen Phu Trong reiterated his desire to keep the supply chain open and facilitate smooth customs clearance for goods from both countries; to raise the quota for goods from Vietnam transiting China to third countries via rail; and to create convenient conditions for expanding cooperation in air, land and rail transport, according to the Vietnam News Agency.
The first article of the seventh part of the Chinese-Vietnamese Joint Declaration signed on November 1 reads: "The two sides agree to actively promote the docking of development strategies between the two countries, accelerate the negotiation and signing of agreements between the two governments to promote the docking of the Belt and Road Initiative and the "Two Corridors and One Circle" framework between the two governments, carry out cooperation in production capacity, cooperate in infrastructure construction and connectivity, and complete the evaluation of the planning of the Lao Cai-Hanoi-Haiphong standard railway as soon as possible.
Article 8 further states: Continue to expand the opening of border crossings, promote cross-border infrastructure construction, and focus on promoting agreement on the Lao Cai (Vietnam) - Hekou (China) railway connection proposal.
Following Nguyen Phu Trong's visit to China, Vietnam's Ministry of Transport has proposed an even bolder plan. According to the Ministry's Programme to Enhance the Capacity of Railway International Intermodal Services to 2030, submitted to the Vietnamese central government, Vietnam will significantly increase the volume of goods exported and imported by rail from 1.1 million tonnes in 2021 to 4-5 million tonnes in 2030.
The plan connects Vietnam's capital Hanoi with Ho Chi Minh City, the largest city in the south, and is conceived as the equivalent of the country's Beijing-Shanghai line. Among the plans is the US$56 billion North-South High Speed Railway, to be developed by the Japanese government, which extends further north to connect with Pingxiang, Chongzuo and Nanning in Guangxi via Dong Dang.
The railway from Nanning to Chongzuo is currently open, while the railway from Chongzuo to Pingxiang is expected to open in 2024. In the future, the railway will also connect to large ports in the new western land and sea corridor such as Fangchenggang, which in turn will form a larger logistics area with the sea-rail transport of the Hainan Free Trade Port.
The other is an east-west line centred on Hanoi, going east to the port of Haiphong, connecting Lao Cai to Hekou in Yunnan to the north-west, and in turn connecting to Kunming, so that it can be connected to the China-Lao railway starting from Kunming. In fact, in March 2019, the Yunnan-Vietnam Railway has already been opened for sea-rail transport.
3.Vietnam to be further integrated into the emerging Trans-Asian Railway network
With Nguyen Phu Trong's visit to China, Chinese-Vietnamese relations have also entered a new phase of development. According to the Vietnamese side, relations with China are regarded as the first priority in Vietnam's foreign policy. Against the backdrop of the current unstable and substantially increased uncertainty in the world situation, Vietnam also needs to strengthen its cooperation with China from a political perspective.
China has maintained its position as Vietnam's largest trading partner for many years in a row, and Vietnam is China's largest trading partner in ASEAN and the sixth largest trading partner country in the world, with bilateral trade volume exceeding US$230 billion in 2021.
Although Japan is Vietnam's important economic partner, the number one ODA provider and the second largest labour partner, its development potential is far less than China's. The United States is Vietnam's largest export market, reaching US$123 billion in 2021, making it Vietnam's second largest trading partner but only the 11th largest source of investment for Vietnam. in 2022, Vietnam's exports to the US lag behind those to China and Mexico.
Vietnam is a typical externally-oriented economic development model and is affected by rising global inflation and exchange rate fluctuations, which will result in lower economic growth next year than this year. In order to stabilise the macroeconomic situation, Vietnam hopes to accelerate investment in domestic public facilities, including, of course, infrastructure.
In terms of medium and long-term goals, Vietnam will further integrate itself into the emerging Trans-Asian Railway network and take advantage of the opportunities presented by China's development. One consideration that Vietnam has agreed to discuss in depth the rail merger is that Vietnam has trade with Central Asia and Europe through the Chinese corridor.
In March 2019, the "Vietnam-China-Kazakhstan-Europe" rail corridor was officially opened, which is Vietnam's version of the "Vietnam-Europe train". In October 2021, the Ministry of Transport of Vietnam will conduct a study on the Lao Cai-Hekou railway project, with a view to connecting it to the Chinese side's rail reconstruction project.
Railway construction and cross-border transport in China is progressing at a remarkable pace. On the one hand, beyond the Yuxi line, China has started construction of a high-speed railway from Mile to Mengzi in Honghe Prefecture since 2015, which is expected to be opened this year and will greatly increase the radiation of the passenger capacity of the Yunnan railway network to Southeast Asia.
Meanwhile, China-Vietnam trains are increasingly extending to the central and western regions of China. For example, at the beginning of June this year, the "Railway Express" mode of cross-customs clearance between Chongqing and Vietnam's Annman landed, marking a new era for Sino-Vietnamese trains. The railway crossing into Vietnam is Pingxiang in Guangxi. By the end of October, a total of 238 cross-border trains between China and Vietnam have been operated this year, an increase of more than 178% year-on-year. It is worth noting that the construction of the Fangdong High Speed Railway from Fangchenggang in Guangxi to the Sino-Vietnamese border city of Dongxing is also progressing rapidly and is expected to be opened to traffic in 2023.
4.China-Vietnam trade leapfrogging and embedded production networks
A more fundamental driver of Vietnam's accelerated rail integration is the fact that the country's economic development model increasingly resembles a replica of the coastal regions of China in earlier times. In the wake of the China-US trade frictions, a new China-Vietnam-US trade triangle has gradually formed and is deeply embedded in Asian production networks.
Vietnam's manufacturing sector has increased from 13 per cent of GDP a decade ago to over 17 per cent today, and the net foreign investment that Vietnam attracts averages 5 per cent of GDP per year, by far the highest rate in East Asia. Some rating agencies have also upgraded Vietnam to BB, calling it an 'emerging star'. As of October 2022, Vietnam has accumulated nearly US$270 billion in actual foreign investment. The World Bank even predicts that Vietnam's economic growth will reach 7.2% this year, leading the East Asia region.
Increased economic and trade cooperation with China has been the most important external factor behind Vietnam's remarkable achievements over the past few years. For example, Chinese data shows that bilateral trade reached US$230.2 billion in 2021, up 19.7 per cent year-on-year. As of 2021, the stock of Chinese direct investment in Vietnam was US$15.9 billion. By the end of February 2022, the cumulative contracted engineering contracts of Chinese companies in Vietnam amounted to US$71.7 billion.
Statistics from Vietnam Customs show that bilateral trade between Vietnam and China reached US$165.8 billion in 2021, up 24.6 per cent year-on-year, with China being Vietnam's second largest export market. US$55.9 billion in exports to China in 2021, 37 times more than in 2002.
Vietnam's exports to China are mainly mobile phones and their spare parts, computers, electronic products and their parts, machinery and other parts, cameras, video cameras and their parts, all kinds of yarns and textile threads; imports from China are mainly computers, electronic products and their parts, machinery and other parts, all kinds of fabrics, mobile phones and their parts, plastic products.
This high rate of growth in Chinese-Vietnamese trade is very rare, considering the impact of the epidemic and the deteriorating world economy. It also reflects the depth and breadth of cooperation between the two sides, which is not only due to the shift of industries as a result of the competition between the US and China, but also thanks to the value chain trade that has been operating in Asia for many years.
For Vietnam, there are great benefits to participating in value chain trade, not only in driving low- and mid-range labour into labour-intensive industries, but also in accessing international markets without having its own brand name, and even producing components for certain well-known brands.
In the world market, the six commodities exported by Vietnam in the first 10 months of this year with a value of more than US$10 billion are mobile phones and their components in first place, amounting to US$50 billion; electronic products, computers and their components in second place, about US$47 billion; machinery and equipment tools and other accessories in third place, about US$38 billion; textiles and garments in fourth place, about US$32 billion; footwear in fifth place, about US$20 billion; and wood and wood products in sixth place, about US$13.4 billion. footwear, at about US$20 billion; and in sixth place, wood and wood products, at about US$13.4 billion.
Comparing the products traded between China and Vietnam, it can be seen that the categories of trade between China and Vietnam dominate the structure of Vietnam's trade with the world. To some extent, it can also be said that the explosion of trade in Vietnam has replicated the processing trade model of the Chinese coastal region. The Russian-Ukrainian conflict has further enhanced Vietnam's trade position.
On 1 August 2020, the Vietnam-EU Free Trade Agreement (VEFTA) came into force. From August 2020 to July 2022, Vietnam's total exports to the EU amount to US$83.4 billion, an increase of 24% compared to the 2016-2019 period. The competitiveness and market share of Vietnamese goods in the EU market has increased significantly, and Vietnam has risen to become the EU's largest merchandise trading partner in the ASEAN region.
It is also noteworthy that Vietnam is increasingly becoming a third-party market for many major international companies to circumvent strategic competition from the US and China. For example, in June this year, Apple has shifted its tablet production line from China to Vietnam. Vietnam has jumped from 47th place in 2001 to 10th place in 2020 as an exporter of electronic products, with 1.8% of the total value of global electronics exports.
With this as a backdrop, it is not difficult to understand that both Nguyen Phu Trong, who visited Beijing, and Vietnamese President Nguyen Xuan Phuc, who was in Cambodia to attend the East Asia Summit, during their talks with the Chinese leaders, hoped that both China and Vietnam would strengthen railway connections, increase the number of Vietnamese goods transiting to third countries by rail, and that the Chinese side would soon approve the opening and upgrading of some border crossings and transport connection projects in the border areas.
From China's perspective, the effects of Vietnam's integration into the Trans-Asian Railway network will be more extensive. Vietnam is an active participant in free trade agreements, not only as a member of the RCEP (Regional Comprehensive Economic Partnership) and a negotiator of the Indo-Pacific Economic Framework, but also as a negotiator of a free trade agreement with the European Union. With a population about to exceed 100 million, a flexible leadership and a growing position in global foreign investment and foreign trade, Vietnam will be an important supporter of the world's openness and common global development. These are equally important for China's next step of development and opening up to the outside world.