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%

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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)

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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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