The Dominance of Chinese Engineering Contractors in Vietnam

Summary

EXECUTIVE SUMMARY

1. • Over the last decade, Chinese engineering contractors have successfully expanded their operations in Vietnam to a dominant position, turning the country into the largest market for Chinese engineering contractors in Southeast Asia.

2. • The success of Chinese contractors can be attributed to a number of factors, including the conditions attached to China's concessional loans and preferential export buyer's credits and Chinese contractors’ strategies to exploit loopholes in Vietnam's legal regulations.

3. • The dominance of Chinese contractors has presented some significant problems for Vietnam, such as the poor quality and delayed completion of a number of key infrastructure projects, the expanding trade deficit vis-à-vis China, and the illegal use of Chinese laborers in the country.

4. • These problems have elicited negative reactions from the Vietnamese public and policy makers. These include concerns about the country's national security, the resentment against the presence of Chinese laborers, and the widespread negative perception of Chinese goods and services in general and Chinese contractors in particular. Legislators have also taken move to fix legal loopholes that have facilitated the rise of Chinese contractors.

INTRODUCTION

Ministry of Commerce (2010), Chinese engineering companies were by the end of 2009 involved in projects worth US$15.42 billion, turning the Vietnamese market into their largest in Southeast Asia. Various Vietnamese sources also confirm that these contractors are strongly outcompeting contractors from Japan, South Korea, and Western countries. On occasion, Chinese contractors have accounted for up to 90 per cent of EPC (Engineering/Procurement/ Construction) contracts for thermal power plants in Vietnam (Nhat Minh, 2012).

This interesting phenomenon begs several questions. First, given their relative lack of international experience, how did the Chinese engineering contractors manage to achieve their extraordinary success in Vietnam, and is it sustainable? Second, does this condition present special problems for the Vietnamese? And finally, what implications does this hold for Vietnam's economic and political relations with China?

CAUSES

There are two major reasons for the spectacular rise of Chinese engineering contractors in Vietnam: First, the conditions attached to Chinese concessional loans and preferential export buyer's credits for Vietnam; and second, the “flexible” business strategies of these contractors.