Vietnam Is Integrating More, Not Less, With China

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The new railway project can be seen as a triumph of the Belt and Road Initiative, spearheaded by Chinese President Xi Jinping. Along with the Boten-Vientiane railway, operational since December 2021, connecting Laos and China, the Lao Cai-Hanoi-Haiphong railway will accelerate China's links with Southeast Asian countries.

China's ambition is to eventually construct a larger railway, the Kunming-Singapore railway, connecting China to Southeast Asia, with the main route running from Kunming, the provincial capital of China's Yunnan province, through Laos, Thailand and Malaysia to Singapore, and branch routes through Vietnam, Cambodia and Myanmar.

The project is an indication that Vietnam is further integrating into the Chinese economy, especially in the context of the world economy not fully recovering after the Covid-19 recession.

Vietnam is currently undertaking its most ambitious bureaucratic reforms under the leadership of the new General Secretary To Lam.

“In just a month from early December 2024 to January 2025, ministries finalized their reorganization plans, detailing mergers, reallocations, and reductions in redundant functions,” stated Dr Nguyen Khac Giang , a visiting fellow from the ISEAS-Yusof Ishak Institute.

Earlier, Communist Party of Vietnam leader Lam bitterly admitted that nearly 70% of the budget is spent on salaries and regular expenses, leaving little room for development investment.

Last year, Vietnam missed out on multi-billion dollar investments from multinationals such as Intel and LG Chem due to reasons including lack of incentives , as well as Vietnam's electricity shortages and excessive bureaucracy .

The withdrawal of large international corporations from Vietnam could seriously affect Vietnam's 8% growth target in 2025 . The Vietnamese economy is vulnerable as it is too dependent on multinationals.

For example, in 2023, Samsung alone contributed 16% of Vietnam's total export value and maintained this level in 2024 despite global economic challenges.

Clearly, streamlining the bureaucratic system alone cannot solve the problem comprehensively. Therefore, Vietnam must find alternative development momentum and strengthening connection with China may be a feasible solution.

This approach can help Vietnam achieve its growth target, but it may also cause potential consequences for the Vietnamese economy.

Firstly, the risk of being completely dependent on the Chinese economy is likely high as Vietnam does not have a strong foundation in heavy industries like Thailand, South Korea, Japan or Taiwan.

Indeed, most Vietnamese industries are weak , based on processing and assembling, not to mention other sectors such as retail trade and agriculture.

Second, Vietnam could become a“transit point for goods exported to third countries” like the US if the China-United States trade war continues, especially under President Donald Trump's second term. In this case, Vietnam is probably to suffer from US trade sanctions, which Vietnam itself has predicted .

A typical example is the US-led anti-dumping investigation in 2019 related to the $5 billion hoard of aluminum in Vietnam. This has raised worries that Vietnamese businesses will be wrongly engaged in such complex cases.

The decision to get closer to the Chinese economy can be considered a life-or-death decision for the Vietnamese economy, particularly after the US government under Trump 2.0 has tightened foreign aid and focused more on the domestic market.