The north-south high-speed railway, a challenge Vietnam must meet

October 21, 2024 | 03:13 pm PT
Can Van Luc Economist
Conversations about Vietnam's north-south high-speed railway are everywhere now. Older generations lament that this project should have been realized decades ago, while hoping they live long enough to see it come to fruition.

Younger people, meanwhile, are energized by the idea of faster, more convenient travel. Even foreign visitors express excitement, imagining their future journeys along this modern rail line.

The railway is not just a government ambition; it is a shared dream for the Vietnamese people. Given the country's unique geography, stretching long and narrow from north to south, an efficient transportation system is crucial. Currently, road transport carries 80% of the nation's passengers and goods, while sea routes remain underused and air travel is both overcrowded and expensive. Vietnam's railways, on the other hand, transport just 1% of people and goods.

This imbalance underscores the urgent need for investment in the rail system, which could help transport both people and goods more efficiently, promote regional integration and accelerate socio-economic development. But here lies the challenge: limited financial resources. Between 2016 and 2020, only VND18.65 trillion ($752.93 million) was allocated for railways, meeting just 8.2% of the system's actual needs.

Vietnam's rail infrastructure has fallen behind the rest of the world. Japan pioneered express railways in 1964, and today around 40 countries, including China, South Korea, and Indonesia, have express trains. Yet, despite two decades of discussion, Vietnam's north-south high-speed railway has faced repeated delays. The time has come for decisive action from the country's leaders.

There are three key concerns that must be addressed if this project is to succeed: its effectiveness, demand, and funding.

The upfront costs of the high-speed railway will be enormous, while the economic benefits may take years to materialize. As with other large infrastructure projects, a narrow focus on financial returns would be a mistake. Policymakers must consider the broader, long-term economic, social and environmental impacts.

From an economic perspective, express railways reduce both travel time and costs. They stimulate job creation and boost income in sectors like construction, transportation, tourism, real estate, and manufacturing. In Germany, a 177-kilometer express rail line increased regional economic growth by 2.7% over 15 years. Similarly, cities in China connected by express trains saw their economies grow by an additional 7.2% to 14% between 2010 and 2019.

Socially, express railways reduce travel time and foster greater population distribution, promoting more balanced growth between urban and rural areas. They also encourage cross-regional sharing of knowledge and innovation, boosting productivity and narrowing economic disparities.

Environmentally, express trains cut down on private vehicle use, easing traffic congestion and lowering greenhouse gas emissions. In China, a study found that express railways reduced emissions by 30-40% in cities along the network. These environmental improvements, in turn, enhance the overall quality of life.

To maximize the effectiveness of the north-south high-speed railway, the project must be integrated into Vietnam's broader socio-political and economic strategies. This requires a focus on sustainability, innovation and smart planning. Japan's experience with its own express railway system highlights the importance of three key elements: timeliness, safety and frequency.

Building an express railway in Vietnam means not just addressing current transportation needs but also anticipating future growth. A successful railway will connect communities, facilitate commerce and promote development across regions. Achieving this vision will require meticulous planning and a commitment to using cutting-edge technology.

The most formidable challenge is funding. The current proposal suggests that the project be financed entirely through public funds. While this approach simplifies procedures, it would impose a heavy burden on the national budget, diverting resources from other pressing needs and increasing public debt.

Global examples show that large infrastructure projects benefit from a mix of public and private financing. In Thailand, for example, two express railway projects received official development assistance (ODA) from Japan and China. Similarly, India's 500-kilometer expressway was funded with ODA and technology from Japan, while Indonesia's Jakarta-Bandung railway was 75% funded by China, with repayment stretched over 40 years.

Vietnam must also explore borrowing from international development banks and financial institutions. Public funds should cover 30-40% of the total costs, while corporate bonds, subsidized loans and foreign investment can bridge the remaining gap.

A sound financial strategy requires careful planning, including contingency funds amounting to 15-20% of the total budget. Infrastructure projects often face delays, which drive up costs, and Vietnam's leaders must be prepared for these challenges.

The north-south high-speed railway is a historic project that could reshape Vietnam's economy, environment and society for generations. It will require firm commitment from the country's leaders, strategic planning, and widespread public support. By carefully balancing economic, social and environmental considerations, Vietnam can finally make this dream a reality.

*Can Van Luc is an economist. He currently works as chief economist with state-owned lender BIDV.

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