Vietnam’s transnational high-speed railroad: a renewed opportunity for Japan?

Dr Le Hong Hiep, Fellow at the ISEAS – Yusof Ishak Institute

In June 2010, Vietnam’s National Assembly rejected a proposal to build a North-South high-speed rail line connecting Hanoi and Ho Chi Minh City. This proposal, backed by Japanese companies, failed to win the legislature’s approval due to its high $56 billion price tag, about half of Vietnam’s GDP in 2010.

However, the proposal has been revived recently. The Ministry of Transport (MOT) and a consortium of three local consulting companies are currently working with 20 provincial governments to gather inputs, especially regarding the location of the rail track and stations, for a project proposal to be submitted to the government within this year.

The proposal will discuss and make recommendations on, among other things, technologies, investment cost, and operational issues. If approved by the government, it will be submitted to the National Assembly for deliberation in 2019.

While details of the project proposal have not been finalized, the consultancy consortium reportedly proposed last week that the new rail line should adopt the distributed traction technology, which is the technology used by Japanese high-speed trains. If the Vietnamese government approves this proposal, this may give Japanese contractors and suppliers an edge over competitors from countries which do not use this technology.

Despite the failure in 2010, the Japanese government and companies continue to maintain a high level of interest in the project, with the Japanese International Cooperation Agency (JICA) in 2013 sponsoring a study of the Hanoi – Vinh and Nha Trang – Ho Chi Minh City sections of the proposed line.

This time around, the project may be viewed more favorably by the National Assembly as well as the Vietnamese public due to Vietnam’s higher financial capacity as well as greater demand for advanced infrastructure systems. However, whether the National Assembly will give green light to the project remains a big question. The most important issues will be the cost of the project as well as the source of funds to finance its construction. Vietnam’s recent budget constraints and increased public debts mean that a heavy price tag and unattractive financing terms will likely cause the project to stall again.

Railway workers do maintenance work on rail tracks on Long Bien Bridge in Hanoi. Photo by AFP

Japanese stakeholders will not want to have the project rejected once again given the commercial significance of the project as well as the efforts they have invested in it so far. The proposal to use the distributed traction technology, if eventually adopted by the Vietnamese government, will be welcomed by them and is an early indicator of the Vietnamese government’s preference for foreign partners in developing the project.

While working with Vietnamese partners to make the project more sellable to the Vietnamese public and lawmakers, Japanese companies may also need to keep an eye on their Chinese competitors who benefit from China’s large funds available for overseas high-speed rail projects under its Belt and Road Initiative. Although Chinese contractors and China-funded projects have a poor track record in Vietnam and are perceived negatively by the Vietnamese public, if China can provide the desired technology and offer favorable financing conditions for the project, this may tip the balance in their favor, especially given that China’s high-speed train technologies have witnessed major advances in recent years.

*Dr Le Hong Hiep is Fellow at the ISEAS – Yusof Ishak Institute where this article was first published. The opinions expressed are his own.