Vietnam’s push for ‘chip-to-ship’ conglomerates raises red flags

Two days after Vietnam's top leader called on local private companies to help build infrastructure, listed conglomerate Vingroup stepped forward to develop a $70 billion nationwide high-speed railway and build the trains to run on it.

- Francesco Guarascio, Reuters

To Lam

Communist Party leader To Lam's request was part of a broader call for a stronger private sector in Resolution 68, a party development blueprint issued in May that some analysts labelled ‘Doi Moi 2.0" after the 1980s reforms that opened the Southeast Asian nation's economy.

Six months on, views on Resolution 68's possible impact range from upbeat to worried, but the thrust of the initiative has become clearer: It is less about liberalisation and more about boosting national champions, according to a dozen business advisers and economists. The high-speed railway, Vietnam's most expensive infrastructure project, has emerged as a test case — and a source of financial stability concerns flagged in rare instances of explicit criticism by the central bank and finance ministry in documents seen by Reuters.

Vingroup, whose core business is property, in October set up a subsidiary to produce steel for civil works, after bidding for the railway. Under its proposal, the state would cover land compensation and fund 808 of the project via interest free loans with decades-long maturities.

Vietnam’s central bank warned of Vingroup's high leverage and lack of rail experience, saying the project needed special state guarantees “to ensure the safety of banking operations”, it wrote in an opinion dated May I9 that was reviewed by Reuters.