Vietnam's growing concern with Chinese loans

Vietnam, a neighbour of China and simultaneously close strategic partner of India, has expressed concerns over interest rates charged by China for its loans.

Interest rates from Chinese official development assistance (ODA) loans are nearly double those of other countries, coupled with less attractive loan terms. Vietnam's Ministry of Planning and Investment (MPI) has expressed concern over ODA loans from China, according to reports in local media.

Chinese ODA loans carry interest rates of 3% per year, higher than that of Japan (0.4 - 1.2%), South Korea (0 - 2%), or India (1.75%).


According to the ministry, preferential credit loans from China are similar to export credit, which are conditional loans, referring to the recipient country needing to adhere to a number of project-related demands regarding the use of Chinese contractors, among others, coupled with less attractive loan terms compared to other donors.

This would some point make the actual loan amount much higher than cases with competitive biddings.

Moreover, Chinese loans are subject to 0.5% of commitment fee and 0.5% of administrative fee, while loan's duration and grace period are shorter than those of other donors, standing at 15 years and 5 years, respectively.

All Chinese preferential loans are provided through the Export-Import Bank of China (Exim Bank).

"Chinese preferential loans are only suitable for projects with direct source of income and repayment capacity," the MPI stated.

Moreover, some projects using Chinese ODA, contractors and equipment are experiencing delay, low quality and increasing investment capital. The most notorious case is the Cat Linh-Ha Dong skytrain project in Hanoi, which has four times extended the initial deadline and incurred a cost overrun of US$316 million to US$868 million.

Notably, one third of the 12 large-scale loss-making projects of the Ministry of Industry and Trade are financed by Chinese ODA loans, including Ninh Binh fertilizer plant, Ha Bac fertilizer plants, and Chemical, and Thai Nguyen Iron and Steel plant- phase 2.