Prime Minister Nguyen Tan Dung has hailed mining as a key element in Vietnam's economic development. But in recent weeks, growing opposition to mining has put his government on the defensive.

On Tuesday, Deputy Industry Minister Le Duong Quang issued a statement saying a state-run Vietnamese firm will go ahead with a $US460 million ($621 million) venture with a Chinese company to extract bauxite ore from Vietnam's pristine Central Highlands region. But in an apparent attempt to placate criticism, he emphasised that the Chinese firm won't have any equity in the project.

Mining poses a policy conundrum for Vietnam's Communist leaders. The country has a large trade deficit with China - $US11 billion in 2008 - and is eager to increase exports to its neighbour, which mining projects can do.

Chinese companies, for their part, are keen to participate in mining projects in Vietnam's Central Highlands, which the Government says holds 5.4 billion tonnes of bauxite - the world's third-largest reserve of the ore, used as a raw material to make aluminum. Vietnam says it needs around $US15.6 billion to invest in mining and refining bauxite by 2025.

But Vietnam's environmental lobby sees the industry as one of the few avenues of dissent against policymakers. In recent weeks, a chorus of critics has denounced Hanoi's plans to allow the joint venture, between state-run Vietnam National Coal and Mineral Industries Group and a unit of the Aluminum Corp. of China, or Chinalco, in an area home to many of Vietnam's marginalised ethnic minorities.

General Vo Nguyen Giap, who was the strategist behind many of Vietnam's victories over French and US armed forces and who is now 97 years old, has written open letters to the Government warning of growing Chinese influence in Vietnam and of the environmental degradation that might stem from mining in the area. His concerns have been echoed by scientists and economists who have questioned the project's feasibility amid the global downturn.

Some economists worry that contaminants from the messy process of refining bauxite into alumina - a white powder that can be smelted into aluminium metal - could jeopardise other businesses in the area. The Central Highlands produces 80 per cent of Vietnam's coffee and has cultivation of other commodities, such as rubber, pepper and cocoa.

"There are a lot of people in Vietnam who have benefited from economic liberalisation, and have televisions and microwaves and so on, but they are also living on crowded and polluted streets and quality of life is becoming a bigger issue," says Carlyle Thayer, a professor and Vietnam expert at the Australian Defence Academy in Canberra. "There is now a degree of technocratic expertise emerging to challenge the Communist Party."

Deputy Prime Minister Hoang Trung Hai pledged in an environmental seminar in Hanoi on April 9 to impose strict controls over the open-cast bauxite project, which would leave deep scars on the Central Highlands plateau.

The issue is likely to stay on the front burner, however, thanks to virulently anti-Chinese sentiments expressed by many in Vietnam's environmental lobby.

China, which has been investing in mines around the world, fought a border war with Vietnam in 1979. For about 1000 years until the 10th century, China colonised Vietnam, and many of Vietnam's historical heroes fiercely resisted Chinese rule.

By comparison , there has been little outcry against a unit of US-based Alcoa , which is conducting a feasibility study for a possible alumina refinery in southern Vietnam. The world's largest aluminium producer, UC Rusal, meanwhile, is planning a joint venture to build a $US1.5 billion alumina refinery in southern Vietnam.

By James Hookway - The Australian / The Wall Street Journal - May 1st, 2009