Vietnam's Ministry of Investment and Planning issued a warning to its government about official development assistance and preferential loans from China, saying that many such projects have been poorly executed and cost Hanoi more than expected.

High interest rates charged on the funds, project overruns and a lack of local content were cited as problems found in Beijing ODA.

In a report sent to Prime Minister Nguyen Xuan Phuc, cited by local media on Aug. 14, the government agency said that Chinese funds are generally less preferable to assistance from other countries. Loans and aid provided by China charge annual interest rates of 3%, higher than Japan's 0.4% to 1.2%, South Korea's 0% to 2% and India's 1.75%.

Many projects under Beijing's ODA program also progress slowly and are of poor quality, which subsequently led to increases in investment to rectify such problems, according to the ministry.

Vietnam's first subway line, built by Chinese ODA funds, completed its first test in August. The subway in Hanoi is expected to begin commercial operation next year, four years behind schedule. The total investment poured into this project amounted to 18 trillion dong ($770 million), more than twice the original 8.7 trillion dong planned.

As Beijing pushes its Belt and Road Initiative across the region, concerns over China-led projects have intensified. Many of these projects in different parts of Asia use outdated technology and obsolete equipment, Vietnamese academics said. They have asked the Vietnamese government to be more selective about China-led projects, as some countries in the region such as Sri Lanka and Malaysia have become increasingly cautious about Chinese investment.

In Vietnam, ODA and preferential loans still play a big role in development, as they are expected to account for at least 35% of total investment through 2025, according to the ministry.

Nikkei Asian Review - August 15, 2018