Vietnam’s Special Economic Zones: a Trojan horse for Chinese influence?

The government’s decision to enact a policy creating SEZs with leaseholder incentives for foreign investors has ignited the passions of citizens

Demonstrations against the Special Zone Act in Ho Chi Minh City. AEKKAVICH/Shutterstock

On the ninth of June 2018, scores of Vietnamese took to the streets. The cause of contention: the Vietnamese government’s plans to enact the Special Zone Act, creating three Special Economic Zones (SEZ) across the country.

Located in the provinces of Quang Ninh and Khanh Hoa, and the island of Phu Quoc, these new zones promise investors incentives intended to boost real estate development—including a particularly contentious proposal to extend 99-year land leases to foreign investors.

Protestors fear this incentive may weaken Vietnamese sovereignty. They believe the policy would be exploited by the Chinese—a fear spawned in part by Vietnam’s history of Chinese rule, as well as the more recent and ongoing territorial dispute between the two countries over China’s militarization of several islands in the South China Sea.

In a bid to calm the rising tide of public anger, the government delayed its June 15 vote on the draft SEZ legislation until October. But their attempts to keep the peace failed, as a series of heated and, in some cases, violent protests ensued for three days, resulting to the arrest of around 100 people.

Though the land lease extension remains a significant issue for the Vietnamese people, common views expressed among the real estate community point to the legislation not having much of an impact on Vietnam’s already thriving property market.

“I don’t think it makes a lot of difference for the majority of the investors and developers,” opines David Blackhall, managing director of real estate for Vietnamese investment firm VinaCapital. “If you’re building a commercial building such as a hotel or an office building, you’re on a leasehold anyway, which usually gives you 70 years—and that hasn’t changed,” he points out.

Much of the recent growth in Vietnam’s real estate sector has been confined within the main urban areas of Vietnam, including the country’s capital Hanoi in the north, Ho Chi Minh City to the south, and Danang in the central region. It is the government’s hopes that the SEZs will kick-start development in rural areas, boosting economic development at both the local and national level. On that note, questions have been raised over the decision to include Phu Quoc among the SEZs, as development activity in the island has been gaining traction in recent years.

Giles Cooper, lawyer and co-director at Duane Morris Vietnam, relates, “Phu Quoc doesn’t make sense because it’s just so ripe for investment anyway. I don’t really see why they need to have the special economic zone [incentives there].”


VinaCapital’s Blackhall echoes the sentiment, offering caution that “Phu Quoc is already becoming very developed and could become over-developed if they’re not careful.”

It’s also yet to be determined how Vietnamese authorities intend to ensure all development in the SEZs is environmentally and socially responsible. As Cooper puts it, “What are the policies and procedures that are going to be in place to approve these leases of land to the Chinese or other investors who want to do business in the SEZs? Is it going to be done rigorously and with a clear policy on what is appropriate development and the purpose of use?”

That should be the cause for concern, points out Cooper. “Licensing policy for investments around the country is tightening up and getting more rigorous in these kinds of areas [such as environmental] but there’s a big question mark around how those issues will be dealt with by the people who will be charged with administering the investments in these zones. There is a danger that there is going to be some reduction in the rigour that is increasing generally [across Vietnam] at the moment,” he states.

Vietnam’s real estate has long been underpinned by Asian investment, significantly from Korea and Japan, but more recently, Chinese investors have been eyeing opportunities in the sector.

Stephen Wyatt, head of country for JLL Vietnam, affirms this. “We’ve seen a steady increase in investors and developers, and also from individual buyers of residential properties from mainland China over the last two or three years. So, there’s quite a strong interest from Chinese companies,” he says, adding that Vietnam [also] forms part of [China’s] Belt and Road strategy “so it’s strategically located for the Chinese and therefore a pretty important market for them to have access to.”

That said, Wyatt isn’t convinced that an extension to land leases would result in Chinese investors flooding the market. “The Chinese investment strategy has been to follow the belt-road strategy—meaning, their investment has to follow infrastructure or has to follow an industrial theme. They’re not supposed to be coming into markets and just building residential properties. So yes, there will be interest from Chinese groups,” says Wyatt, “but I don’t see them coming in and dominating the market.”

Either way, it is quite apparent that before the legislation is enacted, the Vietnamese government needs to allay public concerns over the extent of China’s involvement in the SEZs, particularly as Chinese interests in the Vietnamese market increase.

Communist Party General Secretary Nguyen Phu Trong is well-aware of this. At the time of the protests, he was quoted by Tuoi Tre saying, “The party of President Ho Chi Minh is for the country, for people, and no other purposes. No one is that foolish to hand over land to foreigners for them to mess us up. No one would be that naive.”

Despite this, there’s a consensus that the government will likely row back on its policy, with Wyatt predicating “a reduced and watered-down version to keep everyone happy.”

Whether that will be successful in assuaging the fears of ordinary Vietnamese – preconditioned to be suspicious of the giant to the north – is another question entirely. After all, when it comes to perceived Chinese hegemony, passions have a habit of running high.

This article originally appeared in Issue No. 150 of PropertyGuru Property Report Magazine