‘Foreign-invested project’ doesn’t always mean ‘foreign-financed’

Mr Phan Huu Thang, former head of FIA

Vietnam has been trying every possible way to attract foreign direct investment (FDI) because it needs more capital for economic development. However, in many cases, foreign investors only register investment projects in Vietnam, and seek capital from domestic sources.

An analyst said that in these cases, ‘foreign invested projects’ do not mean ‘foreign financed projects’, and therefore, the FDI does not have much significance.

Phan Huu Thang, a renowned expert on foreign investment, and former head of the Foreign Investment Agency (FIA), said in principle, foreign invested enterprises (FIEs) must not use domestic capital for their production.

However, after 30 years of attracting FDI, Vietnam’s policies have become ‘more flexible’.

According to Thang, in the first 15 years of receiving FDI, there was no foreign investor who borrowed Vietnamese capital to do business. However, in the last 15 years, that has changed partially because Vietnamese commercial banks have become more powerful and capable of funding large projects.

“The banks have capital, but don’t have potential projects to fund. And once the government and the State Bank ‘do not prohibit’ banks to lend to foreign-invested projects, they begin providing capital to the projects,” Thang said.

Vietnam has been laying the ‘red carpet’ to lure foreign investors to Vietnam, offering a many business models, from 100 percent foreign investments, joint ventures and business cooperation contracts.

A report shows that about 80 percent of FDI projects are 100 percent foreign owned.

However, this figure is inaccurate because it counts projects registered by foreign investors but developed with Vietnamese capital.

According to the State Bank, the outstanding loans provided to foreign invested enterprises are about VND100 trillion. In 2015-2016, a series of contracts on providing loans to foreign invested enterprises were signed.

VietinBank signed a contract on providing a loan worth $7.6 million to Medochemie Company to run the injectable drug manufacturing plant in Binh Duong province.

VIB and Vietcombank signed a contract on the syndicated loan of VND540 billion with Hong Kong’s TexHong Group, which plans to build a factory in Quang Ninh.

An analyst said that foreign investors tend to borrow money in Vietnam because it is not easy to seek loans in foreign countries.

Thang said that many investors prefer borrowing capital in Vietnam, especially those from Taiwan and South Korea who are small investors.

In 2015, VietinBank’s loans provided to foreign invested enterprises increased by 37.5 percent compared with 2014. The bank has reserved a credit package worth VND20 trillion to fund enterprises.