VIETNAM-CHINA: FROM CROSS-BORDER TRADE TO MUTUALLY BENEFICIAL DEVELOPMENT OF BORDER REGIONS

Despite all the difficulties in the development of relations between Vietnam and China in the past, XX century, especially in the period from the second half of the 1970s and up to 1990, when, for political reasons, tensions persisted, reaching military clashes, in the XXI century, these countries show extraordinary growth in all areas of mutual trade and economic activity. activities.

Trade deals between the two countries have been growing at an unprecedented rate - about 40% per year over the past 5 - 6 years1 .

While Vietnam exports a large amount of crude oil, coal, coffee, seafood, vegetables, and footwear, China has seen an increase in exports of pharmaceutical products, machinery, equipment, refined products, fertilizers, and motorcycle and automobile spare parts.

In 2004, the bilateral trade turnover between the two countries reached 7.91 billion US dollars. In the first 6 months of 2005, Vietnam's exports to China totaled $ 1.26 billion (ranked 4th among Vietnam's trading partners after the United States, Japan, and Australia), while imports from China totaled $ 2.7 billion (ranked 1st).² . It should be borne in mind that due to the huge difference in the scale of the economies of these two countries, their mutual trade is much more significant for Vietnam (more than 12% of the total volume of foreign trade) than for China (about 0.6%).

As actual growth has consistently outstripped policy targets in recent years, Vietnam and China have decided to increase their planned trade volumes from $ 10 billion to $ 15 billion by 2010. And the target of $ 10 billion is now expected to be reached by the end of 2007 (Figure 1). Regardless of the attitude to the planned economy, such adjustments show an enviable optimism, and the growth rate of economies allows us to hope for the fulfillment of these indicators.

Such impressive results were achieved, among other things, thanks to the extensive practice of using the advantages of cross-border trade by both countries, the development of which went through several stages.

AS AN EXPERIENCE, THE "WILD" CHINESE MARKETS ARE ALSO GOOD

At the initial stage, only two forms of cross-border trade were allowed in the PRC: "cross-border people's markets" for the exchange of goods (barter) at a distance of no more than 20 km from the border, and "cross-border small trade", carried out by Chinese small and medium-sized businesses registered in border areas and having appropriate permits, with foreign trading companies border areas of a neighboring state through established border checkpoints, and this type of trade could be either barter or monetary ³ .

It is noteworthy that all the costs and risks in this trade were borne by private businesses. At the end of 1984, the State Council of the People's Republic of China approved "Temporary methods for regulating small-scale cross-border trade", which for the first time formulated "five actions" that a participant from the Chinese side had to perform independently:

1. Search for resources yourself.

2. Search for sales channels yourself.

3. Negotiate on your own.

4. Keep the balance yourself (determine the equivalent quantity of goods).

5. Be responsible for your own profits and losses ⁴ .

Vietnam, guided by the Chinese model of building "market socialism", also used its experience in the field of cross-border trade.

The Chinese are currently trying to give a second wind to barter trade, which is typical of the initial stages of market transformation. Although many countries, including Russia, have abandoned this type of operation, the prospects for barter trade with Vietnam remain. The main argument of opponents of barter is that as a result, the buyer receives goods of poor quality and at inflated prices.

Chinese analysts are confident that if Vietnam refuses to trade goods, some Chinese enterprises will suffer large losses, but Hanoi is quite favorable to the practice of barter trade, which, among other things, allows it to ensure such a significant increase in trade with China in recent years.

Of course, one of the main motivations for the development of cross-border trade for both countries was the desire to boost the economy of the border regions, which is often the main reason for the development of cross-border trade.-

Figure 1. Trade volumes between China and Vietnam, including planned ones.

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some of the most backward countries on both sides of the border.

GATE TO GATE DISCORD

After the normalization of bilateral agreements in the early 1990s, cross-border trade began to be carried out in specially created zones of cross-border trade through border gates (Table 1), the main types of which were determined by the decision of the Government of Vietnam dated March 14, 2005.:

International border-gates - checkpoints for citizens and goods of Vietnam, border countries and third countries.

The main border-gates, unlike the international ones, are intended for the passage of citizens and goods only in Vietnam and border countries.

Auxiliary border - gates-designed only for the passage of citizens and goods from the border trade zones ⁶ .

The most important step in the development of cross-border trade relations between China and Vietnam was the signing of the Land Border Agreement on December 31, 1999. According to Vietnamese experts, this agreement played a role in somewhat weakening the position of smugglers on the Vietnam-China border, as the demarcation, although not final, allowed for more precise border security. Up to and including 1999, the turnover of illegal cross-border trade was $ 1 billion annually. ⁷

If we take into account that the length of the Vietnam-China border is 1200 km, the average density of checkpoints, one for every 60 km, can be considered quite high.

Most of the cross-border trade areas (table 2), as expected, were created on the main transport arteries of the border regions. So, Mongkai is located on the seaside direction, Langshon - on the main railway line, and Laokai - on the Red River (Hongkha).

CLOSER TO THE BORDER - HIGHER ECONOMIC GROWTH RATES?

An example of the effectiveness of creating cross-border trade zones is the North Vietnamese province of Lang Son. The expansion of cross-border trade significantly contributes to the rapid economic growth of the province. Since the establishment of the border trade zone in Lang Son Province, about 300 enterprises and 100 Chinese trading firms have started operating there. Between 1997 and 2001, the province's total trade turnover was almost $ 2 billion, with an average annual growth rate of 20.8%^.9

In order to boost cross-border trade, Vietnam and China organize joint exhibitions and fairs, one of which was held on November 13-18, 2003 in the northern Vietnamese province of Laocai. At the fair, enterprises of both countries presented seafood, vegetables, fruits, electronics, handicrafts, construction materials, machinery and mechanisms in 400 pavilions. In 2005, it was planned to increase mutual trade turnover only through the gateway in the province of Lao Cai to $ 500 million. ¹⁰

Although official statistics on cross-border trade are published on an irregular basis, the available data provide an indication of the importance of the existence and use of cross-border trade in Vietnam as a whole.

Table1

List of border gates* of Vietnam-China trade* * ⁵

-----

* The table shows the Vietnamese names of border gates.

** Border gates officially opened by the end of 2001 are highlighted.

Table 2

Geographical reference on the border areas of Vietnam and China ⁸ *

-----

* The table shows Vietnamese names.

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development of such foreign trade operations. The cross-border trade turnover of about $ 1.5 billion in 2002 accounted for about half of Vietnam's total trade with China. According to the General Tax Administration of the Socialist Republic of Vietnam, these figures increased to $ 2.3 billion ^{in 2004.11}

THREE COMPONENTS OF THE CROSS-BORDER TRADE DEVELOPMENT PROGRAM

To ensure the further progressive development of such a significant sector of the economy, the Government of Vietnam adopted a special program for the development of trade and economic relations with China in the border areas, the main theses of which are given below:

1. Trade and economic cross-border relations between Vietnam and China should develop in the spirit of a policy of renewal, on the basis of equality and mutual benefit.

2. They should have an effective and positive impact on the socio-economic development of border regions and countries in general.

3. The development of these relations should be regulated by the leadership of both countries.

The goals of this program were formulated:

1. Increase the pace of development of cross-border trade and economic relations.

2. In 2000-2010, the growth rate of exports in cross-border trade should average 30-32% per year.

Measures are defined to ensure the formulated goals:

1. Expansion of relations in all spheres: trade, services, tourism, etc.

2. Development of interbank relations to simplify the system of interbank monetary settlements in the field of cross-border trade.

3. Search for measures to maintain stable growth rates of exports and imports.

Among the methods and methods of achieving the set goals, the main ones were recognized as::

1. Develop a specific plan for the development of these relationships.

2. Transformation of the structure of trade so that it corresponds to the processes of industrialization and modernization.

3. Construction and development of infrastructure in the border provinces of North Vietnam.

4. Encourage investment in the development of border provinces and these relations in general.

5. Development of the scientific and technical component of these relations ¹² .

All the points of this program seem obvious and reasonable, but what is much more important is that they are supported by practical steps.

In its plans to expand cross-border trade, Vietnam takes into account, and not without reason, the interest of its Chinese partners.

In 2005, the China Construction Bank signed an agreement with the Vietnam Investment and Development Bank to regulate cross-border trade. In particular, after a year of negotiations between the two banks, their branches in the Chinese border province of Guangxi and the Vietnamese border province of Quang Ninh have established partnerships. They reached mutual understanding on the legal support of cross-border trade and the development of rules for mutual settlements between the parties, which, according to experts, will help increase the profitability of this business and give a new impetus to its development as part of international trade ^.13

THE GATE IS JUST THE BEGINNING OF THE CORRIDORS

The leaders of China and Vietnam are aware of the need to develop fundamentally new approaches for the further development of border regions. So, the idea of creating "economic corridors" that would promote some of the advantages of cross-border trade deep into neighboring countries looks very promising. The agreement on their formation was reached in 2004 at a meeting of the heads of both states in Beijing. One economic corridor will link southwest China's Yunnan Region (Kunming City) through Vietnam's Laocai Province to Hanoi and the port of Haiphong in Quang Ninh Province. Another economic corridor will start from the Chinese city of Nanning in Guangxi Province and run through Vietnam's Lang Son Province to Hanoi and Haiphong. The Gulf of Tonkin Zone will become a free economic zone ¹⁴ . The Kunming Corridor will help Vietnam achieve one of the most important development goals of the country - revitalizing the economy of poorly developed mountain provinces (Figure 2).

For China, this is also very important for the development of the south-western, most backward parts of the country. Although Vietnam is the most important trading partner of Yunnan Province, data on the volume of trade turnover between this province and Vietnam are not impressive: in 2003, it amounted to only 280 million dollars, which is, nevertheless, ^{53% more than in 2001,15}

The construction of corridors affects various areas and will contribute to the development of trade, investment, technical cooperation, tourism, etc. According to some experts, the opening of these corridors may be even more important than the formation of the ASEAN-China Free Economic Zone.

Hanoi and Beijing agreed that the main focus should be on transport

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infrastructure,including in order to meet the needs of China and the ASEAN countries in transit traffic. Railways and highways connecting the provinces through which the economic corridor will pass will be upgraded, and a new expressway and railway will also be built. At a meeting in August 2004, the heads of four administrative divisions of Vietnam actively discussed the problem of increasing the capacity of the railway on the Laocai-Hanoi-Haiphong section and the highway on the Laocai-Hanoi-Quang Ninh section in order to ensure the transportation of an ever-increasing flow of goods, especially from the ports of Haiphong and Kailan to China and in the opposite direction. A bridge is planned to be built in Laokai to link the city with Yunnan Province in 2006, and a container terminal with a daily cargo turnover of 1,000 containers will be put into operation.

By 2007, about 1.3 million tons of apatite, 0.5 million tons of coke and 0.5 million tons of iron ore will be transported annually from China via Lao Cai. The volume of cargo transportation from the Chinese province of Yunnan will significantly increase. At a working session with the leadership of Lao Cai Province in January 2005, the Chinese Ambassador to Vietnam stressed that the annual demand for rail transportation on the Kunming-Haiphong route will increase from 3 to ^{4 million tons of cargo in 2005 to approximately 7 to 8 million tons in 2010.16}

As part of the construction of the economic corridor, Vietnam and China are trying to coordinate efforts to promote cross-border and transit trade. At the same time, the key export positions of Yunnan Province are electromechanical products, telecommunications equipment and chemicals, while Vietnam mainly exports agricultural products, timber, seafood and minerals.

The planned agreement to transport fresh vegetables and fruits, as well as frozen seafood, by Vietnamese road companies deep into Yunnan Province (300 - 460 km from Lao Cai) will help reduce the costs of local exporters.

FROM STREET TRADE TO SUPERMARKETS

In order to improve the infrastructure of cross-border trade, the quality of work of commercial enterprises and customer service, the Vietnamese plan to establish shopping centers and supermarkets in cities near the border, exchange trade information, organize forums and fairs ^.17

According to the author's own impressions from visiting Vietnam's border trade zones, this trade has now become more organized. Spontaneous markets and chaotic retail outlets were replaced by organized shopping malls and multi-storey shopping centers. The range of products sold is quite wide: textiles, clothing and footwear, ceramics, kitchen utensils and a huge number of audio, video, computer equipment and household appliances. Almost all products sold in such centers have a lower price, 30 to 70% lower than in Hanoi. However, the payment for such low prices for buyers is often the lack of manufacturer data, technical descriptions, warranty obligations and, as a result, reasonable doubts about the quality of the purchased products.

It can be said that the economy of border towns depends almost entirely on trade and works for it. Both Chinese and Vietnamese trade directly near the border gate. Further, in the territory of the Socialist Republic of Vietnam, sellers of Chinese goods are already exclusively Vietnamese. A typical day at the border begins with the passage of the border gate by Chinese people who have a special pass valid in a limited area. From early morning, a lively trade begins, which subsides somewhere by 5-6 pm.

Border trade markets and centers are visited not only by residents of neighboring districts, but also by small entrepreneurs from other regions. For example, they resell electric and household appliances purchased at the border at a cheap price without instructions or with documents in Chinese in their cities and provinces much more expensive, providing them with the appropriate documents in Vietnamese.

PLUS TOURISM, BANKS AND CUSTOMS

Tourism in the economic corridors also has great potential. The provinces of both China and Vietnam are very picturesque, and they hope to attract tourists from Europe, China and Vietnam by offering them original tours.

Visa issuance to Chinese tourists is expected directly in the border areas of Vietnam. In the future, the authorities of cities and provinces of Vietnam that are part of the economic corridors plan to receive tourists from various regions of China, including Beijing, and for trips to Laos, Myanmar and Thailand.

Changes in the economic corridor zones are not limited to infrastructure development, of course. The authorities of Hanoi, Haiphong, Quang Ninh and Lao PDR are going to propose to the Central Bank of Vietnam to allow commercial banks of the border regions to cooperate with commercial banks of the Chinese province of Yunnan to provide payments in the form of a documentary letter of credit in local currency. Lao commercial banks and their partners in Yunnan have been using this type of settlement in Vietnamese dong or Chinese yuan since December 31, 2003, facilitating and protecting transactions between Vietnamese and Chinese entrepreneurs. Lao Cai has so far been the only place in Vietnam where this type of transaction payment has been applied.

With regard to improving customs procedures, the Lao Cai provincial government has proposed that the Vietnamese central Customs Department conduct a" one-time " inspection of goods in the border area, during which Vietnamese and Chinese customs officials jointly check goods and goods at the same time.-

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menno sign permits that are equally legal in both Vietnam and China ¹⁸ .

TRANSIT THROUGH THE DEFICIT?

However, not everything is so rosy in trade and economic relations between the two countries. A big problem for Vietnam is the large trade deficit with China. According to economists ' estimates, if Vietnam continues to increase its exports to China by an average of 14.6% per year, its volumes will reach only no more than $ 6.51 billion by 2010,19 while China will export several times more. This will also mean that by 2010, the Vietnamese market will be even more flooded with Chinese goods, and the share of Vietnamese exports in bilateral trade will decrease proportionally.

Thus, the most important issue for Vietnam is to increase exports to China, and Vietnam, as it seems, should not continue to export only raw materials to China. Vietnam needs to attract more investment from the PRC for the reconstruction and creation of new processing plants that can act as "subsidiaries" of the Chinese and supply goods to the Chinese market. This decision is currently seen by many Vietnamese entrepreneurs as being able to help the country increase its exports to China, primarily through high-tech goods.

The predicted qualitative leap in the development of economic relations between Vietnam and China with the participation of third countries is associated with the ASEAN - China Agreement signed in 2003, according to which a common CAFTA (China - ASEAN Free Trade Area) is being created within 10 years. Under this agreement, China and the 6 most developed ASEAN countries will already partially open up the service sector and investment markets to CAFTA 2005 participants. This process is expected to be completed by 2010. Four other ASEAN members (Cambodia, Laos, Myanmar and Vietnam) are expected to complete the process by 2015.

The new free trade area could enable Vietnam to become a transit country for the transportation of goods from ASEAN to China and vice versa. Vietnam's northern province of Lang Son, which has a railway and highway connection to China, will become an official testing ground for a qualitatively new level of trade between China, Vietnam, Thailand, Laos and Cambodia.

Several international economic corridors are planned to be created by the Greater Mekong sub - regional organization of the Mekong River Countries, which includes Vietnam, China, Laos, Cambodia, Thailand and Myanmar, in accordance with the plans for the development of transport infrastructure in Southeast Asia (Figure 3)^.20

In addition to the described corridors linking Nanning and Kunming in China with Hanoi and Haiphong in Vietnam, which are united under the name "North - South" in the documents of the "Greater Mekong", it is planned to create East-West and two "South" corridors, each of which will pass through the territory of Vietnam. The implementation of this ambitious project will affect the interests of 70 million residents of the Mekong Valley. Four of these major transport routes in the sub-region will have access to the South China Sea on the coast of Vietnam, which once again confirms the important strategic position of Vietnam.

-----

¹ China, Vietnam Find Love //Asia Times Online, 21.07.2005.

² Vietnam Economic News. Hanoi, 2005, N 32, p. 39 - 40.

^{Nyrova N. N.} 3 Chinese companies of cross-border trade and their place in international criminal activity. - In the collection: Problems of combating the manifestations of the criminal market. Vladivostok. 2005, pp. 145-178.

⁴ Ibid.

^{Nguyen Minh Hang.} 5 Buon ban bien gioti Vi$t Nam - Trung Quoc ljch su - kien trang - trien vong. Ha Noi, Nha xuat ban khoa hoc xa hoi. 2001, tr. 9 - 10.

⁶ Vietnam Law & Legal Forum. Official Gazette. Hanoi, 17.03.2005, N 14, p. 28 - 29.

⁷ Vietnam and China Sign Landmark Border Treaty - www.vietnam-on-line.com/hph/Nam quanthuonghan1/ChinaandVietnamsigned.htm

^{Nguyen Minh Hang.} 8 Op.cit., tr. 15.

⁹ Special Zone Spurs Vietnam-China Border Trade // Asia Times Online, 11.05.2001 -www.atimes.com/se-asia/CD11Ae05.html

¹⁰ People's Daily, 11.07.2003.

¹¹ Vietnam Economic News, Hanoi, 2005, N 9 - www.ven.org.vn

^{Nguyen Van Lich} 12 (c.b.). Phat trien thu'o'ng mai tren hanh lang kinh te Con Minh-Lao Cai-Ha Noi-Hai Phong, NXB Thong ke. Ha Noi, 2005, tr. 60.

¹³ www.ccb.cn/portal/en/about/ccbl41.shtml

¹⁴ China, Vietnam Find Love...

^{Nguyen Van Lich (c.b.),} 15 Op.cit., tr. 199.

^{Dong Phong.} 16 Vietnam-China Economic Corridor Taking Shape // Forum (The Weekly Magazine of the Vietnam Chamber of Commerce and Industry). Hanoi, 2005, N 4 - 7, p. 190 - 193.

¹⁷ China, Vietnam Find Love...

¹⁸ Ibid.

^{Quynh Chi.} 19 US $15 Bin Trade Value by 2010 // Vietnam Business Forum, August 2 - 8, 2005.

^{Coyle W.T.} 20 Asia-Pacific Transportation Infrastructure. Linking Food Sources to Urban Centers // Amber Waves, 2005. Washington DC. V. 3(4), p. 12 - 19.

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