The Newsletter 76 Spring 2017

Reflections of a journey on the Kunming-Hanoi Economic Corridor

Benjamin LohTerence Chong

<p>Border towns and cities are increasingly becoming important nodes of development with roads and other infrastructure being built to facilitate flows of people and commodities between countries. More than 90 per cent of border trade with China’s Yunnan province flows through the border towns of Hekou in China and Lào Cai in Northern Vietnam and both countries are working to establish a 1,208km ‘North-South Economic Corridor’ from China's Yunnan province to Vietnam's Northern provinces and cities.</p>

In 2014, we travelled from Kunming to Hanoi through this China-Vietnam economic corridor highway to observe how resource and merchant trade, capital and people flows are conducted at an everyday level, and found that only certain stretches of the highway—on the Chinese side of the border and mostly in Vĩnh Phúc province in Vietnam—were ready. The highway ended abruptly about an hour into our sleeper bus journey to Hanoi, and traffic was diverted to a parallel truck road to Yên Bái. The conditions along the Yen Bai-Hanoi truck road were treacherous. A continuous line of container trucks marked ‘China Shipping’, cars, motorcycles, and pedestrians navigate a narrow combination of two-lane roadways, paved roads and dirt tracks.

Apart from the question of whether the road infrastructure meets the criteria of being an economic corridor and its ability to generate the purported regional economic development benefits, a closer look at the existing networks of trade—both formal and informal—and their routes reveal specific challenges. Even after the completion of the highway, commercial vehicles transporting goods and travelling from port cities like Hải Phòng may continue to use these truck or parallel roads to avoid toll fees as well as to service commercial or informal transit points along existing routes and towns for both formal and illegal trade.

In addition, Yên Bái continues to be an important transit hub of Northern Vietnam. It lies on a major railway freight corridor between China and Vietnam, and a network of truck roads from Yên Bái connects to the neighbouring provinces of Hà Giang—which shares a remote and mountainous 270 km border with Yunnan province of southern China, and is a known route for the smuggling of rhino horns, elephant tusks, as well as a rare and valuable timber called Ngọc Am—and Sơn La which is a gateway province to Laos. This network of trade routes is expected to compete with the Nội Bài-Lào Cai highway, despite the latter’s more direct and time-saving route to Hanoi and Hải Phòng.

Intensified smuggling and illicit trading activities are also rampant in the two border towns. Vietnamese boatmen smuggle local rice and raw materials like rubber and bauxite along the Red River under cover of night across to Yunnan. Conversely, we were informed that other smuggled goods from Yunnan into Vietnam include pesticide and vegetables. Machinery from China is dismantled and their parts smuggled across the border, to be reassembled in Vietnam. We were also informed of larger scale smuggling over the Gulf of Tonkin. Large amounts of coal and bauxite are transported this way.

There were also an array of furniture shops selling wooden furniture and woodcarvings in the border town of Lào Cai along the economic corridor. “The wood is from Laos”, the shop assistant reluctantly revealed after some inquiry about a set of throne chairs with intricately-carved panels of dragons and flora set against its back. The craftsmen, however, were from Yunnan. Apparently it is more expensive to transport unfinished or raw wood products directly from Laos to Yunnan than it is from Laos to Vietnam to Yunnan. This is because of the poor road networks between Laos and Yunnan. Teak, mahogany and redwood are, instead, transported from Laos to the Vietnamese province of Bắc Ninh—known for its export-driven handicraft and wood-processing industry—where they are treated, processed, and transported to Yunnan; or made into finished furniture and ornamental craft products before export to China, the United States, Europe, and Japan.

As China’s factory powerhouses in its coastal provinces experience rising costs, its hinterland and lower-wage neighbouring countries like Vietnam are taking over its lower value-added production functions. However, unlike the traditional ‘flying geese’ model of manufacturing based on cheaper labour and greater efficiency that in the 1980s and 1990s saw the migration of factories and production facilities to China and Southeast Asia, the case of wood furniture and the trading of other commodities in the production chain has become more like a spider’s web, with components flitting in all directions and goods crossing and re-crossing borders – Lao wood is processed in Vietnam, crafted by Yunnanese labour employed by Bắc Ninh factories, and transported to China as if it were made in a single Chinese factory.

Benjamin Loh, Fellow, ISEAS-Yusof Ishak Institute, Singapore (

Terence Chong, Senior Fellow, ISEAS-Yusof Ishak Institute, Singapore (