Public Anger Prompts Vietnam to Put the Brakes on Investment

Updated on
  • Work at Hong Kong-owned paper mill delayed pending trial run
  • Nation dependent on investors must weigh environmental costs

To Nguyen Tan Phong, a farmer in Vietnam’s Mekong Delta, the foreign-owned paper mill built upriver from his catfish ponds was an ecological disaster waiting to happen.

Phong feared a repeat of last year’s toxic spill from a steel plant owned by Taiwan’s Formosa Plastics Corp. that devastated central coast fishing communities and cut annual economic growth by 0.3 percentage point.

Then something happened that Phong didn’t expect: The central government abruptly delayed last summer’s scheduled opening of the $1.2 billion mill owned by Hong Kong’s Lee & Man Paper Manufacturing Ltd. It’s now undergoing stringent environmental tests to get final approval.

Lee & Man paper plant in Chau Thanh District, Vietnam.

Photographer: Luu Van Dat/Bloomberg

“Local governments used to accept foreign direct investment projects because they brought in huge amounts of capital,” Phong, 65, said last month. “Now, because of environmental concerns, they dare not accept it.”

Rattled by the outpouring of public anger over the Formosa incident, Vietnam’s Communist leaders are rethinking the strategy of courting foreign investment at almost any cost. Now they are vowing to reject environmentally harmful investment and introduce regular factory inspections to ensure companies comply with the law.

Minister of Natural Resources and Environment Tran Hong Ha has ordered provincial officials to make regular checks at factories a “key task in 2017” to help “better prevent and handle any environmental violations”, according to a Jan. 19 posting on the government’s website.

Communist Legitimacy

Finding the right balance will be key. With foreign companies contributing more than 70 percent of export revenue, the government faces pressure to avoid hurting an economy that grew 6.21 percent last year -- one of the highest rates in Asia. Disbursed foreign direct investment climbed 9 percent to a record $15.8 billion.

Lee & Man said that it’s installed new waste facilities at the paper mill. It’s now undergoing a trial run that will continue into February, according to an e-mailed statement from the company.

The public outcry over Formosa prompted a reaction from Vietnam’s leaders in part because they are realizing that environmental risk can threaten the legitimacy of the Communist Party, said Nguyen Xuan Thanh, a Ho Chi Minh City-based senior fellow at the Harvard Kennedy School of Government. That will be tested by powerful state-owned enterprises, influential private companies and a growing number of coal-fired power stations to meet increasing demand for electricity, he said.

Economic Disaster

“It’s the dilemma China faced 20 years ago,” Thanh said.

Until last April’s toxic spill in central Ha Tinh province, the government paid little heed to the environment as it opened the country to outside investors, according to Pham Chi Lan, who served as an economic adviser to former Prime Minister Phan Van Khai. That created “favorable conditions for polluters,” she said, adding that now the government realizes that environmental disasters can hurt the economy. The Ministry of Natural Resources and Environment didn’t immediately respond when reached by phone.

Ha Tinh saw a 17 percent drop in growth after the Formosa spill devastated the local tourism and fishing industries. Prime Minister Nguyen Xuan Phuc has said he will shut down the steel mill if it happens again, and has ordered officials to closely monitor other projects.

After the disaster, government officials found 53 violations from the company. Formosa took full responsibility and agreed to pay $500 million in compensation. Vietnam last month said it would punish four government officials over the incident.

Vietnamese demonstrate in Taipei against mass fish deaths in June 2016.

Photographer: Sam Yeh/AFP via Getty Images

Even so, government oversight is so lax that for most foreign enterprises the cost of complying with local environmental standards in Vietnam is as much as 50 percent less than in their home countries, said To Trung Thanh, an associate professor at the National Economics University in Hanoi.

Violations Rampant

A study from the university in 2015 found that nearly two-thirds of foreign-invested enterprises discharged more waste than local regulations allowed, while 23 percent of companies released 12 times the proscribed limit.

It remains unclear if the environmental commitments in Hanoi will filter down to far-away provinces, where officials are more apt to ignore environmental risks when deep-pocket foreign investors come calling, said Le Anh Tuan, deputy head of the Institute of Climate Change Research at Can Tho University, south-west of Ho Chi Minh City.

In the Mekong Delta, officials are taking environmental concerns seriously. Truong Canh Tuyen, vice chairman of Hau Giang People’s Committee, said that Lee & Man’s plant will be allowed to open only if it meets the required standards.

Nguyen Van Chien

Photographer: Luu Van Dat/Bloomberg

Nguyen Van Chien, who exports seedless lemons to Europe from his 100-hectare farm 19 kilometers from the mill, said no amount of safeguards will be enough to calm his fears.

“I don’t think we should have that factory here," he said this week. “This place is for agriculture.”

— With assistance by Mai Ngoc Chau

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