China and Vietnam Eye Bold Rail Enhancement Plan, Amplifying Tensions Amidst Economic Partnerships

China and Vietnam are in discussions to enhance their rail links, with a particular focus on a line that traverses Vietnam's rare earths reserves and connects to the country's main port in the north. These talks come in preparation for a potential visit by Chinese President Xi Jinping to Hanoi in the coming weeks, highlighting Vietnam's increasing importance in global supply chains as major powers, including the United States, vie for influence in the region. The upgrade of the railway, which would link the southern Chinese city of Kunming to the port city of Haiphong, was called for by Vietnamese Prime Minister Pham Minh Chinh in a recent statement.

The existing rail connections between the two countries are outdated and lack capacity on the Vietnam side, requiring transfers at the border. The upgraded railway would pass through Vietnam's largest rare earths deposits, an area where China currently dominates refining. Vietnam is seeking to develop its own rare earths industry, though internal disputes hamper these efforts. Last week, Chinese and Vietnamese rare earths industry experts discussed potential cooperation on processing the minerals. The exact level of China's financial contribution to the upgraded railway is uncertain, and it is unclear whether the project will be classified under China's Belt and Road Initiative.

A strengthened railway link would have several benefits, including boosting Vietnam's exports of agricultural products to China, attracting Chinese tourists to northern Vietnam, and further integrating the manufacturing industries of the two countries. China is Vietnam's largest trading partner and main investor in 2021, with many Chinese companies relocating operations to Vietnam amid trade tensions with the United States. However, despite these economic ties, the two countries continue to have a longstanding maritime dispute in the South China Sea and fought a brief war in the late 1970s.