China, Vietnam weigh rail link through rare earths heartland

FILE PHOTO: A Vietnamese pupil holds Vietnamese and Chinese flags before the welcoming ceremony at the Presidential Palace in Hanoi
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By Francesco Guarascio and Khanh Vu

HANOI (Reuters) -China and Vietnam are working on a possible significant upgrade of their underdeveloped rail links to boost a line that crosses Vietnam's rare earths heartland and reaches the country's top port in the north, senior officials and diplomats said.

The talks are part of preparations for a possible visit to Hanoi in coming weeks by Chinese President Xi Jinping, officials and diplomats said, which would further confirm Vietnam's increasingly strategic role in global supply chains as major powers including the United States vie to gain influence there.

The two countries agreed to boost trade ties and promote railways connections, according to a readout published on the Vietnamese government portal on Friday after China's top diplomat Wang Yi met Vietnamese leaders in Hanoi.

Vietnamese Prime Minister Pham Minh Chinh had previously called for the upgrade of the railway linking Kunming in southern China to Vietnam's port city of Haiphong in a statement released last month, after China's Commerce Minister Wang Wentao made a rare visit to Vietnam.

Chinese officials have stressed the importance of boosting infrastructure connectivity with their southern neighbour.

Vietnam already has rail connections to China, but the system is old with limited capacity on the Vietnam side. The two systems are also not interoperable at the moment, meaning trains have to stop at the border where passengers and goods are transferred to domestic services.

The upgraded railway would pass through the region where Vietnam has its largest deposits of rare earths, of which China is by far the world's biggest refiner.

Vietnam is trying to build its own industry in what is seen as a possible challenge to China's dominance, but what appear as internal fights have cast a shadow over these efforts.

Chinese and Vietnamese rare earths industry experts discussed last week stronger cooperation on processing the minerals, according to Vietnamese state media.

BELT AND ROAD TRACK?

It is unclear how much China would contribute to the upgraded railway track in Vietnam and whether Hanoi would accept sizeable financing from Beijing on this.

The line could be seen as part of China's flagship Belt and Road Initiative (BRI) which is supporting infrastructure investment across the world, but is not clear whether it would be labelled as a BRI project, one diplomat said.

On Friday, the Vietnamese government said the two countries had completed negotiations to promote connections between infrastructure projects in Vietnam and the BRI.

A strengthened railway link could also boost Vietnam's exports to China, mostly of agriculture products, boost Chinese tourism to northern Vietnam and further integrate the two countries' manufacturing industries, which experts already consider as symbiotic, with factories in Vietnam largely assembling components produced in China.

China is Vietnam's largest trading partner and so far this year is also the main investor, taking into account investment from Hong Kong, as many Chinese companies move south some of their operations amid trade tensions between Beijing and Washington.

Despite the booming economic links, the two communist nations are embroiled in a years-long maritime dispute in the South China Sea and fought a brief war in the late 70s.

(Reporting Francesco Guarascio and Khanh Vu; additional reporting by Phuong Nguyen; Editing by Stephen Coates and Toby Chopra)