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Recognizing Lao Cai's strategic advantages in economic, social, and national defense and security development, the Politburo issued Resolution No. 11-NQ/TW on February 10, 2022. This resolution, titled "Directions for Socio-Economic Development, Ensuring National Defense and Security in the Northern Midlands and Mountainous Regions until 2030, with a Vision to 2045," designates Lao Cai as a key economic trade connection hub between Vietnam and ASEAN countries with Southwest China.

Lao Cai, a mountainous and highland border province, lies at the junction of the Northeast and Northwest regions of Vietnam. It shares a 182.086 km long border with Yunnan province in China. In the evolving landscape of economic and trade cooperation between Vietnam and China, Lao Cai's border gate system plays a crucial role. Currently, the province has two pairs of international border gates, two local border gates, and seven border openings (Lao Cai master planning for the period 2021-2030, vision to 2050). By 2030, it is expected that there will be two more pairs of international border gates: Muong Khuong, Lao Cai - Jiedao (Yunnan); Ban Vuoc, Lao Cai - Basha (Yunnan) (Decision 1199/QD-TTg dated October 14, 2023, by the Prime Minister approving the planning of border gates on the Vietnam - China land border in the period 2021 - 2030, vision to 2050).

These developments underscore Lao Cai's strategic importance as a trade and economic hub, poised to facilitate increased economic cooperation and integration between Vietnam, ASEAN countries, and Southwest China.

Advantages of Trade and Market Development in Lao Cai

Lao Cai possesses significant strategic advantages that position it as a pivotal hub for trade and market development, both currently and in the future:

Central Location in the Highland Border Province: Lao Cai occupies a crucial position along the strategic belt encompassing Dien Bien, Lai Chau, Lao Cai, Ha Giang, Cao Bang, and Quang Ninh. This region serves as a pivotal transition point between the Northeast and Northwest provinces of Vietnam. Despite being part of economically similar and historically poorer provinces, Lao Cai stands out due to its well-developed transportation network, facilitating seamless connections not only within this belt but also with the economically vital Red River Delta.

Integration with Regional and International Economies: Vietnam has actively pursued an open economic policy, strengthening bilateral and multilateral relationships while preparing its economic and technical infrastructure for regional and international integration. This proactive approach ensures that border provinces, particularly Lao Cai, receive significant attention in terms of investment capital and priority policies aimed at fostering economic development and societal advancement. As a result, Lao Cai's economic standing, particularly in the realm of foreign trade, is steadily gaining recognition from economists and governments on both sides.

Access to the Expanding Chinese Market: China represents a substantial market with rapidly increasing import demands. Vietnam and China have forged strong trade relations, exchanging vital export commodities such as rubber, fruits, cashew nuts, pepper, and rice. This robust economic partnership is poised to expand further, exerting significant pressure for enhanced trade activities across border provinces, including Lao Cai.

Lao Cai's mineral potential has gained substantial relevance with the state's implementation of economic restructuring towards industrialization and modernization. This initiative plays a pivotal role in establishing large-scale industrial zones and clusters, which in turn drives the development of consumer demand on a broader scale. This dynamic fosters the emergence of various markets within the province, including those for consumer goods, construction materials, machinery equipment, raw materials, capital, and labor.

The mineral exploitation and processing industry in Lao Cai capitalize on its abundant reserves and high mineral content, essential for boosting local income and purchasing power. This development addresses both the quantity and quality of consumer demand, enhancing the effectiveness of commercial activities. Furthermore, it necessitates the advancement of commerce to better meet the evolving needs of the population in terms of both form and quality.

Additionally, Lao Cai's significant tourism potential presents a notable advantage, particularly amid growing global interest in natural and cultural exploration. Tourism profoundly impacts market development and commercial activities by creating employment opportunities, increasing income for local residents, and thereby enhancing consumption patterns in terms of both quantity and sophistication. Moreover, tourism supports the development of traditional industries in the province. The market for local products, including specialties and handicrafts, is particularly well-positioned for growth. The interaction between tourists and locals accelerates the province's transition from a subsistence economy to a market-driven one, fostering concentrated production of commercially viable products.

Limitations and Challenges

The primary challenge in developing trade and markets in Lao Cai province stems from the province's production capabilities. Lao Cai is categorized as moderately developed within the country, with its GRDP per capita rising from 20.84 million VND in 2010 to 77.8 million VND in 2020, marking a 3.7-fold increase. By 2021, the GRDP had reached 82.3 million VND. While these figures represent significant growth, the province's social development level has yet to fully support a robust trade environment capable of guiding and energizing production activities and essential factors of production.

Currently, Lao Cai faces a substantial need for investment capital, yet lacks the capacity for self-accumulation. In several aspects, it still relies on financial support from the central government. The endeavor to foster and expand markets and trade through burgeoning tourism and the promotion of industries such as mining, processing, manufacturing, and high-tech agriculture encounters numerous hurdles.

Developing the mineral exploitation and processing industry in Lao Cai presents additional challenges. These include difficult terrain and high investment requirements, coupled with the industry's efficiency concerns amidst the global shift towards high-tech industries and the imperative of environmental protection and sustainable development in each country.

Alongside the challenges in leveraging the province's mineral potential for market development, Lao Cai also faces obstacles in processing and consuming agricultural and forestry products. The complex terrain in agricultural production areas has resulted in insufficient raw material sources to supply large-scale industrial processing facilities.

Furthermore, Lao Cai's market and trade development potential is constrained by its geographical advantages. Compared to Yunnan province in China, Lao Cai is less developed and less competitive, posing a risk of market saturation and gradual loss of market share for local manufacturers. This disparity also increases the vulnerability to smuggling and cross-border trade fraud, potentially reducing the state's commercial benefits. Market fluctuations intentionally caused by China can further disrupt business operations and production activities.

Population distribution, income levels, purchasing power, and consumption patterns present significant limitations. While there has been notable improvement in income levels—averaging 9.8 million VND per capita annually in 2010 and rising to 41.7 million VND in 2021—the capacity for consumer spending remains relatively low. Despite these income gains, the sparse population density and small market size in Lao Cai translate into limited exchange demand, both in volume and pace.

Additionally, low educational attainment levels and traditional practices among ethnic minorities in the province pose significant barriers to industrialization and modernization demands. These factors also hinder market generation and development from the demand side.

These challenges and limitations paint a comprehensive picture of Lao Cai's trade and market landscape, highlighting critical areas for improvement and strategic intervention.

a. Regarding market capacity and circulation channels

The total demand for consumer goods has grown significantly, driven by rising per capita income and increasing expenditures on goods, which now comprise 70.6% of total income, up from 61.9%. This trend has reduced the self-sufficiency rate. From 2011 to 2015, the growth rate in total retail sales of goods and consumer service revenue was 17.8% per year. In the subsequent period of 2016 to 2020, the growth rate moderated to 12.7% per year, followed by an increase to 16.3% per year from 2020 to 2022. Despite these improvements, Lao Cai's per capita consumption remains relatively low: in 2015, it stood at 20.1 million VND, equivalent to 63.8% of the national average, and by 2020, it had risen to 33.0 million VND, still at 64.6% of the national average (Lao Cai planning for the period 2021-2030, vision to 2050).

Commercial infrastructure in the region is undergoing gradual upgrades, renovations, and new constructions, diversifying its offerings and enriching the local market landscape. Currently, Lao Cai boasts 72 markets, with 30.5% located in urban areas and 69.5% in rural areas. On average, one market serves 10,176 people within a service radius of 5.3 km. The province also hosts 2 commercial centers and 12 supermarkets, primarily concentrated in Lao Cai city and Sa Pa town. Additionally, there are 87 petroleum outlets strategically positioned along traffic routes, complemented by a warehouse with a capacity of 4,000 m3.

In the context of a mountainous, highland, border province, the goods movement channels in Lao Cai province have unique characteristics. Specifically:

(i) Goods flow channels moving directly through the province: These channels most prominently reflect Lao Cai's geographical advantages in border trade between Vietnam and China. This circulation channel is primarily evident in the movement of certain imported goods from China, such as industrial chemicals, gypsum for cement production, cigarettes, DAP fertilizer, and potatoes. These goods are imported and consumed in other regions of the country, especially the Red River Delta. Conversely, the flow of Vietnamese goods originating from localities other than Lao Cai is still small and on a limited scale.

(ii) Inflows of goods to serve production and consumption needs in Lao Cai province: The flow of goods to Lao Cai has significantly improved in both scale and variety. However, due to the market's low purchasing power and limited capacity, the flow of goods to Lao Cai primarily consists of consumer goods that directly serve the basic needs of the population. Specifically:

  • Regular flow of business goods from other localities across the country: These include small capital goods such as machine tools, equipment, machinery, and consumer goods like fabric, porcelain, clothing, transportation, and medicine. These goods mainly come from the Red River Delta (Hanoi, Hai Phong) and the Southeast region (primarily Ho Chi Minh City).
  • Import flow, primarily from Southwest China: In addition, the volume of imported goods from other markets is relatively small.

    (iii) Flows of goods produced in Lao Cai transported to markets outside the province:

  • Goods for domestic production and consumption, including processed wood, wood products, bamboo and rattan, tea, and fruits (plums, apricots), have limited capacity and slow growth. Additionally, products from the mineral exploitation and processing industry, such as apatite, graphite, kaolin, and copper, are supplied to various localities across the country, particularly apatite products.
  • Lao Cai's export flow has developed steadily, with turnover increasing consistently over the years. However, Lao Cai's export products primarily rely on the extraction of natural resources.

    b. Regarding import-export business activities:

  • The rapid development of import and export activities in Lao Cai province in recent years is not only due to its advantageous geographical location but also due to the internal development needs of the provincial economy. Alongside the rapid growth of import and export business activities, Lao Cai's capacity for export and import has significantly improved, especially in export business. However, it still does not fully exploit the benefits of Lao Cai compared to inland provinces, particularly in entrusted import business or import for supply (materials, chemicals, equipment).
  • Lao Cai's import-export structure by product group aligns with the province's economic development requirements. However, there is a need to increase the export of processed products, particularly local medicinal herbs that can be produced.
  • ‑Lao Cai's main export and import market is the Yunnan - China market, a large and promising export market. The challenge lies in effectively leveraging relative comparative advantages to achieve desired trade benefits.
  • ‑The structure of goods exported, imported, traded, and exchanged through border gates in Lao Cai province primarily includes fresh fruits, various types of cassava, and yellow phosphorus. Main imported goods consist of fertilizers, coke, fruits and vegetables, machinery and equipment, and chemicals. In 2016, the trade deficit was $171 million USD, but by 2021, it increased to $1,062.1 million USD. Vietnam's total import-export turnover with China in 2022 is expected to reach $175.6 billion USD, whereas Lao Cai's turnover amounted to $2,228.60 million USD (down 36.38% compared to the same period in 2021), accounting for only 1.3% of Vietnam-China import-export turnover (Lao Cai Department of Industry and Trade Statistics, 2022). Many border gates have not yet fully capitalized on their potential. Key Vietnamese products, such as seafood, have not fully exploited this vast market potential.

Orientation and Solutions

On August 1, 2022, the Government issued Resolution No. 96/NQ-CP, outlining the Action Program to implement Resolution No. 11-NQ/TW (Section I.9 of Appendix 2 on specific tasks and projects). This sets out specific steps to establish Lao Cai as a hub for economic trade between Vietnam and ASEAN countries and Southwest China.

Reality and current conditions indicate that achieving the above goals requires implementing forest preservation, water conservation, environmental protection, maintaining population stability, border security, and ensuring livelihood sources. These efforts are crucial for sustainable development across the region. Key areas that require attention include:

(i) Trade and Market Development

While Lao Cai's economic potential is constrained, developing trade and markets will invigorate provincial production factors and integrate Lao Cai's economic activities with regional and national economies. This involves leveraging not only industries with significant potential and comparative advantages but also scaling industries that may lack potential or face disadvantages.

Lao Cai, strategically located among neighboring provinces, particularly benefits from its border gate presence. Furthermore, direct connectivity with the Hanoi market presents a significant advantage for enhancing economic and trade relations between Lao Cai and other regional provinces.

Thus, to thrive, Lao Cai must tightly integrate its local market with the national market, particularly with the Northern Midlands and Mountains and the pivotal economic zone of Hanoi - Hai Phong. This entails aligning with the national market development blueprint. Looking forward, Lao Cai's prospects for trade and market development hinge not only on bolstering provincial-locality product exchanges but also on collaborating in production, seeking out comparative advantages, and maximizing economic and trade potential.

Recognizing that developing China's border regions is pivotal for Vietnam's own border area development, it is imperative to differentiate investments in these regions' "hard environment" (e.g., infrastructure construction) and "soft environment" (e.g., preferential tariff and pricing policies). Hekou - Yunnan's development demonstrates that apart from favorable geographical conditions, the region benefits from more favorable policies compared to coastal special economic zones. Therefore, genuine preferential policies and equitable distribution of benefits to localities are essential.

Yunnan, a southwestern Chinese border province, shares borders with Vietnam, Thailand, and Myanmar. It serves as a pivotal gateway and trading hub with Southeast and South Asia. Compared to Yunnan, Lao Cai lacks agricultural advantages due to its altitude and terrain constraints. Many of the flora and fauna found in Lao Cai are similarly found in Yunnan but often of superior quality. Moreover, unpredictable weather and natural disasters mean Lao Cai may need to import agricultural products to meet local and neighboring province demands, assuming transport logistics allow.

Lao Cai's industrial sector pales in comparison to Yunnan's. This disparity holds when comparing Lao Cai to northern midland and mountainous provinces in Vietnam. Thus, Lao Cai should leverage its geo-economic advantages and developmental stage to tap into Yunnan's industrial capacity. Recent years have shown a dominance of imports into Vietnam comprising raw materials, chemicals, electrical components, construction materials, and small machinery.

Lao Cai's primary advantage over Yunnan lies in its geographical position. Not only is Lao Cai the closest route to the East Sea from almost all of southwestern China—encompassing Sichuan, parts of Tibet Autonomous Region, and over 200 million residents—via the Kunming - Hekou - Lao Cai - Hai Phong railway. Though China recently completed a railway spanning from Yunnan's capital, Kunming, through the Zhuang Autonomous Region to Fangcheng port and high-speed rail connecting Laos' capital, Vientiane, and Kunming, the Kunming - Hekou - Lao Cai - Hai Phong route remains the most cost-effective and accessible. Secondly, Lao Cai's location holds potential as a central transit point for goods traversing between China, Vietnam, and ASEAN member nations.

In the upcoming period, trade and market development in Lao Cai must focus on several key areas:

  • Promoting and leveraging the economic sectors' capacities and positive attributes in production and commodity exchange to facilitate economic restructuring towards commodity production. This entails gradually transitioning from an economic model centered around agriculture and forestry to one that emphasizes industry, services, tourism, and enhanced agricultural and forestry practices. This shift aims to propel Lao Cai's rural economy swiftly towards industrialization and modernization, breaking free from cycles of poverty and underdevelopment.
  • Harnessing comparative advantages to stabilize and expand the province's market integration, both domestically and internationally, with a specific focus on the Southwest market (China), Japan, and ASEAN countries.
  • Fostering civilized and modern trade practices, with urban markets as the nucleus to support and stimulate goods exchange in rural and highland markets. This approach contributes to enhancing livelihoods across the nation.

Building upon its advantageous geographical location, market development in Lao Cai province should concentrate on transforming border markets into transit hubs. Over the coming years, commercial activities in Lao Cai will primarily involve collecting and processing export goods such as temporary import-re-export, border-gate transfers, transit services, and supporting activities like trade information dissemination, trade fairs, transaction offices, and hotels.

ii) Developing Border Gate Infrastructure and Economy

Accelerating the implementation of major projects aimed at enhancing regional connectivity, including investments in the Noi Bai - Lao Cai expressway project and the Yen Bai - Lao Cai section, slated to expand to four lanes by 2023 and eventually six lanes in accordance with the Road Network Planning approved by the Prime Minister (Decision 1454/QD-TTg dated September 1, 2021). Planning research for the Lao Cai - Hanoi - Hai Phong railway project with a standard gauge of 1,435 mm should commence promptly, supported by allocations from the central budget in the 2021-2025 medium-term public investment plan for Lao Cai province. Additionally, investing in road projects connecting Sa Pa Airport with the economic zone near the Lao Cai-Lao Cai border and other provinces along the Red River development axis is essential.

Transforming the Lao Cai border gate economy into a pivotal economic driver for the province involves developing it into a multi-industry border economic zone. This zone will serve as a breakthrough point and development pole, becoming an economic hub for industry, trade, tourism, and services within Lao Cai province and the Northern Midlands and Mountains. The development strategy for border gates should prioritize comprehensive planning, infrastructure construction, and investment attraction aimed at upgrading these entry points to national and international standards.

Emphasizing investments in upgrading technical infrastructure and services related to trade facilitation is crucial. This includes optimizing conditions for immigration activities, import-export processes for goods and vehicles at border gate areas, and adopting digital advancements and modern technology. Specifically, efforts should focus on implementing regional and ASEAN commitments related to e-commerce, "one-stop, one-go" customs clearance, and streamlining time and cost efficiencies for commercial and logistic operations.

Enhancing the quality of local human resources to meet the increasing demands in investment, trade, and especially tourism sectors is imperative. Integrating and applying modern scientific and technical advancements into management, administration, and business operations within the province's border economic zones will be pivotal.

Removing institutional and policy barriers and harmonizing regulations and procedures between Vietnam and China are critical steps. Special attention should be given to mobilizing resources for infrastructure investments to pave the way for establishing a cross-border economic cooperation zone in the Lao Cai Border Gate Economic Zone. This initiative aims to effectively serve as a "bridge" between Vietnam, ASEAN countries, and the Southwest market (China).

iii) Developing Different Types of Services

Integrate commercial services with financial services, tourism, education, training, and healthcare. Prioritize the development of essential services, particularly import and export services such as logistics, goods inspection, insurance, banking, telecommunications, interpretation, and market support. Attract private investment to develop professional and modern service infrastructure.

Lao Cai should focus on logistics and transportation activities that seamlessly connect with border gates, ensuring bidirectional information flow through electronic data interchange (EDI). The province requires a structured center comprising three key areas: (i) Goods service area including loading/unloading, warehousing, preservation, packaging, labeling, classification, cleaning, and quality inspection; (ii) Transportation and distribution area covering transport logistics and distribution by various means; (iii) Support area encompassing customs clearance, procedural support, consultancy, financial services, insurance, and vehicle maintenance and refueling.

Establishing a logistics transit hub to support export and import activities through the border gate economic zone is identified as a strategic breakthrough solution for the province.

iv) Developing the Night Economy

Lao Cai possesses favorable conditions for developing the night economy with appropriate organizational and management methods. However, developing the night economy requires careful consideration of planning issues and specific policies tailored to the region's economic and cultural characteristics. Key considerations include:

  • Enhancing transportation infrastructure and services to facilitate access to tourist attractions and nightlife venues according to planned schedules.
  • Implementing regulations on operating hours and permissible types of services during nighttime hours.
  • Addressing security, noise, hygiene, and food safety concerns.
  • Promulgating and effectively implementing policies that support and encourage business activities and services to foster the night economy.

v) Promoting Linkages to Drive Regional Development Momentum

Regional integration is a consistent policy of our Party and State aimed at maximizing the potential and advantages of regions and localities. In the Northern Midlands and Mountainous region, the focus should be on promoting three key growth drivers: investment, exports, and consumption. Efforts should maximize the region's potential in geopolitics, geoeconomics, natural conditions, cultural and historical values to achieve rapid and sustainable development. This includes enhancing connectivity of transport and technical infrastructure, promoting human resource development and utilization, institutional building, and policy implementation. Effectively exploiting the Cai-Minh-Lao corridor linking Hanoi and Hai Phong is crucial for regional breakthrough development.

vi) Creating Specific Mechanisms and Policies

Building Lao Cai into a center for economic trade between Vietnam, ASEAN countries, and Southwest China will significantly contribute to the socio-economic development of Lao Cai and accelerate the formation of a growth pole in the Northern Midlands and Mountainous region, aligned with the policies outlined in Resolution No. 11-NQ/TW by the Politburo and Resolution No. 96/NQ-CP by the Government. Key issues to address include:

  • Establishing mechanisms and preferential policies to attract investments for developing cross-border economic cooperation zones.
  • Building and fostering regional and cross-border supply chains.
  • Regulating revenue sources, rates, and expenditure tasks for funding trade connectivity centers.
  • Decentralizing mechanisms for managing economic activities at land border gates.
  • Considering the application of specific mechanisms at the Lao Cai Border Gate Economic Zone in the near term.

The determination to innovate and create revolutionary change lies with the Government, Ministries, Branches, Localities, and each citizen of Lao Cai. This commitment is essential for achieving breakthroughs and prosperity in the final years of this decade.

Vu Huy Hung

Department of Information and Trade Promotion - VIOIT

Dr. Pham Vinh Thang

Banking Academy