Why Motorbikes Are Popular in Vietnam.Pdf

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Bachelor Thesis

Why motorbikes are popular in Vietnam

Author: Tran, Nguyen Phuong Thanh Goethe ID: 5952195 VGU ID: 1507

Supervisor: Dr. Lars Pilz

Goethe University Frankfurt 10.2017 Table of contents

List of tables ...... 3 List of figures ...... 4 List of abbreviations ...... 6

Part 1. Introduction ...... 8 Part 2. Analysis of the Motorbike Market in Vietnam ...... 9 2.1. Societal Preferences ...... 10 2.1.1. An Overview on Vietnam’s Motorcycle Ownership ...... 10 2.1.2. Literature Review on Vehicle Ownership Modelling ...... 15 2.1.3. Economic Growth and Vehicle Ownership ...... 16 2.1.4. Vietnam People’s Preferences for Motorcycles ...... 19 2.1.5. Public transportation ...... 22 2.2. Public infrastructure ...... 27 2.3. Underdeveloped Automotive Industry ...... 34 2.3.1. The motorcycle and automobile industries in Vietnam ...... 34 2.3.2. Underdeveloped Automotive Industry ...... 40 2.4. Tax Policy ...... 42 2.4.1. Tax structure for passenger cars in Vietnam ...... 43 2.4.2. Fees in buying and owning a car in Vietnam ...... 44 2.4.3. Comparison with other countries ...... 44 Part 3. Discussions ...... 46 3.1. Social Impact ...... 46 3.1.1. Traffic Accidents ...... 46 3.1.2. Congestions ...... 51 3.2. Environmental Impact ...... 52 3.3. Solutions by the government...... 55 Part 4. Conclusion ...... 57

References ...... 60

List of tables

Table 1. Motorcycle and Car Ownership Rate for Selected Countries ...... 11

Table 2. Motorcycle Saturation Level and Income Threshold for selected countries . 18

Table 3. Space occupied by a motorcycle and a car while parking and moving ...... 21

Table 4. Vietnam’s Road Network by type of road for 2006 and 2016 ...... 29

Table 5. Localization rate of selected automobile companies in Vietnam (2007) ...... 41

List of figures

Figure 1. GDP based on PPP per capita for selected countries from 1980 – 2016 (in 2017 US Dollars) ...... 10

Figure 2. Vietnam Motorcycle and Passenger Car Ownership in Urban Areas (2004- 2014) ...... 12

Figure 3. Vietnam Motorcycle and Passenger Car Ownership in Rural Areas (2004- 2014) ...... 12

Figure 4. Vietnam Motorcycle Ownership Trend for 5 Income Groups (2004-2014) .. 14

Figure 5. Vietnam Passenger Car Ownership Trend for 5 Income Groups (2004-2014) ...... 14

Figure 6. Modal split of selected Asian cities ...... 19

Figure 7. Bus Ridership in Vietnam (1979-2002) ...... 24

Figure 8. Road Density Comparison between selected countries (2006) ...... 29

Figure 9. Distribution of Vietnam’s Road Network by category (2016) ...... 30

Figure 10. Quality of Vietnam’s Road Network by category (2006) ...... 31

Figure 11. Land Dedicated to Transport Comparison for selected cities (% of all land area) ...... 33

Figure 12. Number of Registered Motorcycles and Automobiles in Vietnam (1990- 2006) ...... 35

Figure 13. Motorcycle sales in Vietnam by manufacturer (1998-2009) ...... 38

Figure 14. Motorcycle Sales in Vietnam (1998-2016) ...... 39

Figure 15. The Vicious Circle of the Underdevelopment of the Vietnamese Automobile Industry ...... 42

Figure 16. Car Price Comparison for Selected Countries (2017) ...... 45

Figure 17. In the Price of a Car: Automobile Cost, Taxes and Tariffs Comparison between Vietnam, Malaysia, Thailand, and the Philippines (2004) ...... 46

Figure 18. Road traffic deaths by type of road user (2013)...... 48

Figure 19. Road Traffic Safety in Vietnam: Accidents, Deaths, and the Injured (2012- 2016) ...... 49

Figure 20. Road and Motorcycle Fatality Rate Comparison for selected countries (2015) ...... 51

Figure 21. Average Annual PM2.5 Concentration in Urban Areas Comparison for selected countries (2014) ...... 54

List of abbreviations

ADB Asian Development Bank

ASEAN Association of Southeast Asian Nations

BRT Bus Rapid Transit

CAGR Compound Annual Growth Rate

CBU Completely Built Up

CKD Completely Knocked Down

DBST Double Bituminous Surface Treatment

DRVN Directorate for Roads of Vietnam

EPA (United States) Environmental Protection Agency

FDI Foreign Direct Investment

GDP Gross Domestic Product

GSO General Statistics Office

HAIDEP The Comprehensive Urban Development Programme in Hanoi Capital City of the Socialist Republic of Vietnam

HCMC Ho Chi Minh City

HDI Human Development Index

IMF International Monetary Fund

JAMA Japan Automobile Manufacturers Association

JICA Japan International Cooperation Agency

MOCPT (Ho Chi Minh City) Management and Operation Center for Public Transport

MRT Mass Rapid Transit

OEM Original Equipment Manufacturer

PM Particulate Matter

PPP Purchasing Power Parity

PwC PricewaterhouseCoopers

R&D Research and Development

UMRT Urban Mass Rapid Transit

UNDP United Nations Development Programme

UNESCAP United Nations Economic and Social Commission for Asia and the Pacific US United States of America

USD US dollars

USSR Union of Soviet Socialist Republics

VAMM Vietnam Association of Motorcycle Manufacturers

VAT Value Added Tax

VITRANSS 2 The comprehensive study on the sustainable development of transport system in Vietnam

VMEP Vietnam Manufacture and Export Processing Co., Ltd.

VND Viet Nam Dong

WHO World Health Organization

WTO World Trade Organization

1. Introduction

In the last 30 years since Doi Moi1 – Vietnam’s grand economic reform in 1986, Vietnam’s economy has witnessed incredible growth with an annual average GDP growth rate of 6.41%, and an annual average GDP per capita growth rate of 4.85% (World Bank, 2017a; World Bank, 2017b). With rapid expansion of the economy comes increasing rate of urbanization. Vietnam currently has 34.51% of the entire population living in urban areas, and the annual average urban population growth rate is 3.33% for the past 10 years (2007-2016) (GSO, 2017a). Urbanization has brought with itself – aside from opportunities – tough challenges and problems that Vietnam has only now begun to address and tackle. Some of the major ramifications to urbanization in developing countries – and specifically in Vietnam – are traffic congestion, road safety, and air pollution. To tackle these problems, policy makers must first understand the causes for Vietnam’s significant dependence on motorcycles, what its effects on the economy are, what may affect this, and how it may evolve over time. This paper gives an overview on why motorbikes are the Vietnamese’s most favored mode of transportation, and how this may be more problematic than it seems to be.

One sixth of the entire population is concentrated in the two largest cities of Vietnam: Ho Chi Minh City with 8.3 million, and Hanoi (Vietnam’s capital city) with 7.33 million in 2016 (GSO, 2017a). This density is uniquely palpable. One can behold a spectacular sight just by being in the middle of the city, specifically, on the busiest streets of any one of the two cities: the ever-flowing flow of traffic full of motorcycles blazing in many directions. During rush hours, the hectic streets are packed full of motorcycles inching their way bit by bit to their destination, sometimes dotted with a few cars. It is clear to any observer there might be, that motorcycles dominate the transportation in urban Vietnam. According to Pew Research Center (2015), 86% of all Vietnamese households own at least a motorbike in working order; this number is only second to Thailand (87%) of the 44 countries surveyed.

There are a number of reasons and causes for Vietnam’s most favorable mode of transportation: the motorcycle, and this paper attempts to analyze these different

1 (in Vietnamese) renovation, renewal (translation by author)

8 reasons and where applicable, compare them to several countries in the same GDP range and geographic area as Vietnam.

There are several reasons as to why motorcycles are widely popular in Vietnam. The first reason relates the economic development of a country to its citizens’ motorcycle ownership rate. According to Law, Hamid, and Goh (2015), across-countries analysis shows that the motorcycle-to-passenger-car ownership ratio increases with GDP for countries having GDP below a certain threshold, and for countries beyond that, the ratio decreases. That threshold is calculated to be between US$ 4895 and US$ 6060. Vietnam’s nominal GDP per capita falls well below this threshold with US$ 2185.69 (World Bank, 2017c). This means that most Vietnamese prefer motorbikes over cars because motorbikes are more affordable; their income has not reached high enough yet to consider cars. The second reason is underdeveloped and low quality public and private infrastructures. Buses are the sole means of public transportation available, and people prefer motorcycles over buses due to their perceived convenience. The third reason is the underdeveloped automotive industry as well as high taxes for imported cars and car parts. This leads to too high prices for cars and hence not affordable to most Vietnamese. Section 2 will elaborate more on each reason.

The outline of this paper is structured as follows: Section 2 discusses the possible reasons and causes for such a high motorbike owning rate, Section 3 discusses the social and environmental impact of having so many motorcycles in the country as well as current and potential solutions by the government, Section 4 concludes and opens up further studies.

2. Analysis of the Motorbike Market in Vietnam

This section elaborates more on the reasons and causes for a high motorcycle ownership rate, which include the increasing income of the Vietnamese leading to increased demand for personal vehicles, namely the motorbike, the fairly expansive but low quality road infrastructure, the underdeveloped public transportation system in the urban areas, the underdeveloped automobile industry and the heavy taxes levied on cars that discourage people from buying cars. Justifications for inclusion of each of these factors as causes are given in each corresponding section, and where

9 applicable, comparisons with countries in the same geographic area or at the same economic development stage are made.

2.1. Societal Preferences 2.1.1. An Overview on Vietnam’s Motorcycle Ownership

Vietnam is a country located in the Southeast of Asia. It has an area of 331 231 km2 and a population of 92.7 million (GSO, 2017a). According to the Central Intelligence Agency (2017), Vietnam has a purchasing power parity adjusted GDP of US$ 595.5 billion, and a GDP per capita of US$ 6400 (ranked 161st in 230 countries listed). Despite having low GDP per capita, Vietnam enjoys one of the fastest GDP growth rates in the world with an annual average of 6.04% in the span of ten most recent years (2007-2016) (World Bank, 2017a). In comparison, Vietnam’s GDP per capita is only higher than Cambodia and Laos, and lower than most countries in the ASEAN and neighboring regions (Figure 1).

50000

45000

40000 Taiwan 35000 Japan 30000 Korea

25000 Malaysia Thailand 20000 GDP GDP per capita China 15000 Indonesia India 10000 Vietnam 5000 Myanmar 0

Year

Figure 1. GDP based on PPP per capita for selected countries from 1980 – 2016 (in 2017 US Dollars) Note. Data from IMF (2017)

Studies that investigates motorcycle ownership and usage are scarce and are mostly conducted in East Asia because of the high motorcycle ownership rate there. Table 1

10 presents several Asian countries’ private vehicle ownership rate. Data might be not directly comparable because they are not from one single and unified source. Vietnam’s motorcycle ownership rate is only second to Taiwan, and the car ownership rate is the second lowest in the region.

Table 1. Motorcycle and Car Ownership Rate for Selected Countries Motorcycle Ownership Year Car Ownership Rate Country Rate recorded (vehicles/1000 persons) (vehicles/1000 persons) Vietnam 2016 485 16 Taiwan 2015 587 274 Thailand 2016 295 118 Japan 2016 88 484 South Korea 2012 38 301 India 2013 143 104 Malaysia 2013 373 355 China 2015 78 125 Indonesia 2015 294 79 Myanmar 2014 72 8 Philippines 2015 48 34 Germany 2015 51 544 Note. Data for population of a specific country from the World Bank (2017e). Data for the number of vehicles in use or registered for Vietnam from Pham (2016) and Sieburg, Nguyen, and Pham (2017), for Taiwan from Stiles (2016), for Thailand from “Thailand now has more than” (2016), for Japan from JAMA (2017), for South Korea from Chung, Song, and Yoon (2014) and JAMA (2015), for India from Open Government Data Platform India (2013), for Malaysia from Fleming and Soborg (2016), for China from Tian (2016), for Indonesia from JAMA (2017) and GMRT (2016), for Myanmar from Feige, Neli, Ko, and Thant (2015), for the Philippines from JAMA (2017) and GMRT (2016), and for Germany from Eurostat (2017).

Figures 2 and 3 give an overview on Vietnam’s vehicle ownership trends across the economic strata over time. The source for data is from the Vietnam Household Living Standards Survey conducted every two years by the Vietnam General Statistics Office (GSO).

400.00 361.01

350.00 334.63 296.10 300.00 283.03 250.23 250.00 221.10

200.00

150.00

100.00 Vehicles Vehicles per 1000 in population

50.00 9.40 11.02 0.71 0.97 2.46 7.85 0.00 2004 2006 2008 2010 2012 2014

urban motorcycle ownership urban car ownership

Figure 2. Vietnam Motorcycle and Passenger Car Ownership in Urban Areas (2004- 2014) Note. Data for compilation from GSO (2017a)

300.00 265.37

250.00 234.40

192.89 200.00 169.50

150.00 122.02

94.95 100.00 Vehicles Vehicles per 1000 in population 50.00

0.00 0.00 0.24 1.28 2.59 3.15 0.00 2004 2006 2008 2010 2012 2014

rural motorcycle ownership rural car ownership

Figure 3. Vietnam Motorcycle and Passenger Car Ownership in Rural Areas (2004- 2014) Note. Data for compilation from GSO (2017a)

The first thing to note from Figures 2 and 3 is that vehicle ownership is monotonically increasing in Vietnam, with the overwhelming proportion of the vehicle ownership rate belonging to motorcycles. In 2014, for urban areas motorcycle ownership rate is 32- fold of the passenger car ownership rate, and for the rural areas it is an even wider gap with motorcycle ownership being 84-fold of the car ownership rate. In the span of ten years from 2004 to 2014, motorcycle ownership has increased by 1.63 times for urban areas and 2.8 times for rural areas, while car ownership has increased by 15.52 times for urban areas, and 31.5 times for rural areas (I took a nominal value of 0.1 for year 2004, this number could have been rounded down to 0 in the official source). The annualized growth for urban motorcycle ownership is 5.03% yearly, and for car ownership 31.48% yearly; in rural areas, the annualized growth for motorcycle ownership is 10.82% yearly, and for car ownership is 53.42% yearly.

The average of vehicle ownership for both motorcycles and passenger cars in urban areas is larger than that of the rural areas. Several possible explanations for this are people living in the urban areas have greater need of transport, or are more well-off and can afford to buy a vehicle for themselves. Motorcycle ownership in the rural areas is increasing at a faster rate than that of the urban areas. This could be a version of the “catch-up effect” where people with low average vehicle ownership exhibit greater growth over time than people with high average vehicle ownership. According to the Ministry of Industry (2007), motorcycles are seen as a “fashionable items” (p. 12) for young urban dwellers, so this may encourage youngsters in the rural areas to buy motorcycles (as soon as their income allows) to “keep up with the times”, similar to the way cars are seen as “luxury items” nowadays. Owning a motorcycle in the rural areas at the time was proof that a family was on a higher social class, or has successfully moved up the social ladder.

Figure 2 presents a clear upward trend for both types of vehicles and this trend will not likely change in the foreseeable future, which means the problems associated with higher dependence on motorbikes – congestion, air pollution, and road safety – will most likely worsen as people buy more cars leading to the share of car ownership increasing rapidly in the future.

500.00

450.00 429.25 402.75 400.00 376.75 365.96 347.00 350.00 317.50 328.61 300.23 300.00 274.00 270.69 264.52 250.35 226.91 250.00 212.44 193.62 200.22 182.03 200.00 157.21 161.27 153.99 133.04 150.00 131.34 128.15 101.15 107.98 90.81 83.82

Vehicles Vehicles per 1000 in population 100.00 64.99 52.31 35.29 50.00

0.00 2004 2006 2008 2010 2012 2014

5th quintile motorcycle ownership 4th quintile motorcycle ownership 3rd quintile motorcycle ownership 2nd quintile motorcycle ownership 1st quintile motorcycle ownership

Figure 4. Vietnam Motorcycle Ownership Trend for 5 Income Groups (2004-2014) Note. Data for compilation from GSO (2017a)

18.00 16.75

16.00 15.00

14.00

12.00 11.25

10.00

8.00

6.00 3.75 4.02

Vehicles Vehicles per 1000 in population 4.00 3.07 2.36 1.50 1.61 1.84 2.00 0.88 0.75 0.46 0.44 0.000.24 0.00 0.000.220.24 0.210.22 0.21 0.21 0.00 2004 2006 2008 2010 2012 2014

5th quintile car ownership 4th quintile car ownership 3rd quintile car ownership 2nd quintile car ownership 1st quintile car ownership

Figure 5. Vietnam Passenger Car Ownership Trend for 5 Income Groups (2004-2014) Note. Data for compilation from GSO (2017a)

From Figures 4 and 5 it can be seen that vehicle ownership increases as income increases, for both modes of transportation. This makes sense as the more affluent people get, the more they are able to afford a private vehicle. Vietnam’s car ownership rate is rapidly increasing among the wealthiest group of people (the 5th quintile, or top 20%). Car ownership rate of the 5th quintile in 2014 is more than 2.4 times the ownership rates of the remaining quintiles combined; this reinforces the notion that cars in Vietnam are still “luxury items” as only the most wealthy people can afford one. On the other hand, there is little difference in growth among the five income groups for motorcycle ownership, this means that whether rich or poor, people are definitely buying motorcycles. This is different from the observation that in high income countries, motorcycle ownership increases as income increases due to motorcycle being used mostly for recreational purposes rather than for transport of people and goods (WHO, 2017a). This suggests that the relationship between motorcycle ownership and economic growth is not linear and that there are other household- or individual-specific factors that also influence the ownership of motorcycles, which are valuable information for policy-makers.

2.1.2. Literature Review on Vehicle Ownership Modelling

In literature, there are two approaches to modelling private vehicle ownership: the aggregate model and the disaggregate model (Jong, 2004). The difference between the two models is the level of input data. The aggregate model uses aggregated macroeconomic data such as GDP per capita, urbanization rate, or population density to model vehicle ownership. The aggregate model investigates changes in vehicle ownership as influenced by economy-wide factors. The advantage of this approach is that aggregated data are more easily accessible and an extensive household survey is not necessary. The disadvantage of this model is that it is a descriptive (positive) model. It shows or predicts ownership trends over time but does not provide guidance (normative) for what we, either as citizen or policy maker, should do. A few examples of this model are: for motorcycle ownership Law et al. (2015), Vu (2001), Nishitateno and Burke (2014), Pongthanaisawan and Sorapipatana (2010); for car ownership Dargay, Gately, and Sommer (2007), Sillaparcharn (2007), Ingram and Liu (1998).

Alternatively, the disaggregate model utilizes microeconomic data at the individual level. This model relates individual user’s characteristics such as demographic, geographic, or socioeconomic household attributes, or vehicle purchase price or other means of transportation’s availability to the propensity to owning a private vehicle. The advantage of this approach is that it can estimate the effect various socioeconomic factors can have on individual vehicle ownership decision making process, which has important policy implications for lawmakers. According to Train (1986), the disaggregate model, aside from being able to identify the factors of individual behavior that would eventually contribute to aggregate outcomes, also offers a wider variation in input data than the aggregate model, making for a more precise estimation of the parameters. This disadvantage of the disaggregate model is that it requires extensive survey data at the level of individuals; the likelihood of the obtention which in the developing countries is slim. According to Sillaparcharn (2007), there are many constraints and limitations to collecting data in developing countries; they are, namely, lack of available and suitable data, lack of researchers’ skills and the resources that she (or he) may use. For example, some states – namely, Vietnam and India – restrict data and statistics publicized/available to the public. Consequently, the disaggregate model is mainly used in the developed countries, while for the developing countries the aggregate model is preferred despite its many criticisms and shortcomings. Examples of the disaggregate model include: Whelan (2007), Wong (2013), Chiou, Wen, Tsai, and Wang (2009), Nolan (2010), Burge, Fox, Kouwenhoven, Rohr, and Wigan (2007).

2.1.3. Economic Growth and Vehicle Ownership

A consensus arises among the few papers that did focus on motorbikes and it states that the relationship between economic growth and motorcycle ownership rate follows an inverted U-shaped pattern (Law et al., 2015; Pongthanaisawan & Sorapipatana, 2010; Vu, 2011; Nishitateno & Burke, 2014). Historical data on motorcycle ownership rate in now-developed countries such as Korea and Japan shows that when these two were still developing countries, motorcycle ownership rate first increased as income increased, until a certain income threshold, after that the motorcycle ownership rate decreased as income continued rising (Vu, 2011). Meanwhile, the passenger car ownership rate for Korea and Japan increases monotonically with income per capita (Vu, 2011).

Law et al. (2015) used panel data on 80 countries at various economic development stages for a 48-year period from 1963 to 2010, and found that, the motorcycle-to- passenger-car ownership ratio first increases with income, but then decreases upon hitting a saturation level, and this relationship is statistically significant. According to Law et al. (2015), possible explanations for this could be that as developing economies rapidly expand, people’s demand for private motorized transport increases (public transport system could not keep up) and this leads to an increase in motorcycle ownership due to its high affordability compared to cars. Motorcycles are more affordable for most people in a low income country. In low income countries where owning a motorcycle is not a hobby, the one-time purchase cost and the recurrent operation and maintenance costs for motorcycles are generally lower than those for cars (Wong, 2013). In other words, at low income levels, people tend to choose between buying a motorbike and not buying, rather than choosing between buying a motorbike and buying a car. And as income rises, the people’s purchasing power also rises; and people would most likely want to switch to cars for reasons of safety, comfort (Nishitateno & Burke, 2014), and social status (PwC, 2015). Specifically for countries with a network of narrow urban roads and zig-zagging alleyways weaving throughout large cities like Vietnam, riding a motorbike is more practical than a car also because of its convenience.

The income threshold, along with the vehicle ownership saturation level, vary with each country. These terms are used in the context of the aggregate model and are closely linked to the development level indicator of an economy, most notably: GDP, GDP per capita, or HDI. More notably, the terms are specifically used for motorcycles because car ownership seems to be increasing monotonically as income increases (Pongthanaisawan & Sorapipatana, 2010; Nishitateno & Burke, 2014; Vu, 2011). The vehicle ownership saturation level, most commonly measured in the number of vehicles per thousand persons, is defined as the maximum number of vehicle ownership that one economy can reach. Visually, this is the peak of the inverted U- shaped curve; the income threshold – usually measured in GDP per capita – is the income at this peak (usually on the x-axis), and the saturation level is the rate of vehicle ownership at this peak (usually on the y-axis). Table 2 presents some estimated data from several papers.

Table 2. Motorcycle Saturation Level and Income Threshold for selected countries

Motorcycle Saturation Level Motorcycle Income Threshold Country (vehicles/1000ppl) (US$)

Thailand 316 6753

Vietnam 800 12000

Indonesia 550 12000

Taiwan 650 16000-17000

Malaysia 400 16000-17000

Aggregate 4100-13200 Note. Data for Thailand from Pongthanaisawan and Sorapipatana (2010), for Vietnam, Indonesia, Taiwan, and Malaysia from Vu (2011), for aggregate countries from Nishitateno and Burke (2014).

Vietnam’s current motorcycle ownership rate of 475 is lower than the saturation level calculated by Vu (2011) (presented in Table 2); and an even lower GDP per capita than the calculated threshold. The motorcycle saturation level is correlated with the dependence of that country on motorcycles. The greater the dependence on motorcycles, the longer it takes to switch to cars, hence the higher the saturation level. Vietnam is the country with the highest dependence on motorcycles (Figure 6).

Ho Chi Minh (2002) 1.9 91.4 2.404.3

Hanoi (2005) 3.5 82.7 7.8 0 6

Taipei (2004) 29 31 20 12 0 8

Bangkok (2003) 35 27 26 10 11

Kuala Lumpur (1997) 56.6 23.7 18.1 1.60

Jakarta (2002) 17 23 58 20

Manila (1996) 21 0 15 3 61 0

Shanghai (2004) 28 0 49 9 0 14

Seoul (2002) 27 0 26 35 0 12

Tokyo (1998) 54 0 4 42 0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

car motorcycle bus train paratransit others

Figure 6. Modal split of selected Asian cities Note. Data from Vu (2015a).

It can be seen from Figure 6 that Vietnam is a country greatly dependent on motorcycles, with its two largest cities Ho Chi Minh City and Hanoi recording extremely frequent use of motorcycles in their daily commuting to their destinations. Specifically, commuters would travel by motorcycles in 91.4% of the trips in Ho Chi Minh City, and 82.7% of the trips in Hanoi. This is relatively high compared to Taipei (31%) or Bangkok (27%). However, due to the lack of recent data, we can not observe whether the situation has changed for the cities shown in Figure 6. It is highly likely that for Vietnam the scenery has changed with the gradual increase in the car fleet over the years.

2.1.4. Vietnam People’s Preferences for Motorcycles

In the eyes of an average person in Vietnam, what makes a motorcycle so attractive a choice than a car? To answer that question, an understanding of the differences between a motorcycle and a car is imperative, and comparatively so how a motorcycles’ properties may seem more fitting to the region than a car. According to Hsu (2003), motorcycles in Southeast Asia are relatively small, giving their drivers great flexibility in maneuvering, the ability to weave through traffic in a congestion and through narrow roads and small alleys, the freedom and ease of parking anywhere she

(or he) may so wish (and it does not even cost she (or he) a cent), the convenience of having on-demand, door-to-door access, and the speed greater than that of cars in urban areas (which is time-saving). Furthermore, road fees, and operation and maintenance costs for motorcycles are cheaper than for cars; also motorcycles are more fuel efficient than cars (WHO, 2017a). This means using motorcycles is efficient in terms of both time and cost compared to cars. According to WHO (2017a), among others, increasing traffic congestion in urban areas, increasing cost of other means of transportation (for example: fuel for cars increases or bus fares increase) could make people want to switch to motorcycles instead (and hence increasing the motorcycle fleet). Despite its convenience, the motorcycle has several disadvantages that could affect ownership: the motorcycle has little capacity to shield its driver from unfavorable weather conditions such as heavy rainfall or burning sunlight nor does it have the capability to protect its driver from injury when a collision happens due to high exposure of the human body.

How may a motorcycle seem more befitting for the Vietnamese? First, the demand for travel (the average distance of a trip) is rather short-distanced: a person needs only travel 10km or less per trip on average (Ministry of Industry, 2007). In other words, people do not travel far to do business, or go to work, to school and a motorcycle is suitable for such short length trips. Second, among low income earners, the scale of personal and business activities is rather small and simple (Law et al., 2015), thus they only require a motorcycle for all their needs. Third, Vietnam (and also the Southeast Asian region) is in the tropical or sub-tropical climate zone, which means it is hot and humid all year round with occasional rainfall. The yearly temperature range for Vietnam is between 20 to 30 degrees Celsius (World Bank, 2017d). This warm weather allows commuters to travel by motorcycle all year round without fear of the freezing wind and snow during the winter months in the more moderate climate zones. The climate itself eliminates the need for cars, though only partially, as heavy rainfall, comfort, safety, and prestige all undoubtedly draw a person to cars. Fourth, a motorcycle occupy much less road space as compared to a car (Table 3). According to the World Bank (2011), the major cities of Vietnam – namely Ho Chi Minh and Hanoi – have high population density and little road space, hence they lack an urban structure capable of supporting the mass adoption of private cars as a means of transportation. This is why Vietnam is

20 still a country heavily reliant on motorcycles, rather than cars, as a means of transportation.

Table 3. Space occupied by a motorcycle and a car while parking and moving Area occupied (m2) Motorcycle Car While parking 1.8 14 While moving 10-15 40-60 Note. Data from World Bank (2011).

Vietnamese have developed a so-called “motorbike culture” (Nguyen, 2017b). The residents of major cities for many years have embraced the motorcycle. When public infrastructure and public transportation could not keep up with the pace of urbanization in Vietnam, the people chose for themselves the motorcycle. Whether it is going to work, to school, to the cinema, picking up kids, doing business, or making a living (Kemp, 2014), a motorcycle is indispensable. The convenience, control, flexibility and everything a motorcycle has to offer have taken deep root in the Vietnamese people’s minds. They are not willing to give up the motorcycle just yet and it will take a long time and considerable effort from the government to convince people to give up the motorcycle, which is both a habit and a culture. In summary, the urban Vietnam does not have the capability or the will to move away from motorcycles.

This further begs another important question: why do people not ride bicycles instead? A bicycle, compared to a motorcycle, has lower maximum speed (therefore it is considered a safer mode of transportation) and even more flexibility on the street (people can just lift it up to get out of a congestion due to it being considerably lighter than a motorcycle). A bicycle is also good for the environment as it does not produce or emit any kind of exhaust. A bicycle is also a kind of private vehicle ownership and allows for individual travelling, but at the same time it does not jeopardize the health of anybody if people use it more frequently. The recent increase in bicycle ownership and usage in European countries (Oke, Bhalla, Love, & Siddiqui, 2015) is a testament to the bicycle’s practicality in urban transport. The answer to this question is complex: it is a combination of prejudice sprung from history and its perceived practicality in everyday life for a Vietnamese. Bicycles were once prevalent in Vietnam when GDP per capita was low and people could not afford to ride anything else beside the bicycle: the post-unification era up until the economic reform in 1986, and even then, it took a

21 few years for the people to afford more convenience in transport mobility. The bicycle, to a modern-day typical Vietnamese, is transport for the poor and the not-yet-able (for example: students) and it is considered unfashionable to ride to school or work. The bicycle’s speed is rather low, and it is impractical to transport goods or an extra person for intermediate to long distances on it. For this reason, to a city dweller, the bicycle could not accommodate their need of a fast and capable mode of transport.

This preference and subsequent domination of motorcycles as a means of transportation has several implications for road transport. First, it popularize private ownership of vehicles and this may be near impossible to reverse the people’s strong preference for motorbikes (and privatized vehicles) (Morichi, 2009). As a consequence, people are unwilling to switch to other modes of transportation such as public transportation even though it is safer, cleaner, and more sustainable for the economy (Nguyen, 2017b). Second, motorcycles are considered an unsafe mode of transportation due to the fact that it increases the driver’s exposure and hence vulnerability during a collision. Consequently, as more people use the motorcycle, and at a higher frequency, their risk of injury increases dramatically. Finally, the danger tied to motorcycles is doubly so when most of the vehicles on the streets are motorcycles (greater motorcycle dependence) as this creates mixed traffic flow. Mixed traffic is linked to higher likelihood of a collision (WHO, 2017a).

In conclusion, the popularity of motorcycles is a bane to a nation’s urban sustainability and its people’s safety and health. To reduce the number of motorcycles, it is imperative to change the people’s commuting habits (changing modal share). The sustainable solution in this situation is not gearing the people towards buying more cars (as it would further worsen the air quality and urban mobility), it is the development of public transit systems that can help slow down the transition to cars (World Bank, 2011).

2.1.5. Public transportation

The only public transportation option available in urban Vietnam is the traditional bus. The bus networks in Hanoi and Ho Chi Minh City are the most extensive due to these two cities being the most densely populated in Vietnam. Only Hanoi and Ho Chi Minh

City require mass urban transit services, all of the other cities in Vietnam each have population of under 2 million and a rudimentary bus network suffices (ADB, 2012).

Hanoi has about 1300 buses operating on 114 routes (Transerco, 2017), and Ho Chi Minh City has 3100 buses on 170 routes (MOCPT, 2017; Fang, 2012). The limited number of buses in both cities has put a constraint on the bus system’s coverage as well as the frequency it can offer (Fang, 2012). Cities of roughly the same size as Hanoi and Ho Chi Minh City such as Bangalore, India has 6000 buses serving a population of 7 million, and Wuhan, China has 7000 buses serving 9 million; these numbers are two to three times the bus fleets in both cities (Fang, 2012).

According to Huynh and Gomez-Ibanez (2017), both cities’ bus networks are heavily subsidized by the government (60% of the operating costs for Hanoi’s buses, and 45% for HCMC’s) as the low bus fares and low bus ridership could not cover the operating expenses. Despite being the sole means of public transportation, bus ridership is extremely low in both cities. In 2011, bus ridership is about 9-10% for Hanoi, and 7-8% for HCMC, and 1-1.2% for other notable cities (Muromachi et al., 2015). This means that, for example, for Hanoi, only 10% of the motorized trips that the people take are served by buses. Compared to other cities with similar economic development, this number is relatively low. For example, Bangkok has a bus ridership of 37% (Mo, Kwon, & Park, 2014).

Why has the bus (the only means of public transportation) been so unpopular with the Vietnamese? It is necessary to understand the history of buses in Vietnam and the subsequent rise in motorcycle ownership at the same time. Public transportation was introduced into Vietnam by the French colonizers in the late nineteenth century (Huynh & Gomez-Ibanez, 2017). After the Doi Moi economic reform in 1986, public transportation was neglected by the government and ridership decreased drastically (Figure 7). The tramway system that used to exist in Hanoi and Ho Chi Minh City was abolished, and along with it, bus ridership also went down (JICA, 2007). When the economy eventually took off and people reached a point where they could afford to give up the bicycle and embrace a more convenient and comfortable mode of transportation, public transportation was practically non-existent at the time (Dapice, Gomez-Ibanez, & Nguyen, 2010).

Figure 7. Bus Ridership in Vietnam (1979-2002) Note. Reprinted from Final Report Summary of the Comprehensive Urban Development Programme in Hanoi Capital City of the Socialist Republic of Vietnam (HAIDEP) by JICA (2007), p. 16. Retrieved from http://open_jicareport.jica.go.jp/pdf/11856093_01.pdf

It was not before long when the people turn to motorcycles instead. The government has only then realized that it needed to address public transportation. In 1994, first steps toward revitalizing public transportation began as the Saigon Bus Company formed a joint venture with Australian investors to establish a skeleton network involving four routes radiating from Ben Thanh Market (Dapice, Gomez-Ibanez, & Nguyen, 2010), the place that would later become Ho Chi Minh City’s main bus hub. Later, in 2002, the government dedicated considerable efforts and resources to reinvigorate the bus system, including generous investments into expanding the bus fleet and funding for a new metro system (Huynh & Gomez-Ibanez, 2017; JICA, 2007). Despite much effort, the results have been disappointing: it raised the bus ridership from 1-2% in 2000 in Hanoi to about 10-13% in 2015 (Contreras et al., 2015). Even though the bus service has greatly transformed itself since, the early dominance of motorcycles has ingrained in the people’s minds a “motorbike culture” and the trend has almost become irreversible now.

The bus system in Vietnam is heavily subsidized and therefore offer very low fares. The price for one trip in Hanoi ranges from 7000-9000 VND (about 31-40 USD cents in 2017), and in Ho Chi Minh City 5000-10000 VND (22-44 cents). This is only a fraction compared to the nominal GDP per capita of the two cities: GDP per capita for Hanoi is US$3425 and for Ho Chi Minh City US$5428 (Emerhub, 2017). To compare, regular buses in Bangkok charge 7-9 baht (21-27 cents), and air-conditioned buses charge 9- 22 baht (27-66 cents) depending on distance and bus type2. Buses in Beijing, China charge CNY 2-4 (30-60 cents) depending on distance travelled3. Regular buses in New Delhi, India charge Rs 5-15 (8-23 cents) for one trip, and air-conditioned ones charge Rs 10-25 (15-38 cents)4. Buses in Manila charge P10-23 (20-45 cents) for one trip5.

Despite costing not so much for one trip, bus ridership in Vietnam has been low and now also decreasing (“Ho Chi Minh City buses”, 2016; Doan Loan, 2016). One explanation for this could be the expansion of the motorcycle and car fleets in recent years. In other words, the people have chosen to own private vehicles rather than the few choices of public transportation they have. What makes public transportation – the buses – so unattractive to a Vietnamese? To answer this question one needs to understand the current state of the bus system in Vietnam.

There is an unfavorable social stigma associated with the buses. Buses, because of the low fares it offers, have been considered transportation for the poor in Vietnam (Leung, 2016). To contrast, people think that owning cars is a symbol of status, of “having reached somewhere good in life” (Leung, 2016). Furthermore, buses in Vietnam are notorious for their deficiencies, as elaborated below.

First, buses in Vietnam are unreliable as they usually do not arrive on time (Forbes, 2016), therefore, people cannot know or predict the exact time the bus will be arriving, or if it arrives at all. This creates difficulties particularly for blue and white collar workers who need to present themselves at the company at 7am every morning, or students who need to go to school at 6:30am every day. This makes timing a tiring task where

2 See http://www.bangkok.com/information-travel-around/buses.htm 3 See https://www.travelchinaguide.com/cityguides/beijing/transportation/bus.htm 4 See http://www.thehindu.com/news/cities/Delhi/Delhi-to-slash-bus-fares-by-75-per- cent/article16919052.ece 5 See http://www.gmanetwork.com/news/money/economy/557640/ltfrb-seen-to-slash-metro-manila- bus-fares-next-week/story/

25 it should be effortless and convenient. Officials claimed that the lane the buses were operating in was riddled with motorcycles and this slowed the bus greatly in manoeuvring in and out of bus stops while also made it costlier (Dapice, Gomez- Ibanez, & Nguyen, 2010). Due to the buses’ constant lateness, it is commonly perceived that for the same trip, a bus would take twice as much time as a motorcycle would, although no official statistics are currently available (Dapice, Gomez-Ibanez, & Nguyen, 2010). Consequently, people would only use buses for trips of longer duration or farther destinations where riding a motorcycle would be too taxing (Dapice, Gomez- Ibanez, & Nguyen, 2010).

Second, the vehicles are run-down: they are poorly maintained and are uncomfortable (Hung & Mien, 2013). Some common problems are torn seats, broken window panes, malfunctioning air-conditioner (Hung & Mien, 2013), and the dizzying smell of gasoline upon boarding the bus. Not only the vehicles are run-down, the bus stops are old and have also deteriorated with time. Third, the staff are neither customer-oriented nor they have any incentive to improve the service (Huynh & Gomez-Ibanez, 2017). It was the norm that the bus staff are rude, unhelpful, or unfriendly. This makes the few people that decide to use the bus system (or the people that could not afford to use any other means of transportation) feel an expected discomfort that has since long been associated with the bus staff – and possibly with the entire bus system. Fourth, pickpocketing is also a cause for discomfort on the buses but the drivers would rather do nothing about it for fear of the pickpocketer (himself or his gang) retaliating (Huynh & Gomez-Ibanez, 2017). This leads to perceived low security on the bus and the whole experience with the trip. According to “Ho Chi Minh City buses” (2016), other causes for bus ridership recently plummeting are: the decrease in gasoline prices inducing people to switch back to riding motorcycles, the lack of support for disabled persons, the bus system’s limited coverage, the bus routes not being well-connected causing the change of buses inconvenient and bothersome.

In summary, buses are unpopular as a means of transportation due to many factors: the dominance and continued growth of private vehicles fleets (motorcycles account for 95% of motor vehicles on the street), the buses’ social stigma of being transport for the poor, the buses’ frequent lateness, the discomfort associated with the bus staff and riding the bus, limited network coverage, lack of support for the disabled, and

26 decreasing gas prices. Unsurprisingly, 37% of the passengers on a bus are students, the demographic that is either too young to drive or could not afford a motorcycle (Fang, 2012).

In order to avoid gridlock in the future and to induce the people to switch to public transportation, on December 31, 2016, Hanoi launched its first BRT line spanning 14.5km through the city center with 23 stations. The initial results are disappointing after four month’s run. According to “Hanoi BRT line hit” (2017), the bus service has on average only 42.4 passengers per trip, less than half of its full capacity of 90 passengers. Furthermore, the BRT buses are reported to be full only during rush hours (7-8:30am and 5-6:30pm), while being practically empty for the rest of its daily run (passengers are scarce for 82% of its operating hours). But Hanoi officials are hopeful, in view of the transportation masterplan (2016-2030) involving 11 lines of BRT (for a total of 316km), 3 lines of monorail (a total of 44km), and 8 lines of UMRT (a total of 322km) (JICA, 2016), that they can convince the people to be more open towards buses (and public transportation in general) and make the long overdue switch to public transit system. Similarly, in Ho Chi Minh City, an urban transport master plan was approved in 2007 and envisaged 6 MRT lines, two monorail lines, and one tramway line (ADB, 2010). Ho Chi Minh City People’s Committee plans to have 20-25% of all trips (currently 1.2%) served by public transit by 2030.

2.2. Public infrastructure

The popularity of the motorcycle in Vietnam could be partly due to its road network. To give an overview (the details will be discussed later in the following paragraphs), the road network of Vietnam is extensive but rather narrow and of poor quality; this handicap in mobility has led the people to choose a vehicle that has good mobility and flexibility, but not too slow and can carry goods up to the scale of a simple family business. This situation has led the people to choose the motorcycle as their daily mode of transportation.

For urban transport, despite being of relatively high quality (70% or more is paved), the urban road network consists of mainly small alleys and many streets in the central districts are usually congested during rush hours; thus, this worsens mobility in the urban area. Aside from preferring good mobility in a vehicle, the need to travel only a

27 short distance (and presumably in a short amount of time) in the urban area also pushes more people to use the motorcycle instead of cars (low flexibility) or public transportation (time-consuming).

Due to the lack of published data by the government, most of the information regarding Vietnam’s road infrastructure was drawn from the reports of the VITRANSS 2 project of JICA, which was completed in 2010. The project’s aims were to present an overview on the conditions of Vietnam’s road network and to formulate long-term development strategies and a national road transport master plan, also to explore the capabilities of the road transport agencies and the possibilities for a transfer of technology.

The benefits of having an extensive and well-connected road network is paramount. According to ADB (2012), those benefits include increasing access to better social and economic chances for the part of the population that reside in rural areas. And the more accessible the chances for better education and work opportunities are, the less poverty, gender inequality, and the more economic well-being there is. In summary, the key to improving overall poverty, the people’s living standards, and to promoting social mobility is the country’s own road network.

Compared to other ASEAN countries, Vietnam has relatively high road density and good coverage (Figures 8 and 9): a road network of about 319,000km, of which about 23,000km (7%) are national highways, about 24,000km (7%) are provincial roads, and the rest of the network (86%) comprises of local roads (district, commune, urban, and other roads) (Table 4). However, it should be noted that the ratio of the length of provincial roads to the national highway is 1, this number presents a fact that the road system of Vietnam is a limit to intra-provincial connectivity. Provincial roads could be seen as collector roads for the national highway network and also serve traffic inbetween provinces. For a well-connected and efficient road network, the length of the provincial road network must be as least twofold that of the national road network, as observed in developed countries (JICA, 2010). A limited-length provincial road network could bring about a situation where people tend to use the national highways for intra-provincial connection and this leads to mixed traffic (JICA, 2010). To see why the situation in Vietnam is particularly serious, mixed traffic on the national highway in Vietnam consists of mostly the low-speed motorcycles, and a lower proportion of private cars and heavy trucks, usually in the same narrow lane. Mixed traffic induces

28 more accidents and congestions and slows down the average speed on the highway, therefore, it is both hazardous and inefficient.

Road Density (km/km^2) Road Density Index

Figure 8. Road Density Comparison between selected countries (2006) Note: Data from JICA, 2010. The Road Density Index takes into account also the population of a country. It is compiled by dividing the total road length by the square root of the product of population and total land area. The Road Density measurement is a simple division of total road length by total land area.

Table 4. Vietnam’s Road Network by type of road for 2006 and 2016 2006 2016 Total Length (km) 251787 318669 ____National Road 17295 22660 ____Provincial Road 23138 23729 ____District Road 54962 53964 ____Commune Road 141442 202705 ____Urban Road 8536 8700* ____Other Road 6414 6911 Note. Data for 2006 from JICA (2010), and for 2016 from DRVN (2016), (*) estimated from existing data

Other Road Urban Road 2% 3%

National Road 7% Provincial Road 7%

District Road Commune Road 17% 64%

Figure 9. Distribution of Vietnam’s Road Network by category (2016) Note. Data for compilation from DRVN (2016).

Furthermore, the poor quality of roads in Vietnam further limits the capacity and connectivity of the whole road network. Quality of a road can be measured by whether the road is paved, the width of each lane of the road, the number of lanes on the road, and the condition of the road (usability), all of which are elaborated further below.

The proportion of the national highway network that was paved (either with asphalt concrete, cement concrete, or DBST) was 84%, for provincial roads 66%, district roads 12%, commune roads 21%, urban roads 70%, and 12% on other roads (Figure 10). Overall, only 29% of all roads are paved, this lack of concrete roads in a majority of all roads greatly limits the type of vehicle that can traverse the road, and hence, the flow of people and goods among the country’s provinces. In addition, 39% of the road network was located in mountainous terrain, which was prone to natural disasters and difficulties in network expansion (JICA, 2010). Consequently, access to the main road (or any road at all) for people in the mountainous areas is extremely limited.

Despite having a high proportion of its network paved (84%), the national highway network’s surface condition did not reflect its supposed importance and deserved commitment from the government: only 43% of its network was in good condition, 37% was in average condition, and 20% was in bad or very bad condition (JICA, 2010). Perhaps for the government it was a compromise between expanding the network’s coverage and upgrading the existing network. Undeniably, the low quality of the surface condition of the main roads of the country is again a constraint on that network’s capability to bear the flow of traffic and the connectivity of the whole road network.

160000

140000 Paved Unpaved

120000

100000

80000

60000 Road Length (km)

40000

20000

0 National Road Provincial Road District Road Commune Road Urban Road Other Road

Figure 10. Quality of Vietnam’s Road Network by category (2006) Note. Data for compilation from JICA, 2010.

According to JICA (2010), 54% of the national highway network has width of less than 7m. In other words, over half of the core roads of the country only permit two lanes (one for each direction). Within a lane of roughly 3.5m wide, all kinds of vehicles (motorbikes, cars, trucks, coaches, buses, bicycles – and sometimes pedestrians) are all moving side-by-side creating a mixed traffic flow, which is unsafe and inefficient. Indeed, 40% of the traffic accidents on the national highways was due to speeding and motorized vehicles (cars, trucks, and coaches) overtaking motorbikes.

For urban transport, the majority (70%) of the urban roads in 2006 are paved. Unfortunately, due to the lack of recent data, one does not know the quality of the roads or their capacity in meeting their transport demand. According to Huynh and Gomez- Ibanez (2017), in 2007, Ho Chi Minh City has a road system spanning 7800km, in which 2800km (36%) are conventional roads and 5000km (64%) are alleys. Of the conventional roads, 35% have width less than 7m (only suitable for motorcycle and bicycle traffic), 51% have width between 7-12m (able to fit cars and mini-buses), and only 14% have width more than 12m (suitable for full-sized buses). However, this number (7800km of urban road in HCMC) is not likely credible as the total urban road length in 2006 for the whole country is 8536km, yet the paper claims that HCMC urban road network accounts for the majority (91%) of the national urban road network length. Another possibility is that the alleyways weren’t accounted for in the initial urban network length of 8536km. Another source stated that HCMC road system spans only 4000km (“Traffic jams cost HCM City”, 2016), and this number definitely makes more sense.

Also according to Huynh and Gomez-Ibanez (2017), the proportion of land area dedicated to transport is relatively low in the two largest cities of Vietnam (see Figure 11). In Ho Chi Minh City, only 7.9% of all land area is allocated for transport, and in Hanoi, 9%. The five cities with the lowest proportion of its land dedicated to transport are cities ridden with motorcycles (motorcycle ownership is particularly high and the number of motorcycles on the streets far exceeds that of cars), and the cities with high proportion of land dedicated to transport are all cities with cars as the dominant mode of transportation. This makes sense as motorcycles occupy less space and therefore require narrower roads to go on. Apart from Taipei, as the level of economic development gradually increases in the motorcycle-dominated countries, car ownership also increases alongside motorcycle ownership. If the respective governments do not expand the network to meet each city’s transport demand in due time, the increase in private vehicle ownership will inevitably lead to gridlock in the future, where there occur more frequent congestions that last for a longer duration of time. To ease and slow down the transition from motorcycle- to car-dominance, the governments should also adopt mass transit systems that could attract part of the population to use public transportation.

New York 31.9

Tokyo 16.3

Seoul 13.6

Singapore 12.0

Shanghai 12.0

Hanoi 9.0

Bangkok 8.5

HCMC 7.9

Taipei 7.7

Jakarta 7.3

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Figure 11. Land Dedicated to Transport Comparison for selected cities (% of all land area) Note. Data collection year ranges from 2006 to 2011. Data from Huynh and Gomez- Ibanez (2017).

To further exacerbate the problem, parking spaces in both cities of Hanoi and Ho Chi Minh City are severely lacking (“Hanoi, Ho Chi Minh City in dire need”, 2017). In the central districts of Hanoi, 590 parking lots with total area of 0.389 km2 are currently operational and only serve 8-10% of the total parking demand there, and the 939 public parking lots throughout Hanoi only serve 66% of the total parking demand of the whole city (“Hanoi tackles parking space shortage”, 2017). Meanwhile, the situation in Ho Chi Minh City is not much better: the central districts of Ho Chi Minh city only have one multi-story parking facility that can house 500 cars and 3900 motorcycles, and according to its manager, parking spaces for cars are always in high demand. The common problem in both cities is the lack of parking space for cars, this results in cars having to park on sidewalks and on part of certain streets of the central districts (“Hanoi, Ho Chi Minh City in dire need”, 2017) and consequently exacerbates the already-severe congestion problem of the two cities.

2.3. Underdeveloped Automotive Industry

Vietnam’s automotive and automotive component industries are relatively small even compared to ASEAN neighboring countries (GMRT, 2016). According to GMRT (2016), in 2015, Vietnam’s share in unit production and unit sales of the ASEAN region are 1% and 7%, respectively. In 2015, Vietnam produced 42,000 cars while the market leader, Thailand, produced 1,915,000 cars. Also in 2015, Vietnamese consumers bought in total 209,000 cars while Indonesia – the largest car market in ASEAN – consumed a total of 1,031,000 cars. But even that is pale in comparison to the market for cars in the US or Europe.

There are several ways to look at the question of “why motorcycles are popular in Vietnam”. One way is “why do the Vietnamese not use public transportation more?”, which was thoroughly answered in Section 2.1.5. Another way is “why do the Vietnamese not use/buy more cars?”; to answer this question, one needs a good understanding of how the motorcycle and automobile industries in Vietnam have developed since the beginning, in order to see why they arrive at their current respective positions today.

2.3.1. The motorcycle and automobile industries in Vietnam

The private vehicle industry in Vietnam in the post-unification era is rather infant, with both the local motorcycle and automobile industries began at roughly the same time: after the Doi Moi economic reform in 1986 where the communist party of Vietnam liberalized trade and letting private enterprises invest in Vietnam under the form of FDI. Despite starting at about the same time, the motorcycle industry soared while the automobile industry stagnated (Figure 12). The main reason for that is the relatively low income of the vast majority of the Vietnamese at the time. The following paragraphs attempt to give a brief overview on the history of the two interrelated industries that started at about the same time and ended up in vastly different places today.

It is beneficial to understand first the car industry jargon that is used frequently in the real world as well as in academia. A completely built-up (CBU) car is a car wholly assembled in a foreign country and later imported for sale into the domestic market. A completely knocked-down (CKD) car is a car whose parts are first imported into the domestic market, are assembled there and later sold to the aforementioned market. A

CKD car is usually cheaper than a CBU car in Vietnam because of the tariff levied on a car imported whole is many times greater than the tariff levied on individual car parts. The localization rate (or local content ratio) of a vehicle is the proportion of the vehicle that is domestically produced. For example: Toyota Innova – a passenger car model of the company Toyota Motor Vietnam – has a localization rate of 37% in 2017 (Toyota Motor Vietnam, 2017), that means 37% of the components of the car are made in Vietnam (either made in-house by Toyota Vietnam or outsourced to other companies in Vietnam) rather than imported, the remainder (63%) are imported from outside of Vietnam.

Figure 12. Number of Registered Motorcycles and Automobiles in Vietnam (1990- 2006) Note. Reprinted from Subsector Report No. 01: Road and Road Transport (The Comprehensive Study On The Sustainable Development Of Transport System In Vietnam (VITRANSS 2)) by JICA (2010), p. 2-12.

The automobile industry of Vietnam did not begin until the early 1990s. Before 1991, all vehicles are imported by the government – the nation’s main user of cars – from the USSR and several Eastern-bloc countries (countries or territories under the rule of a communist party) to build large capacity buses (Nguyen, 2007). At the time, there were no private domestic firms doing car assembly lines or producing car parts in Vietnam; there were only car repairing firms. In 1991, following a decision to foster a local automotive industry, the government issued auto assembly licenses to about 30

35 regional assemblers; these included private local Vietnamese companies, joint ventures, state-owned enterprises, and foreign OEMs (PwC, 2007). One of the first global OEMs to invest in Vietnam (through Japanese FDI) were Toyota, Mitsubishi, and Isuzu. Car assembly factories were built in the vicinity of the Hanoi and Ho Chi Minh City – the two largest cities of Vietnam; CKD car assembly began in 1995 (PwC, 2007).

The government, since the beginning, has employed several measures to protect the infant car industry, which include two contradicting ones. On one hand, in order to attract FDI as well as domestic investment and consumer interest in the automotive industry, the government offered initial incentives to the very first investors. These incentives came in the flavor of tax exemption schemes: income tax exemption for the first four years (and at attractive rates thereafter), car parts import tariff exemption, VAT exemption (Nguyen, 2007). All foreign car-makers wanting to enter the Vietnam market at the time were required to partner with a local Vietnamese company – most of the time state-owned enterprises. The aforementioned incentives, coupled with the government’s requirement of local partnership (joint venture), can be best understood as the government’s effort to foster a local car making industry with personnel development and technology transfer.

On the other hand, the government imposed on imported cars (or imported car parts) one of the highest taxes and import tariffs in the Southeast Asia region: 74% on CBU units and up to 60% on excise tax (Oxford Economics, 2015). While the reason for the high tariffs for CBU units made sense as to thwart competition from multinational firms and to foster a local car industry, CKD cars were also faced with frequently changing taxes and tariffs for quoted reasons of state budget deficits and growing concern for congestions (Hansen, 2016a; “Vietnam’s auto industry still”, 2017). This made it very costly for consumers who had to buy cars at such high prices – whether it were CBU or CKD cars. Because at the time very few people can afford a motor vehicle, not to mention a car, the passenger car market became a niche market for the wealthy in Vietnam. Consequently, the car market has been small and stagnant and this in turn led to the underdevelopment of the automotive component (car parts) industry.

In order words, the government was supporting the local car industry with generous tax exemptions while simultaneously restricting the growth of its only market by

36 imposing tariffs thereby pushing up car prices significantly (Hansen, 2016a). The government’s confusing policy regarding the automobile sector over the span of 25 years since its dawn has eventually led to its current state of having a small market and stagnation. All in all, the automotive industry has been, up until now, a disappointment. But things might not stay the same any more as it was not until very recently that Vietnam’s passenger car market began heating up again (Hansen, 2016a), and in due time, too.

Meanwhile, Vietnam’s motorcycle industry traversed a different path entirely with strong growth born from stiff competition from China in its initial stages. The summary given on Vietnam’s motorcycle industry utilizes Fujita (2013a) as the main source of information.

The motorcycle industry in Vietnam can be divided into three stages (Fujita, 2013a). The first stage (mid-1990s to end of 1999) was similar to the initial stage for the automotive industry: the government offered preferential tax incentives, and at the same time also imposed high tariffs on motorcycle imports in order to attract investments (FDI or joint ventures) into the Vietnamese motorcycle market. Three Japanese companies (Honda, Yamaha, and Suzuki) and one Taiwanese company (Sanyang) were the first ones to invest. Later, as if mirroring the automotive industry, during this stage, initial sales for motorcycles were low and stagnated (Figure 13) due to high prices of the motorcycles compared to the people’s average income. The situation would have proceeded down the same path as the car industry if not for the influx of cheap Chinese knock-offs in the second stage.

Figure 13. Motorcycle sales in Vietnam by manufacturer (1998-2009) Note. Reprinted from The Motorcycle Industry: The Global Context and the Vietnamese Case. In Exploiting Linkages for Building Technological Capabilities (pp. 9-19). Springer Japan by Fujita (2013a), p. 15.

The second stage (2000-2004) began with a large influx of cheap imported Chinese motorcycles into Vietnam (under the form of CKD kits since the government had banned CBU imports since 1998), so-called “the China shock”. Being a knock-off of the Japanese firms’ motorcycle models, the Chinese motorcycles’ prices were only a third or fourth of the prices offered by Japanese firms. These low prices eventually tapped into the potential that the Japanese did not exploit – the low- and middle-income classes – and in 2001, the market rapidly expanded and penetration of the Chinese motorcycles was high with 80% of the market share belonging to the local Vietnamese assemblers that imported CKD kits from China. The China shock initiated fierce competition between the Chinese motorcycle local assemblers and the Japanese manufacturers who wanted to recover their lost market shares. In 2002, Honda Vietnam put out a new model, “Wave Alpha”, with price only a third that of its previous models, and gradually regained their market share.

In 2002, in one desperate attempt to stop the proliferation of (low-quality) motorcycles, the government imposed, among others, a quota on imported components, restrictions on motorcycle registrations, and limits on production capacity expansion (Fujita, 2013b). This action again put a constraint on the motorcycle industry’s domestic

38 market, and effectively restricted its growth. Along with restrictions, the government also tightened quality and environmental standards for the motorcycle, which greatly reduced the number of low-quality Chinese motorcycles. The motorcycle industry also complied with the government’s request of increasing the localization rate to 20% in motorcycle assembly. By the end of the second stage, despite governmental restrictions, the popularity of the motorcycle was widespread, owing partly to the China shock, which has successfully marketed the motorcycle as an affordable mode of transportation.

The third stage (2004-2008) witnessed strong growth in the motorcycle industry after the government – following its entry into the WTO – abandoned all previously imposed restrictions on imports, motorcycle registrations, and production expansions. This act boosted further the already flourishing motorcycle market, whose growth was evident in the motorcycle sales in this period – and thereafter (Figure 14). The boom of the Vietnamese motorcycle market stimulated renewed interest in the industry and in turn attracted FDI into Vietnam. In 2013, the motorcycle industry of Vietnam already had a high localization rate (70-95%, Nguyen & Ho (2013)) with Honda being the market leader both in market share (70%, Bach Duong (2016)) and in localization rate (95%).

3.5 3.3 3.1 3.1 3.12 3 2.8 2.8 2.85 2.7 2.71 2.6 2.4 2.5 2.1 2 2 1.7 1.6 1.4 1.5 1.3

1 0.5 Number motorcycles of (million) 0.5 0.3

Figure 14. Motorcycle Sales in Vietnam (1998-2016) Note. Data for 1998-2013 from Hansen (2016b). Data for 2014 from Minh Anh (2015), data for 2015 and 2016 from sales reports of VAMM (2017).

In summary, the car industry and the motorcycle industry of Vietnam began at roughly the same time (early 1990s) but later went down vastly different paths as time progressed. Both industries were initially incentivized and protected from foreign competition by the government; these came in the form of several tax exemptions and high import tariffs for new vehicles, respectively. The Vietnamese government were, on one hand, trying to nurture the young industries while on the other hand, restricting their only market. The government’s policy for developing the respective industries were confusing at best and damaging with long term consequences at worst. The motorcycle industry was able to pick itself up from the then-looming stagnation of the market owing to “the China shock” where cheap low-quality knock-offs from China flooded into Vietnam and stiff competition ensued between the Japanese manufacturers the local assemblers importing Chinese CKD motorcycle kits. The result of the competition was a boom in the motorcycle market that has lasted still (even now). But the automotive industry was not so lucky as to be able to overcome the government’s restrictions at the beginning. Falling short of expectation, the niche market never had the chance to expand to its full potential but rather stayed a small market and along with it, an underdeveloped supporting industry. The current automobile market now shows signs of the long overdue growth it deserved, despite growing concern for urban congestions and pollution.

2.3.2. Underdeveloped Automotive Industry

At the end of 2016, Vietnam has a total of 173 carmakers and car assemblers and the localization rate for Vietnam’s car industry averages 7-10% (“Ministry admits to failure”, 2017). This figure is a mere fraction of the Vietnamese government’s set target of 60% in 2010, although the localization rate for some local assemblers did indeed reach the range of 40-60% (Table 5). The localization rate also depends on the vehicle produced: usually 0-20% for passenger cars, and 20-60% for trucks, buses, etc. (Nguyen, 2007). In 2017, Toyota Motor Vietnam reached a localization rate of 19-37% for passenger cars (Toyota Motor Vietnam, 2017), which is among the highest ever reached by a company in Vietnam. These figures are still low compared to the region average. For comparison, the average localization rate of the automobile industry in the Southeast Asian region is 65-70% (“Ministry admits to failure”, 2017), and particularly Malaysia 80%, Indonesia 75%, and Thailand 85% (Solidiance).

Table 5. Localization rate of selected automobile companies in Vietnam (2007) Localization Automobile company Brand rate (%) 1 Xuan Kien Private Enterprise Vinaxuki 60 Vietnam Engine Agricultural 2 Veam 40 Machinery Corp. Saigon Transportation 3 Samco 40 Machinery Corp. 4 Truong Hai Auto Corp. Kia, Daewoo, Foton, Thaco 40 5 Vietnam Motor Industry Vinamotor 40 6 Vietnam Coal Corp. Kamaz, Kraz 35 7 Honda Vietnam Honda 20 8 Toyota Motor Vietnam Toyota 20 9 Vinastar Motor Mitsubishi 14 10 Isuzu Vietnam Isuzu 12 11 Vietnam Motors Corporation BMW, Mazda, Kia 12 12 Vietnam Suzuki Suzuki 10 13 Vietnam Daewoo Motor Daewoo, GM Daewoo 8 14 Ford Vietnam Ford 6.45 15 Mekong Auto Fiat, Iveco, SsangYong 4.6 16 Vietindo Daihatsu Automotive Daihatsu 4 17 Hino Motors Vietnam Hino 2.06 18 Mercedes-Benz Vietnam Mercedes-Benz 1.5 Note. Reprinted with modifications from Industrial policies as determinant of localization: the case of Vietnamese automobile industry by Nguyen (2007), p. 13. Retrieved from http://www.grips.ac.jp/vietnam/VDFTokyo/Doc/34NBThuy21Jul07Paper.pdf

According to PwC (2007), there are several reasons for the underdevelopment of the automotive industry in Vietnam, which can be divided into two categories: reasons from the demand side, and those from the supply side. Demand-side reasons include underdeveloped infrastructure (lack of highways, more/better roads, severe lack of urban parking space), high taxes and import tariffs, low per-capita income, removal of the ban on importation of used cars. Supply-side reasons include uncertainties about future increases in special sales tax, the stagnant domestic market, consistent infrastructure issues (frequent electricity cuts), lack of capital investments, the lack of a mold and die industry, lack of modern machinery, and shortage of skilled engineers in R&D.

The situation of the underdevelopment of the automobile industry in Vietnam is a vicious circle, as evident in Figure 15. A small market size discourages companies from expanding their production capacity, and low production leads to an underdeveloped supporting industry (car parts), which leads to high parts costs (due to having to import or produced domestically but at a low efficiency), which drives up car price, which in turn leads to a small market. High taxes and tariffs also impede growth by contributing to driving car prices up significantly.

Figure 15. The Vicious Circle of the Underdevelopment of the Vietnamese Automobile Industry Note. Reprinted from Vietnam’s Automotive Component Industry: Ready to go global? by PwC (2007), p. 7. Retrieved from http://pwc.blogs.com/files/vietnam.pdf

2.4. Tax Policy

It was one interpretation to say that (due to low income) most Vietnamese were not able to afford a car, it was another to purport that that was because of the high taxes and tariffs levied on one car. The following paragraphs will focus on the restrictive taxes and tariffs that the government has imposed on the passenger car industry (thereby significantly driving up car prices and putting cars out of most people’s reach) and attempt to give a comparison on different countries’ tax and tariff policy on passenger car import.

Information on tax rates and fees on cars are mainly referenced from Sieburg, Nguyen, and Pham (2017) and “Một chiếc ô tô phải chịu” (2015).

2.4.1. Tax structure for passenger cars in Vietnam

An imported car bears on itself four kinds of taxes:

1. Import tax: 50-70% on original car price for CBU, 10-20% on component price for CKD. Previous ASEAN Free Trade Area (AFTA) commitments dictate that Vietnam must set its import tariff for cars imported within ASEAN from 30- 50% to null (0%) in 2018 (Hansen, 2016a). But this does not necessarily mean that car prices will fall as the government seeks to impose a higher luxury tax rate on cars (“Will Vietnam’s car prices ever fall?”, 2017; Tran Thuy, 2016). Following a foreseeable decrease in import tariff, car manufacturers are leaning towards importation of cars instead of producing domestically (Tran & Cao, 2017; Hansen, 2016a). 2. Special Consumption Tax (excise tax or luxury tax): 35-150% on original car price depending on engine displacement. The new law that will be going into effect in 2018 dictates that lower capacity cars should not be taxed as heavily as before, and higher capacity cars taxed more heavily. This tax is a progressive tax, that means the higher engine displacement, the higher the proportion of the special consumption tax in its total price. 3. VAT 10% 4. Corporate Income Tax 22%

The calculation method for car taxes is multiplicative on the original car price, not additive. For example, a certain car have to bear 50% import tax, 40% excise tax, VAT 10%, and Corporate Income Tax 22%. The displayed price of the car would be calculated as follows: Car Price = Original Car Price × (1+50%) × (1+40%) × (1+10%) × (1+22%) = Original Car Price × 2.8182 and not Original Car Price × (1+50%+40%+10%+22%) = Original Car Price × 2.22 which yields a lower multiplier than the multiplicative method.

2.4.2. Fees in buying and owning a car in Vietnam

To get the car running, car owners have to pay 5 kinds of mandatory fees, and gasoline:

1. Registration fee: 10-15% on post-tax car price depending on city of registration. Ho Chi Minh City demanded 10%, and Hanoi 12%. 2. License plate registration fee: 2-20million VND depending on city of registration and vehicle type. For motorcycles 0.5-4million. 3. Inspection fee: 240k-560k per inspection. Time interval between inspections depends on car age. For passenger cars, new to 7-year-old cars are required to register for inspection every 18 months, 7- to 12-year-old cars every year, 12- year-old and older cars every 6 months, for commercial vehicles and trucks every 3-12 months depending on vehicle type. 4. Road maintenance fee: fixed 130k-1430k per month depending on car weight, variable: BOT station fees depending on usage 5. Liability insurance: for passenger cars 437-1825k per year, for commercial vehicles 756k-5563k per year depending on number of seats, for trucks 853k- 3200k per year depending on weight. This fee for motorcycles ranges from 55- 60k per year. 6. Gasoline: depending on usage, 17-20k/liter

Fees that depend on city of registration are highest in Ho Chi Minh City and Hanoi. This makes sense because congestion and air pollution problems in those two cities are the most severe, compared to other cities in Vietnam. Among other measures, taxation is one way for the government to control or restrict the market out of concern for urban congestions and pollution, but the real question remains: do the benefits to levying such high taxes (reduction in number of vehicles bought and registered) outweigh the costs?

2.4.3. Comparison with other countries

The price of a car sold in Vietnam is higher than that of other countries in the same region (for example: Thailand), and even surpasses that of developed countries (Figure 16) while having real GDP per capita at a much lower range. Although car sales

44 growth are higher than ever with 38% CAGR (Sieburg, Nguyen, & Pham, 2017), it is safe to assume that cars in Vietnam are out of reach for most Vietnamese.

450000 400000 350000

300000 USA Germany Australia 250000 Thailand Vietnam Singapore 200000 150000 100000 50000 0 Toyota Camry Ford Fiesta Mazda3 Honda CR-V Mercedes S500 2.5G USA 13660 17845 24045 23070 99575 Germany 13671 21600 34769 0 95986 Australia 11866 16970 23000 20000 182625 Thailand 18218 31690 35350 45478 181251 Vietnam 25389 29818 50778 54198 286735 Singapore 63261 92470 99830 143000 409310

Figure 16. Car Price Comparison for Selected Countries (2017) Note. Toyota Camry 2.5G is not sold in Germany. Data from “So sánh giá xe Việt Nam và thế giới” (2017).

In producing a car, Vietnam has considerably higher production costs than other countries in the same region (Figure 17), which, coupled with a relatively high tax factor, made car prices in Vietnam among the highest in the region. Although well- illustrated, Figure 17 is outdated; one does not know whether the situation has changed or not, one can only speculate by drawing on current events. The parts cost factor might have shrunk a little due to economies of scale achieved in the past 20 years (albeit limited). The tax factor might have grown considerably since 2004 because the government might have wanted to restrict the number of cars on the street as having more of them would only strain the already insufficient road system more.

Figure 17. In the Price of a Car: Automobile Cost, Taxes and Tariffs Comparison between Vietnam, Malaysia, Thailand, and the Philippines (2004) Note. A typical Japanese car model was selected for comparison. Reprinted from Vietnam’s Automotive Component Industry: Ready to go global? By PwC (2007), p. 7. Retrieved from http://pwc.blogs.com/files/vietnam.pdf

3. Discussions

Along with the growth in personal vehicle ownership, urban transportation problems almost always arise as a consequence. According to JICA (2011), the most salient urban transportation problems include traffic congestion, inconvenience (limited accessibility due to underdeveloped transportation system), decline of traffic safety, air and noise pollution, social injustice and inequality (lack of access to affordable means of transportation for low income classes in urban areas). This section deals with some of the themes just listed. Specifically, the section focuses on elaborating the social impact (traffic accidents and congestions) and the environmental impact from having a large fleet of personal vehicles – especially motorcycles – can have on Vietnam’s society.

3.1. Social Impact 3.1.1. Traffic Accidents

According to WHO (2015), globally, over 1.2 million people die each year on the road, with millions more sustaining serious injuries. Most of the deaths (90%) occur in low-

46 and middle-income countries, which only own half of the world’s vehicles. In 2013, out of all the people who die on the road each year, 23% of which are caused by or involved motorcycles (WHO, 2017a). This figure varies by region (Figure 18) and the Southeast- Asian and Western Pacific regions have the highest proportion of accidents involving motorcycles with a figure of 34%. This is due to the fact that the motorcycle ownership rate in these two regions are particularly high and higher than the car ownership rate. For the other regions, cars are the lead cause of accidents, ranging from 35-51% of all accidents. This proves that prevention of accidents (road design, regulations, education) in the Southeast Asian and Western Pacific regions should be primarily focused on motorcycles, alongside restricting the growth of car fleets. It is a whole other problem to manage motorcycles as the main mode of transportation because research, literature, and guidance are abundant and of high quality in the higher- income countries and in those countries, cars emerge as the main mode of transportation. As a consequence, the lower-income countries that have motorcycles as the main mode of transportation do not inherit experience and expertise of the Western world on the motorcycle problem, only investments and professional advise are viable. Therefore, intensive and quality research grounds need to be established and further nurtured in the future.

Figure 18. Road traffic deaths by type of road user (2013) Note. Vietnam belongs to the Western Pacific region, classification done by WHO. Reprinted from Powered two- and three-wheeler safety: a road safety manual for decision-makers and practitioners by WHO (2017a), p. 19. Retrieved from http://www.who.int/violence_injury_prevention/publications/road_traffic/ptw_manual/e n/

In Vietnam, the proportion of accidents involving motorcycles is higher, with the most recent statistics in 2016 reported a proportion of 67% (Nguyen, 2017a). Cars are involved in 27% of all accidents, and 6.3% other causes (Nguyen, 2017a). It is dangerous to drive a motorcycle in Vietnam, partly due to the consequences caused by mixed traffic situation. The number of accidents, as well as the number of deaths and injured have all steadily decreasing in recent years (Figure 19), often touted in the national news as due to the continued effort of the government to reduce fatalities on the road. These figures come from official governmental source of data, but its credibility is to be doubted. As revealed by WHO (2015), Vietnam’s reported road traffic fatalities in 2013 was 9156 cases, but the figure estimated by WHO for the same year was 22419 cases – a figure 2.5 times more than that estimated by government agencies. This might suggest that either the government is underreporting accident

48 figures or people in Vietnam are not reporting their accidents to the authorities. The government might have an incentive to underreport, for example: to answer domestic and foreign pressure to reduce road fatalities, or to give an impression that the country is safer than everyone thought it to be. This behavior of underreporting (either by the government or by its citizens) is detrimental in the long run, because all efforts directed toward reducing accidents on the road now has unclear effects, one does not know to what extent they work, and whether they work at all.

40000

35000

30000

25000

20000

15000 Number cases of

10000

5000

0 2012 2013 2014 2015 2016

Injured Deaths Accidents

Figure 19. Road Traffic Safety in Vietnam: Accidents, Deaths, and the Injured (2012- 2016) Note. Data from GSO (2017b).

From the data in Figure 19 one can infer that, for example, in 2016, every day on average 24 persons left their home and never came back, another 53 came back injured or disabled. These figures really show the seriousness of traffic fatalities in Vietnam. According to Nguyen (2017a), of all traffic accidents in Vietnam in 2016, 97.8% happen on the roads, while 1.7% happen on railways, and the remaining 0.5% on waterways. The top causes of traffic accidents in 2016 are wrong-lane driving accounting for 24% of all cases, and ignoring traffic signals accounting for 11%. Other causes are speeding (9%), wrong turning (9%), wrong overtaking (6%), and alcohol use (3.4%), the remaining (36.6%) are unknown. Most traffic accidents happened on national highways (36% of all accidents) and urban roads (34%). Of the people who were involved in a traffic accident (fatal or not), 48% were in the range of 27-55 years

49 old, and 35% were in 18-27 years old. According to WHO (2016a), in 2015, road injury was the main cause of death among young people (15-29 years old) in Vietnam, accounting for nearly 30% of all cases. This should raise the alarm for the government to give high priority to preventing accidents and protecting the youth of the country – who are in their prime age to work.

Although having a steadily decreasing number of accidents, Vietnam’s rate of road fatality is among the highest in the region, and its motorcycle fatality rate the third highest in all of WHO participating countries (WHO, 2017b). Figure 20 presents a comparison of motorcycle fatality rates among selected countries in 2015. Vietnam is only second to Thailand with a motorcycle death rate of 16.9 persons per 100,000 persons in 2015. This means that out of 100,000 persons, 24.5 died of road injury, in which 16.9 specifically died of road injury caused by motorcycles. The countries having high rate of road fatality are mostly low- or middle income countries, many of which caused by the overwhelming fleet of motorcycles in these countries. It is estimated that Vietnam lost 2.5% of its GDP annually due to traffic accidents, while its growth rate is currently 6% per annum (“VN loses 2.5% of GDP from traffic accidents”, 2016).

In conclusion, the seriousness of the traffic accident situation of Vietnam can best be put as, as one government official of Vietnam once stated, in Vietnam the death toll by traffic accidents in three years is longer than that by pandemic diseases in 100 years combined (“In Vietnam, traffic accidents”, 2016).

40.0 36.2 35.0 Total Deaths Motorcycle Deaths 30.0

24.5 25.0 24.0 20.3 20.0 18.8 16.6 17.4 15.3 14.3 15.0 12.0 10.5 26.3 10.0 16.9

Deaths Deaths per 100,000 in population 14.9 4.3 4.7 12.3 5.0 9.6 5.5 5.5 5.6 5.1 4.7 2.0 0.0 0.8 0.8

Figure 20. Road and Motorcycle Fatality Rate Comparison for selected countries (2015) Note. Data from WHO (2017b). “Total Deaths” means road fatality rate, and the “Motorcycle Deaths” is the proportion of road fatality rate caused by motorcycles. Data for Vietnam was unavailable, with only one figure of total road fatality rate available (24.5 deaths per 100,000 persons). Data for the proportion of accidents caused by motorcycles was 69% in 2015 (Huu Phuoc, 2016). Therefore, the estimated motorcycle fatality rate for Vietnam is calculated as 24.5 × 0.69 = 16.9.

3.1.2. Congestions

Congestions are a waste of resources (fuel, time, effort) and a contributor to air pollution and (mental) stress. Traffic jams usually happen in the two biggest cities of Vietnam – Hanoi and Ho Chi Minh City – where apparently there are more motorcycles than people (Filek-Gibson, 2016). In Ho Chi Minh City, there are 37 traffic congestion spots (‘hotspots’), 6 of which are in the central areas, another 6 around the city’s busy Tan Son Nhat airport, 3 at a seaport, 8 at the city’s gates, and the remaining 14 scattered around town (“City proposes solutions to traffic congestion”, 2017). Hanoi may have it worse with a total of 41 hotspots concentrating around ring roads (city’s gates), coach and railway stations and roads under construction (“PM heads steering committee”, 2017). These hotspots are either frequently congested (during rush hours) or always congested. The government may have underreported the number of hotspots as well as the severity of a congestion due to different definitions (“A Look at

Saigon’s”, 2015). Government officials believe that a congestion must consist of “at least 30 minutes of stand-still congestion on a given street” (“A Look at Saigon’s”, 2015). This means that even if one can inch forward a few centimeters each at a time interval of 15 minutes, the situation is not considered a congestion. The real situation may be far worse than reported by the government. According to Filek-Gibson (2016), it is estimated that traffic jams cost Ho Chi Minh city US$ 820 million to US$ 1.2 billion each year, which is about 2-3% of the city’s annual GDP of US$ 40.6 billion (Huynh & Gomez-Ibanez, 2017).

3.2. Environmental Impact

Increasing density in cities comes with increasing demand for transportation, and with it comes increasing demand for fuel consumption, congestions, and pollution. Although the car ownership rate in Vietnam is not as high as that in developed countries, it is definitely increasing along with the motorcycle fleet, and at alarmingly fast rates at that (Section 2.1.1). A motorcycle has better fuel efficiency than a car, thus they emit less carbon dioxide per km travelled, but due to less sophisticated engine design and a lack of (tight) emissions standards for motorcycles, they emit more carbon monoxide and smog-forming pollutants (HC, NOx, CO) than cars (Carpenter, 2011). As Carpenter (2011) stated, regarding whether a motorcycle is better than a car in terms of air pollution, at best, it is a tie, at worst, it is far worse. Vietnam has an already overwhelming fleet of motorcycles and a steadily increasing fleet of cars. This presents huge pollution problems for citizens of the two large cities as personal vehicle ownership increases.

It is beneficial to have knowledge of air pollution indicators and the pollutants’ effects on human health to better understand the meaning behind its statistics. According to UNESCAP (2015), transport emissions include particulate matter (PM), nitrogen oxides (NOx), sulphur oxides (SOx), carbon oxides (COx), hydrocarbons (HC), and volatile organic compounds (VOCs). These air pollutants cause serious damage to not only human health but also ecosystems (Rossman, 2009; Swedish Environmental Protection Agency, 2001). According to the Swedish Environmental Protection Agency (2001), road traffic is believed to cause at least 50% of the particle emissions in the urban areas and up to 90% of those occurring at street level. This section focuses on

PM – specifically, PM2.5; they are particulate matter refers to particles in the air having

52 a diameter smaller than 2.5 microns. For comparison, a strand of human hair has an average diameter of 50-70 microns, and one fine grain of sand averages 90 microns in diameter (EPA, 2014). PM2.5 are produced from all types of combustion, including motor vehicles, power plants, agricultural burning, some industrial processes, etc. In the setting of cities and urban areas, PM2.5 are mainly produced from the combustion engine of motor vehicles. The effects of PM2.5 on human health is particularly serious because once inhaled, it can enter our bloodstream and cause irritation and inflammation in the respiratory and circulatory systems (Tamagawa et al., 2008). In the long term, it could reduce lung function and cause asthma and heart attacks (EPA, 2014).

The urban areas of Vietnam has an average concentration of 27.59 microns/m3 in 2014, this figure is in middle range compared to countries of the same region or same economic development level (Figure 21). As discussed before, this number is bound to increase as personal vehicle ownership increases and when that inevitably happens, the damage to the people’s health, albeit gradual, will be huge and irreversible. In 2016, 3 the average air quality index on PM2.5 in Ho Chi Minh City was 26.93 microns/m (24- hour mean), and 145 days in which has air quality greater than 25 (EPA, 2016), which exceeded the limit set out in the Air Quality Guideline (WHO, 2006). In Hanoi, already 3 in 2010, motorcyclists are exposed to up to 580 microns/m of PM10 (particles in the air having a diameter larger than 2.5 microns and smaller than 10 microns), pedestrians 495 microns/m3, car users 408 microns/m3, bus users 262 microns/m3 (Clean Air Asia, 2010).

70 65.72 59.47 60 56.63

50 3 40 33.53

30 27.15 27.26 27.59 27.81

microns/m 25

20 16.57 17 17.77 12.94 14.39 10

Figure 21. Average Annual PM2.5 Concentration in Urban Areas Comparison for selected countries (2014) Note. The mean is a population-weighted average for urban population in a country. Data from WHO (2016b).

Vietnam’s overwhelming fleet of motorcycles is naturally the main cause of much of the air pollutants in urban areas (Ho & Clappier, 2011; Do, 2011), but commercial freight transport vehicles, albeit accounting for only about 2% of total vehicles in

Vietnam, account for 32% of the CO2 road emissions in Vietnam, while motorcycles account for 96% of all vehicles and account for 46% of transport emissions in 2010 (Clean Air Asia, 2012). This has clear policy implications: curbing emissions from freight vehicles is just as important (if not more) as doing that for motorcycles.

The question remains that if instead of motorcycles, would it be better for the environment if the people use cars as their main mode of transportation? This question was explored by Clean Air Asia (2010), where modal shifts were considered for the city of Metro Manila, Philippines. The analysis revealed several important findings: first, a

5% trip mode shift from motorcycles to cars would increase CO2 emissions per year by 4.17%, and a decrease per annum of 15.8% for a 5% trip mode shift from cars to motorcycles. These results make sense for Metro Manila as the modal split in Metro Manila consists mainly of cars and very few motorcycles (Narboneta & Teknomo, 2016). The limitation of this analysis is that it did not explore other air pollutants but only focus on CO2 where there are more harmful pollutants produced from the tailpipes

54 of motorcycles. But it did show that shifting from motorcycles to cars can be worse for the environment. The question of which modal shifts from one personal motor vehicle to another motor vehicle is better for the environment is problematic in its conception6. The “right” policy should focus on how much pollution could be reduced by encouraging more people to switch from personal motor vehicles to public transportation.

3.3. Solutions by the government

As discussed in Section 2.1.4, the ever-growing fleet of personal vehicles – especially motorcycles – is a bane to a nation’s urban sustainability, road infrastructure, and the health of its citizens. The long term sustainable solution for the government is to foster an effective and efficient mass transit system to accommodate the eventual shift from motorcycles to cars as people’s income improve in the future. But a fully operational mass transit system is not expected at least for another 13-15 years in both cities (Hanoi and Ho Chi Minh City). In the mean time, it is crucial that the government devise short-term plans to encourage/educate the people about the benefits of using a public transportation network, to cope with the increasing demand in personal vehicle transport, also to help slow down the speed of motorization as well as controlling the congestion and pollution (air/noise) that arises from such growth in demand.

When there are just too many vehicles on the streets, straining the fragile and limited road infrastructure, one might think of a two-sided approach: on one hand, one might try to decrease the number of vehicles on the streets by either restricting by means of a quota or by some kind of fee for use, or encouraging the people to switch to other greener modes of transportation; on the other hand, one might think about upgrading the weak infrastructure and employing transit oriented development (TOD) where the buildings of interest (housing, retail, offices, stations,…) are placed sufficient near (to- be-built) public transportation network to encourage the use of public transportation in the future.

6 First, this is a false dichotomy. Second, modal shifts could change supply and demand of motorcycles and cars and hence affecting production levels and the pollution caused by assembling factories. The situation poses at least two sources of pollution one needs to consider when comparing pollution levels of different modal shifts: pollution coming from industry processes and pollution from transport.

At this point, it is clear that the mass adoption of cars as the main mode of urban transportation is not sustainable for the urban areas of Vietnam, at least for now (World Bank, 2011). One might even suggest building more and better roads (‘upgrading the road infrastructure’) to accommodate the inevitable. However, this approach is rather difficult and expensive to implement in practice, and experience from developed countries show that increasing road space alone would only encourage more people to use cars which would eventually lead to more and more severe traffic jams (World Bank, 2011), if not total gridlock. Another direct consequence of having more cars on the streets would be increased emissions and pollution.

According to World Bank (2011), although not a popular choice, cities might consider maintaining the status quo of motorcycles as the main mode of transportation to discourage people from buying more cars, which would further strain the road system and cause gridlock in the city center. The cities could further discourage the use of cars by first restricting the addition of new cars to the fleet by levying high taxes and tariffs on cars (which has already been done by the Vietnamese government, see Section 2.4), or second by restricting the use of existing cars by introducing a congestion charge (Huu Cong, 2017; Topham, 2011). The city of Hanoi have also considered banning motorcycles altogether in 2030 (“Hanoi plan to ban”, 2017) but the idea itself is controversial and even more so the execution (if that ever happens). Hanoi also considered allocating different work and school hours to combat congestion during rush hours (Vo Hai, 2017) but after a short testing period, they aborted the plan altogether because no real effect on congestion was observed during the test period. This goes so far to say that the cities’ authorities have been trying their best and coming up with plans along the way, but some of these plans are either costly, impractical or have little effect.

Instead of seeing the motorcycle as something that needs to be eliminated (the complete ban of which proved to be impractical as Vietnamese love their motorcycles) or substituted for (for example: by BRT7 or MRT system), the government should

7 According to World Bank (2011), the likelihood of people switching to BRT from previously using motorcycles is low. A feasibility study had reported that the use of BRT would only make economic sense if the trip is longer than 15km. Because most motorcycle trips cover a distance shorter than 15km on average, very few people would make the switch. This emphasizes that the BRT system should not be designed as a subtitute for motorcycles but as a one whole transportation system that has competitive advantages over cars.

56 integrate it into a system of transportation that can compete in convenience and cost to the car (World Bank, 2011). Specifically, the motorcycle could be used as a ‘feeder’ to public transportation systems, people would be commuting to MRT or BRT station by motorcycle and then proceed to go to work or school by MRT or bus. According to Vu (2015b), the effectiveness of this plan (whether people will be willing to make the switch) is not yet known. This situation underscores the ever important task of educating and promoting the benefits of an urban mass transit system to the people to convince them to use public transportation more often and also convince them to change their opinion that public transportation is transport for the poor. The government plays a big role in balancing the cities’ economic potential and the problems associated with rapid pace of urbanization.

4. Conclusion

In recent years, Vietnam’s personal vehicle ownership increases quickly due to an increase in transport demand following the continued expansion of the economy and rapid pace of urbanization. The government’s effort to cope with the situation has been pale in comparison to the rapid growth of personal vehicle stock – of which motorcycles account for the majority of all vehicles. The increasing car and motorcycle stock burdens the cities with common problems of severe congestions, deteriorating air quality, and decline in traffic safety. Thus, an understanding of the factors affecting the most favored mode of transportation – the motorcycle – in ownership growth and popularity is crucial to devise any plan at all to control or cope with the situation.

There are several possible reasons and causes for Vietnam’s great dependence on motorcycles. First, a growth in income since the war era has encouraged more people to seek convenience and speed in a low-cost motorized mode of transportation (to replace walking and cycling) – and that happened to be the motorcycle. Compared to a car, a motorcycle is much more affordable to most Vietnamese. Second, a nation- wide preference for motorcycles is apparent in Vietnam for reasons of “convenience”. A motorcycle is convenient in more ways than one, in the eyes of a Vietnamese: they offer on-demand, door-to-door access anywhere. Furthermore, motorcycles in Vietnam are light (the majority have <150cc engine displacement) and small, therefore, they can weave through busy traffic easily and can be parked virtually anywhere, and without cost, too. Third, the public transportation system in Vietnam is underdeveloped

57 with only buses as the sole means of transportation. Buses in Vietnam are inconvenient: old, uncomfortable, and unpredictable in terms of punctuality. Buses are also not popular with the Vietnamese because they see buses as ‘transportation for the poor’. Having a personal vehicle, specifically, a car, is considered a symbol of status. Therefore, people shy away when it comes to voluntarily going by bus. Fourth, the road system in Vietnam contributes partly to the popularity of motorcycles. Vietnam’s road system, although extensive, has rather narrow and poor-quality roads. This makes it easier for motorcycles – rather than cars – to navigate and weave through traffic. Fifth, the automotive industry is underdeveloped due to the government’s high taxes and tariffs levied on imported and domestically produced cars, therefore effectively restricting its only market. This pushes car prices up significantly and makes motorcycles much more affordable for the people than cars.

The dependence on motorcycles has brought about problems and consequences for Vietnam. Vietnam is among the countries with the highest rates of road fatality and accidents in the region, especially those involving motorcycles. Furthermore, having a large fleet of personal vehicles leads to more and more severe congestions, worsens air quality, and increases noise pollution in the urban areas. It is imperative that the government build a capable MRT system in due time and educate the people of its benefits to encourage modal shift from personal vehicles to public transportation. In the mean time, it might be best to maintain the status quo of motorcycle dominance to stall the increase in car ownership (for example, by levying high taxes and tariffs on cars).

This paper has a number of limitations. It has been entirely built on theoretical grounds, it has only named reasons for the high motorcycle ownership rate in Vietnam but it has not given a quantitative perspective on each reason. Particularly, this paper does not answer the question of how much does each reason contribute to the motorcycle ownership rate, either from a national level perspective (aggregate model) or an individual level decision to own a vehicle (disaggregate model). Furthermore, this paper does not answer the question of how much of an impact a certain increase in vehicle ownership in Vietnam has on the country’s traffic accidents and congestions (social impact) or on the environment. Further studies should focus on establishing a concrete theory and employing the use of regression analysis to further ascertain the

58 quantitative relationship between vehicle ownership rate (and possibly public transportation use) and several factors that may contribute to it.

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