HANOI, Dec 11 (Reuters) - China and Vietnam are expected to announce agreements on upgraded rail links and potential digital projects this week, as President Xi Jinping visits Hanoi. This visit marks the first in six years to the Southeast Asian neighbor, and comes on the heels of U.S. President Joe Biden's trip to Vietnam in September, aimed at strengthening bilateral ties.

China has expressed its willingness to offer grants to Vietnam to enhance the railway between Kunming and the port city of Haiphong, along with other transport links from southern China to Hanoi, according to Vietnamese state paper Tuoi Tre. The Chinese ambassador to Vietnam, Xiong Bo, mentioned the possibility of providing "non-refundable aid" for these projects. Such an offer, if confirmed, would be significant for Vietnam, which usually prefers to avoid taking loans.

This generous offer of grants could potentially be seen as a setback for the United States and other Western supporters of infrastructure projects in Vietnam. These countries have predominantly provided loans at market values to assist Vietnam in reducing its reliance on coal, as part of a climate plan.

The plan to upgrade the Kunming-Haiphong rail, which was first reported by Reuters in December, runs through an area where Vietnam holds its largest rare earths mines. However, Vietnam has been unable to fully exploit these reserves due to a lack of processing technology. Rare earths are essential for electric vehicle and wind turbine production, and China currently dominates global production and refining in this sector. The possibility of a deal regarding rare earth processing technology remains uncertain, as China is typically hesitant to share its refining techniques and Hanoi imposes restrictions on the export of unprocessed rare earths.

In addition to infrastructure projects, digital interconnections between China and Vietnam were highlighted as a priority during President Xi's visit. Xiong Bo mentioned the need for enhanced connectivity on land, sea, air, and the internet. Experts believe this includes Vietnam's inclusion in China's Digital Silk Road initiative, which focuses on optical fiber cables, data centers, and other telecommunications infrastructure in friendly nations. Discussions may also involve additional submarine cables, as Vietnam has faced disruptions to its undersea digital infrastructure this year. Vietnam is also planning to establish a comprehensive 5G network, an area where Chinese telecom giant Huawei has expertise.

While Vietnam has expressed its support for digital infrastructure cooperation, concerns over national security, particularly in the South China Sea where border disputes between Hanoi and Beijing persist, may impact the implementation of strategic projects. Le Hong Hiep, a senior fellow at Singapore's Iseas-Yusof Ishak Institute, suggests that national security considerations often take precedence in such matters.

President Xi Jinping's visit to Vietnam holds significant implications for bilateral cooperation in infrastructure and digital connectivity. The potential grants offered by China for rail upgrades and the focus on digital interconnections showcase the increasing influence and economic exchanges between the two countries.