Economics defuses China-Vietnam tensions

Economics defuses China-Vietnam tensions
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Vietnam relies on China for trade and a positive relationship with China is crucial for its foreign investment, China also desire to maintain a positive relationship with Vietnam as part of its foreign policy requirements. Strong prospects of stability between the two countries in the coming year sends encouraging signals to investors.

On June 17 – 19, Chinese State Councilor Yang Jiechi and Vietnamese Deputy Prime Minister and Foreign Minister Pham Binh Minh co-chaired the 8th meeting of the China-Vietnam steering committee on cooperation in Beijing to discuss ways to further enhance bilateral relations.

Since the anti-China riots in May 2014, both countries have sought to improve ties, with high level-official interactions between the two sides having increased. Relations were further enhanced in April this year, as the General Secretary of the Communist Party of Vietnam, Nguyen Phu Trong, foreign Minister Pham Binh Minh, Defense Minister Phung Quang Thanh, and Minister of Public Security Tran Dai Quang visited Beijing.

Such a high-ranking delegation is rare. After the meeting, both sides published a joint communiqué with a series of agreements to boost relations between the two ruling parties, better manage maritime disputes, and enhance maritime cooperation.

The meeting held last week was yet another step by both sides to mend ties. During the three day meeting, Deputy Prime Minister Pham Binh Minh and Chinese State Councillor Yang Jiechi discussed plans to implement agreements signed during Nguyen Phu Trong’s visit. Both sides also agreed on specific measures to boost economic, trade, and investment relations.

Confrontations remain amid talks of improvement

That said, both countries continue to flout their sovereignty over the South China Sea.

In May, China issued its annual fishing ban in the South China Sea, a way for China to demonstrate its effective control of the disputed waters without using force. Since the ban, China has repeatedly been accused of attacking Vietnamese fishing vessels and fishermen in the disputed waters near the Paracel Islands.

Conversely, Chinese Foreign Ministry spokesman Hong Lei said China’s ban is designed to conserve fish stocks and fulfill Beijing’s international responsibilities. In response, the Vietnam Fisheries Trade Union has strongly condemned China’s ban, calling it inhumane.

At the same time, Vietnam has launched a ‘sovereignty’ cruise for patriotic Vietnamese to visit the Spratly Islands as a means to show Hanoi’s control of the troubled waters. Naturally, China expressed anger at the move and Hong Lei claimed Hanoi’s actions “violate China’s sovereignty”.

Market forces temper geo-political tensions

Strong economic interest compels Vietnam to improve political ties with its giant neighbour. China is one of Vietnam’s main export markets, at US$14.8 billion, and is expected to become the biggest by 2030, according to HSBC Bank.

However, during times of high tensions, Vietnamese exports to China are often affected. For instance, last year Beijing and Hanoi came to a standoff after China moved an oil rig into disputed waters, which triggered violent anti-China protests and China suspended import from Vietnam.

Continuation of anti-China sentiment would also damage the Vietnamese investment environment. With rising labour costs and other business costs in China, many companies have relocated their factories to Southeast Asia. Vietnam is in a well position to benefit this trend.

The 2014 anti-China riots, however, during which rioters made little distinctions between Chinese, Taiwanese, Singaporean and Malaysian, had serious repercussions on investor confidence that were felt by more than just Chinese-owned businesses. Many foreign investors from these areas said they may not return. The riots exposed Vietnam’s dependence on China and the importance of maintaining stability in order to retain foreign investors.

China also desires to maintain a positive relationship with its Southeast Asian neighbour, because China understands that anti-China sentiment hurts its foreign policy interests. Beijing needs to play nice, not only because of its close trade relationship with Hanoi, but also because Vietnam is – due to its location – crucial to China’s Maritime Silk Road initiative.

It is also worth mentioning that Vietnam has strengthened its relationship with the US; deepening defence ties since relations with Beijing worsened in 2014.

Closer relations between Vietnam and the US poses challenges to Chinese interests in the South China Sea; a fact widely acknowledged in China. Therefore, due to strategic considerations, China needs to continue to maintain stable ties with Vietnam. China’s peripheral diplomacy aims to foster a friendly neighbourhood around China, which in turn is vital for China’s own economic development.

Therefore, because of the factors mentioned above, while miscalculations and accidents will remain, both countries will make efforts to avoid escalations, at least in the short and medium term. Consequently, investors can expect to see stability and favourable conditions business.

Categories: Asia Pacific, Economics

About Author

Qingzhen Chen

Qingzhen is a GRI Senior Analyst and a research analyst for an international information company. Her research focuses on China and the Asia Pacific. Previously she was a market researcher for PwC. She has gained regional knowledge from internships with the UNDP, China Policy, and the Royal United Services Institute. She holds a BA in Politics and East European Studies and an MSc in Security Studies from University College London.