Vietnam’s Defence Boom Entices Global Firms

Vietnam’s Defence Boom Entices Global Firms

Concerns over China have prompted a massive defence procurement campaign in Vietnam. Hanoi is entering a multitude of contracts and agreements with foreign nations, which has created opportunities for defence firms, as well as a means for Vietnam to engage internationally.

In the wake of increased Chinese assertiveness in the South China Sea, Vietnam is undergoing a massive defence-spending boom, as Hanoi seeks to prevent Chinese regional domination. Hanoi’s defence spending has increased 128% since 2005, and 9.6% in 2014 alone, reaching a total of $4.3 billion.

This increased spending is supported by the fact that Vietnam has witnessed sustained, robust growth rates averaging 6.15% since 2000, reaching 6.44% in Q2 2015.

While Vietnam’s expenditure is dwarfed by China’s, Hanoi has undertaken an aggressive procurement strategy with a focus on maritime surveillance and interdiction. These measures are designed to counter Chinese activities in the South China Sea, many of which occur in waters claimed by Vietnam.

Last year’s oil rig crisis brought Sino-Vietnamese relations to a new low. Tensions have continued to simmer this year as Beijing’s aggressive island-building program in the South China Sea has incited strong condemnations from Vietnam and other ASEAN nations.

It is important to note that Vietnam is not simply purchasing equipment, but is making a concerted effort to diversify its defence ties to realize its geo-strategic goals. This stance is a marked departure from Vietnam’s long-standing ‘Three No’s’ (no military alliances, no foreign bases in Vietnam, and no reliance on others when fighting other countries) policy. This new approach offers new opportunities for defence contractors, as Vietnam represents an enticing emerging market.

Washington Seeks Market Share

Vietnam’s procurement drive promises lucrative deals, with Vu Tu Thanh, chief Vietnam representative of the U.S.-ASEAN Business Council noting that “there is a surge of interest among American defence contractors.” Slower domestic defence spending has led U.S. firms to eye emerging Asian markets.

Specifically, American firms are hoping to capitalize on regional anti-Chinese sentiment to boost sales. Such a trend also aligns perfectly with American foreign policy interests as Washington seeks to strengthen relations with smaller Asian nations on China’s periphery.

To this end, on April 22nd the U.S. embassy organized a meeting between the Vietnamese military and American contractors, allowing U.S. firms to pitch products to Hanoi. Sources present at the meeting noted the palpable excitement of American companies present, with one company’s representative requesting details about Vietnam’s defence budget, only to be politely rebuffed by Vietnamese military officials.

This private sector enthusiasm is mirrored by Washington’s recent donation of six patrol boats to Vietnam. Indeed, Senator (and war veteran) John McCain’s call for the U.S. to increase weapon sales to Vietnam perfectly highlights the purely pragmatic nature of entire affair.

Vietnam is particularly interested in buying spare parts for its fleet of American UH-1 helicopters, which it acquired in the wake of the American withdrawal in 1973. Historically, Vietnam’s rival has always been China, which has over the millennia invaded its smaller neighbour dozens of times. Consequently, Vietnam is interested in purchasing sophisticated U.S maritime surveillance systems to aid its interdiction of Chinese vessels.

Vietnam’s Defence Market Diversifies

While the U.S. is keen to increase market penetration in Vietnam – having partially lifted its weapons bans in October 2014 – it remains a minor player. Vietnam has already signed a deal with long-standing arms supplier Russia for six Kilo-class submarines, as well as two Tarantul-class missile corvettes.

Similarly, Vietnam has signed a military-technical cooperation agreement with Belarus on July 9th. This agreement will facilitate scientific and technological sharing, personnel training, and joint production of certain weapon systems.

Belarus is an obvious partner given its shared familiarity with Russian equipment, a tradition that benefits Minsk’s recent efforts to woo Southeast Asian nations. This agreement with Belarus comes just months after Vietnam signed a free trade agreement with the Russian-led Eurasian Economic Union (EEU).

Importantly, Vietnam has also been fostering the creation of a world-class ship building industry, becoming the fifth largest shipbuilding nation by orders in 2010. The government has made the sector a key priority, seeking to capitalize on Vietnam’s cheap work force and proximity to expanding markets.

As a result Vietnam is also increasingly seeking to procure domestically produced naval vessels. The Hong Ha Shipbuilding Company has already built five TT400 class vessels for the Vietnamese navy. These ships are designed for maritime border patrol, foreign vessel interdiction and anti-smuggling/piracy operations.

Hanoi Courts the Globe

Vietnam’s pragmatism is again highlighted by agreements with former colonial powers such as France and Japan. In 2007 Hanoi signed an MoU on Modernizing Technical Equipment with France. This was followed by the initiation in 2010 of annual Vietnam-France Joint Committee on Defence Cooperation meetings.

Furthermore, last year Japan donated six naval vessels to Vietnam, a move that coincided with Tokyo’s loosening of its long-standing arms export ban. This donation boosts pro-Japanese sentiment in Vietnam, as well as encourages Hanoi to purchase Japanese products such as a Kawasaki P-1 maritime surveillance aircraft in the future.

Hanoi’s expansive defence agreement campaign has also prompted the 2015 India-Vietnam joint statement expressing wishes to increase joint training and defence industry cooperation. Last week, Vietnam also concluded talks with Israel to establish an Israeli defence attaché office in Hanoi, with both governments already agreeing to their first joint defence working group meeting in November.

Similarly, this year has already seen a meeting between Vietnamese and South Korean defence ministers, itself the result of deputy level meetings in 2012 and a memorandum of understanding on defence in 2010.

By adopting a pragmatic approach and capitalizing on its growing economic strength, Vietnam is seeking to position itself as a strong regional player to balance against potential local Chinese hegemony. Hanoi’s growing international connections demonstrates that Vietnam’s Communist Party has paid close attention to its modernizing Chinese counter-part.

Categories: Asia Pacific, Security

About Author

Jeremy Luedi

Jeremy Luedi is the editor of Asia by Africa, a publication highlighting under reported stories in Asia and Africa, as well as special features on how the two regions interact. His writing has been featured in Business Insider, Huffington Post, Yahoo Finance, The Japan Times, FACTA Magazine, and Seeking Alpha, among others.