Jul 4, 2014

Vietnam - Bad Beijing: Opportunities for Vietnam

Follow Me on Pinterest
“Vietnam’s legal claim against Beijing is very strong; or to put it another way, China’s claim of sovereignty over the East Sea is both legally very weak and hypocritical.”

Vietnam’s leadership is clearly challenged by China’s assertiveness in the East Sea and the potential losses of natural resources. The conflict surrounding China’s placement of the HYSY-981 oil rig within 150 nautical miles of Vietnam’s coast, including the daily ramming of Vietnamese vessels, has the potential to escalate into a much larger conflict despite  Hanoi’s restraint. Since May, the issue has dominated both the media and politics and led to unprecedented popular demonstrations.  But the crisis also provide diplomatic, military and economic opportunities for Vietnam, which could emerge stronger.

Diplomatically, Prime Minister Nguyen Tan Dung announced that Vietnam will file a memorial protesting China’s claims to the East Sea with the United Nations Convention on the Law of the Sea (UNCLOS) arbitration panel in the Hague.  This garners several diplomatic benefits.  First, Vietnam maintains the moral high ground by searching for a peaceful solution based on international laws and norms.  It also parallels the Philippine submission.  While Beijing announced that it will not be bound by the arbiter’s ruling if it goes against them and, to date, has refused to submit a counter-memorial, this further isolates them and calls into question their claim of a “peaceful rise” and their commitment to international laws and norms.  Beijing can claim to be acting defensively in the face of Vietnamese aggression, but they are losing the debate in the court of public opinion with video evidence of provocations.  China looks hypocritical when they appeal to the UN to condemn Vietnamese aggression while ignoring the International Court of Arbitration.

There were hopes that Beijing would try to defuse the situation when it sent its top diplomat Yang Jiechi to Hanoi for talks, yet no concessions were made and Yang not only made no concessions, but was assertive: “will never trade our core interests or swallow the bitter fruits that undermine our sovereignty, security and development interests.” During his visit, Beijing announced the placement of an additional rig near Vietnamese waters.

The top leadership was hoping to resolve the issue diplomatically.  But China’s intransigence has forced Vietnam’s hand.  In a very candid assessment by Nguyen Si Hung, the Chairman of the National Assembly and a Politburo member, said that the top leadership is terribly divided on how to approach China: “Vietnam’s politburo is torn about their policy on Vietnam’s relationship with China. The fear is China won’t compromise. The last chance for sitting down and trying to resolve the dispute in the South China Sea is this summer. Otherwise, Vietnam will bring the case to an international tribunal.”

Beijing has to know that their policies are making them no friends in the region and undermining many of their long-term interests.  Dredging on Johnson Atoll and other provocative acts are a clear violation of the Declaration of Conduct on the South China Sea.  Though non-binding, it does obligate states to not do anything that changes the status quo.  Even Singapore came out demanding that things be settled through the rule of law as might does not make right.

Critically, if other states also pursue legal claims against Beijing, it will start to become the multilateral issue that Beijing has long tried to avoid. Beijing’s strategy has been to keep negotiations on the overlapping disputes on a bilateral basis.  Chinese actions have rekindled ASEAN discussions on a Code of Conduct that had stalled.  Malaysia, Indonesia, Singapore, the Philippines, and Vietnam have all supported a new round of negotiations.  Beijing is loathe for that to happen.

Hanoi’s close relationship with Jakarta is key to this, as Indonesia has pushed for a peaceful solution, but also increased its own military and diplomatic attention to the South China Sea, where Beijing’s nine-dashed line goes through Indonesian waters and the lucrative gas fields off of Natuna Island.  The Indonesian and Vietnamese navies have stepped up joint training exercises, while Jakarta has increased military spending, as well as deployed more forces to Natuna.  Indonesia has been vocally concerned about China’s aggression in the South China Sea and, being primus inter pares within ASEAN, makes Jakarta’s role essential.  Cooperation between Jakarta and Hanoi is all the more important when Thailand is inwardly focused following the 22 May coup and threatening closer ties with China in response to EU and American sanctions.

Vietnam’s legal claim against Beijing is very strong; or to put it another way, China’s claim of sovereignty over the East Sea is both legally very weak and hypocritical. For example they deny Southeast Asian claimants continental shelf rights while that is the basis of their claim against Japan in the Senkakus. Likewise, the Chinese build up atolls, asserting their 200 nautical mile exclusive economic zones (EEZ), while denying Japan’s EEZ from the Senkakus islands.  Even the Chinese foreign ministry is moving away from its defense of the nine-dashed line, because it is completely illegal under the UNCLOS. Thus Beijing is seeking to create “facts on the ground” which are threatening to the claimant states.

But Vietnam can also reap other diplomatic rewards: Vietnam’s willingness to search for legal and peaceful means to de-escalate the situation has garnered it significant support from Washington and Tokyo that have become all too concerned about China’s provocations.  Hanoi’s public diplomacy has never been better.

Militarily, the threat in the East Sea will further channel resources to the military to assist in its modernization program.  Since the mid-1990s, the Vietnam People’s Army (VPA) has developed impressive maritime and air capabilities.  Vietnamese military expenditures climbed from $1.4 billion in 2003 to $3.4 billion in 2012.  No country in Southeast Asia has brought more deterrent capability online in recent years including the most advanced fighter jets, new naval vessels, kilo-class submarines and an impressive arsenal of anti-ship missiles; nonetheless, this modernization is incomplete. Moreover, it is dwarfed by China’s surging military expenditures and power projection capabilities.

The current security environment has also forced the traditionally xenophobic VPA to be far more willing to engage in bi- and multi-lateral training exercises with traditional partners, such as India, but also increasingly with ASEAN and the United States.  Vietnam will not become an ally of the United States – that would be a red line for China  – but the two countries are stepping up military relations. Increased port access, more joint exercises, and intelligence sharing are all identified in the 2011 defense agreement with the United States.   Vietnam recently joined the US-led Proliferation Security Initiative, which will further enhance security cooperation.

Just as important as military modernization is investment in maritime policing.  Hanoi has made significant efforts in this regard, bringing new classes of Marine Police and Fisheries Resources Surveillance vessels online.  The National Assembly recently earmarked VND16 trillion ($200 million) to construct four new vessels for maritime policing.  Japan announced the transfer of a fleet of surveillance vessels to Vietnam by early 2015.  Vietnam needs new and larger vessels that Chinese ships cannot ram with impunity. Moreover, civilian vessels control the risk of escalation and help to maintain Hanoi’s diplomatic strategy of seeking a legal and peaceful settlement of the dispute.

The current conflict and senseless rioting will lower this year’s economic growth to around 5.4 percent.  That is unavoidable. Most foreign investors will remain in the country, though the rioting could have an impact on future investments, especially Chinese who have invested some $2.28 billion of Vietnam’s $21.6 billion in total investment.  Hanoi’s strong response to the riots and pledges of compensation should assuage most investors that Vietnam remains a safe and stable business environment.  Nonetheless, there are several economic opportunities for Vietnam. First, it should force Vietnam to lessen its trade dependence with China.  China is Vietnam’s largest trading partner accounting for nearly $50 billion in bilateral trade in 2013.  Yet, Vietnam maintains a chronic trade deficit with China – $23.7 billion in 2013 alone.  Some 11 percent of Vietnam’s exports go to China, though they are mainly natural resources.  Vietnam must diversify its trading partners.

Second, Vietnam must redouble its efforts to conclude TPP negotiations, including making some painful decisions about the role of inefficient state-owned enterprises (SOE) and government intervention in the marketplace.  Conservatives in the Vietnamese Communist Party Politburo who have resisted these reforms and supported the leading role of the state sector are undermined by China’s assertiveness.  This is an opportunity for Vietnam’s economic reformers under the leadership of President Trong Tan Sang to hasten the transition to a market-based economy.  SOEs absorb too much capital starving the innovative engines of growth and employment: small and medium-sized enterprises.  400 SOEs are slated for “equitization,” including ownership by foreign investors in the coming year. These reforms will be painful at first, but they will put Vietnam onto a path to more sustainable economic growth and further integrated into the global economy will enhance the country’s security.  It will further deepen ties with the United States and make the bilateral relationship more holistic.

Vietnam is in a strong position to increase foreign investment: costs are rising in other ASEAN states, while some foreign investors are turning away from Thailand due to its political instability. Vietnam should be a beneficiary if it continues to implement serious economic reforms.

Further integration into the global economy is key to Vietnamese national security.  If nothing else, military expenditure is linked to GDP growth.  After all, a poor state is never a strong state.  And with good decisions, Vietnam could emerge from this crisis stronger across the board.

Dr. Zachary Abuza

Dr. Zachary Abuza is a professor and analyst of Southeast Asian politics and security.  He has lived and traveled extensively throughout the region. Dr. Abuza consults widely and is a frequent commentator in the press. He holds an MALD and PhD from the Fletcher School of Law and Diplomacy.

Business & Investment Opportunities 

Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. 

No comments:

Post a Comment