Vietnam's balancing act between the superpowers
As the Asean Economic Community approaches, Vietnam is rebalancing its relationships with the superpowers.
On July 7, Vietnam’s General Secretary Nguyen Phu Trong visited the White House, the first such visit by a Communist Party chief from Vietnam. It followed a April visit by Trong to China where he met with President Xi Jinping.
In a sign of the rivalry between the two superpowers, immediately after the state visit to the US, a high-ranking delegation from China went to Vietnam led by Chinese Vice Premier Zhang Gaoli.
Vietnam has also been cultivating relations with Russia and the European Union. It has pledged to join the Russian-led Eurasian Economic Union and finalised a landmark agreement on an FTA with the EU last week.
It is the first that the EU has concluded with a developing country and will remove more than 99 per cent of tariffs on goods traded between the two countries over a period of up to seven years.
Vietnam is one of four Asean countries negotiating to join the Trans-Pacific Partnership, the US-led trade agreement. This is expected to attract more investment to Vietnam not only from the US but also other countries, including China, that wish to tap into the preferential trade terms.
Probably the most significant development to come out of the recent Chinese visit to Vietnam was an agreement for the two countries to work together on development of the sea. This is an important step forward, given recent tensions between the neighbours over maritime territory. The two neighbours also agreed to boost cooperation in trade, industrial capacity, infrastructure, finance and people-to-people exchanges.
China has already invested heavily in the China-Vietnam Economic Border Regions and helped build infrastructure such as the Kunming Heikou Highway and the Nanning Friendship Bridge. It has subsidised many energy projects. More is to come as Vietnam is a critical peg in China’s planned New Maritime Silk Road.
Until recently, Chinese manufacturers in Vietnam were focused on the garment and textile industries, but already investment is diversifying due to rising costs in China and the perception of Vietnam as an alternative production base. One of the most attractive destinations is the port city of Haiphong. It not only has low labour costs and a convenient location, but is also close to Shenzhen, allowing it to benefit from China’s existing supply chains.
Given these circumstances, it is natural that Vietnam’s leadership is trying to maintain its friendly relationship with China. However, by cosying up to other superpowers, it should gain more bargaining power and reap continuing economic dividends.
