September 10, 2011

Vietnam: Under the weight of China

August 27th, 2011

Author: Le Hong Hiep, Vietnam National University

Some researchers liken China to a rooster, with Korea as its beak and Vietnam its leg.

The analogy highlights the strategic importance of Vietnam toward China, especially in terms of security, while also suggesting that Vietnam must live under China’s weight. Vietnam is therefore, in Carlyle Thayer’s words, condemned to a ‘tyranny of geography’ where it has no choice but to learn to share its destiny with neighbouring China.

A stronger China has long been the most serious threat to Vietnam’s security. Vietnam came under Chinese suzerainty for almost a thousand years until 938 CE. Even after the French colonisation of Vietnam in the latter half of the 19th century, China was still deeply involved in Vietnam through invasion and occupation, as illustrated bythe brief yet bloody war China waged along Vietnam’s northern border in 1979 and the naval clash initiated by China in the South China Sea in March 1988.

This threat posed by China toward Vietnam comes not only from geographical proximity but also the asymmetry of size and power between the two countries. China is 29 times larger than Vietnam, while Vietnam’s population, despite being the world’s 14th largest, is still only equivalent to one of China’s mid-sized provinces.

Vietnam’s impressive economic performance since the late 1980s hasn’t allowed it to close the gap in strength. This is because China’s own economic modernisation has caused the power gap between the two countries to become ever wider. According to World Bank data, China’s GDP expanded more than 16 times between 1985 and 2009 from US$307 billion to US$4.985 trillion. Vietnam’s GDP increased only seven times over the same period, from US$16 billion in 1985 to US$97 billion in 2009.

With its economic development, China’s military might has grown significantly, posing a formidable threat to Vietnam’s security. According to China’s official statements, its military budget for 2011 is US$91.5 billion, while Vietnam is said to have allocated US$2.6 billion. Particularly worrying for Vietnam is that China’s expanding military budget is concentrated on its air force and navy, strengthening China’s capacity to project power into the South China Sea where China and Vietnam have competing claims.

Vietnam’s transformation toward an open market economy also adds another aspect to this tyranny of geography: increased economic vulnerability.

Since Vietnam resumed trade with China in the late 1980s, its domestic production has long been threatened by Chinese goods — flooding the country through both formal and informal (smuggling) trade. This not only exerts a negative impact on Vietnamese domestic production but also puts Vietnamese consumers at risk when smuggled goods are toxic and harmful to people’s health.

Another vulnerability is Vietnam’s perennial trade deficit with China, amounting to US$5.4 billion out of the country’s total trade deficit of US$7.5 billion in the first half of 2011. China has also emerged as Vietnam’s largest source of imports, accounting for almost a quarter of its import turnover in 2010. Vietnam is heavily dependent on China for input materials for some of its major export industries, while Vietnam’s exports to China are just a minuscule portion of China’s total imports. Should China discontinue trade with Vietnam for some reason, the damage to Vietnam’s economy would be immense.

Another concern is that Chinese companies have won up to 90 per cent of EPC (engineering, procurement and construction) contracts for Vietnam’s major industrial projects, especially those of coal-fired power plants. Chinese contractors are favoured as they offer cheap technology and promise to help arrange financial funding from Chinese banks.

But although these projects appear to be cheap Vietnam in fact pays dearly. First, cheap technology usually is more polluting. Reports suggest some technologies offered by Chinese companies were discontinued or banned by China since 2005. Second, Chinese contractors’ technical capabilities are limited, causing projects to be delayed. Even when the projects are completed on time, shoddy construction often leaves project owners with expensive maintenance bills. Third, as Chinese contractors refuse to use locally available products, instead importing everything from China, Vietnam’s trade deficit with China soars. Chinese contractors are even illegally bringing in Chinese labourers at the expense of Vietnamese workers, provoking public outrage in Vietnam.

Another recently-exposed economic vulnerability for Vietnam relates to Chinese merchants buying massive quantities of Vietnamese agricultural products. This caused food prices to surge in Vietnam, and, despite the government’s desperate efforts to curb inflation, prices climbed by 20.8 per cent in June 2011.

Yet Vietnam seems to have few options for dealing with the economic vulnerabilities it faces over China. On the one hand, any possible reaction will likely be constrained by Vietnam now having to observe international trade and investment rules, as Vietnam acceded to the WTO in early 2007. On the other hand, Vietnam hopes that growing (though asymmetrical) economic interdependence will help to reduce the possibility of China taking militarily aggressive action against Vietnam, especially in the South China Sea. And, despite the drawbacks, Vietnamese businesses still find it much cheaper and more convenient to work with its looming neighbour than with other partners.

As a result, Vietnam continues to actively do business with China, especially given the allures of its northern neighbour’s booming economy. But, as an old Vietnamese saying goes, honey kills flies. The lesson here is that it is essential Vietnam stay fully aware of China’s potential threat; it must develop strategies to at least neutralise the economic aspects of the tyranny of geography the country increasingly suffers from.

Le Hong Hiep is a lecturer at the Faculty of International Relations, College of Social Sciences and Humanities, Vietnam National University, Ho Chi Minh City, and is currently a PhD Candidate at the University of NewSouth Wales, Australian Defence Force Academy.

A version of this article was originally published here by the The Diplomat.

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