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Abu Dhabi, UAEMonday 18 June 2018

Vietnam emerges as crucial player in South East Asia

Economy is enjoying one of the fastest growth rates in Asia as both China and the US look to firm up ties

Chinese President Xi Jinping shakes hands with Vietnamese President Tran Dai Quang.  LUONG THAI LINH/AFP
Chinese President Xi Jinping shakes hands with Vietnamese President Tran Dai Quang. LUONG THAI LINH/AFP

The Middle East has been referred to by some commentators as “America’s new Vietnam” because of US military involvement in Iraq and other war-torn countries of the region.

But Vietnam, for its part, has shaken off the war image of the past and is set on pursuing policies of peaceful co-operation throughout and beyond Asia.

After being at war with each other for more than a decade, the United States and Vietnam have since drawn closer together – as the US president Donald Trump’s visit last month to the Vietnamese resort of Danang for an international meeting showed. But it is China rather than the US that seems to be “winning the peace” with Vietnam.

This fact has important geo-economic and strategic implications for an Asian region where American influence is considered to be on the wane, while that of China – the world’s second-largest economy and an increasingly important regional strategic power – is perceived to be growing rapidly.

The Vietnamese economy is, meanwhile, enjoying one of the fastest rates of growth in Asia and is projected by the IMF to continue expanding at an annual rate of near 6.5 per cent this year and in 2018 as the country continues to modernise and industrialise.

Among other things, this is expected to affect energy demand and imports into South East Asia’s fifth-largest economy, which is likely to increase its purchases of crude oil from the Middle East and other sources at the same time as div­ersifying supply sources to include renewables and nuclear.

As such, Vietnam could become an increasingly important export destination for Middle East crude oil and also as a market for agricultural produce, experts say. China’s One Belt One Road (Obor) project will, in addition, help to strengthen connections between Vietnam and the Middle East in terms of trade, investment and finance.

“Both on the economic and political front, China has been making a concerted effort to improve relationships with Vietnam, especially this year,” says Changyong Rhee, the director of the Asia and Pacific department at the IMF in Washington.

“It was very symbolic that [the Chinese] president Xi Jinping’s first state visit following the National Party Congress was to Vietnam. This has been interpreted [as meaning] that China considers Vietnam to be a critical strategic partner on many regional issues going forward.”

It is also seen as symbolic that, following his reelection earlier this year, the general secretary of the Communist Party of Vietnam, Nguyen Phu Trong, paid his first state visit to China.

“The dialogue at the highest level has helped soften tension [between Vietnam and China over South China Sea-related issues],” says Mr Rhee.

“Instead, the bilateral relationship is likely to continue focusing on economic and strategic co-operation under [China’s] belt and road initiative, reverting to the previous strategy of leaving South China Sea issues [over oil and other assets] for the future.”

Mr Trump also boasted of strong ties with Vietnam during his visit to Danang, where he met the country’s president Tran Dai Quang during the Asia-Pacific Economic Cooperation (Apec) forum meeting there. But, unlike China, which is seen engaging ever closer with Vietnam and other South East Asian nations, the US is perceived to be withdrawing, on the economic front at least.

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One of Mr Trump’s first actions when he came to power at the start of this year was to withdraw the US from membership of what was intended to be the 12-nation Trans-Paci­fic Partnership, or TPP agreement, which included Vietnam and would have given Hanoi and other Asia Pacific capitals much better access to US markets.

This key trade and investment accord is not being allowed to die, however, and is being reconstituted under an agreement reached in Danang as the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership” or CPTPP, now with 11 rather than 12 members after the US pulled out. The remaining members include, as announced by Vietnam’s trade minister during the Apec forum that closed on November 11, Japan, Australia, Canada, Mexico, Singapore, Vietnam and Malaysia.

“Vietnam is expected to be one of the biggest beneficiaries of the new trade agreement,” says Mr Rhee. “These benefits are expected to accrue even under the new trade agreement. In addition to increasing exports to key markets such as the Japan, the CPTPP is expected to increase FDI inflows, improve the efficiency of domestic markets in Vietnam and boost investor confidence in continuation of market-oriented domestic reforms.”

With the demise of the US-led TPP, China has been promoting an alternative trade pact, the Regional Comprehensive Economic Partnership (RCEP), which initially involved the 10 Asean member states and countries that have existing free trade agreements (FTA) with Asean – Australia, China, India, Japan, South Korea and New Zealand.

In May this year, Vietnam’s minister of industry and trade openly supported the RCEP, and the latest Asean position on RCEP is to intensify efforts and bring negotiations to conclusion by the end of next year. “RCEP benefits will likely be important for Vietnam,” Mr Rhee added.

The IMF official is not alone in his enthusiasm about Vietnam’s economic future.

“Vietnam joined the World Trade Organisation in 2007 so it has already started making FTA with foreign partners,” says the Asian Development Bank Chief Economist Yasuyuki Sawada.

“Vietnam is part not only of the TPP but also of RCEP. In that sense Vietnam is well placed to benefit from big regional trade and investment arrangements and has been successful at attracting new companies,” he says. “The private sector is really eager to get involved in more free trade and investment.”

The growing ties between Vietnam and China are not simply about trade and investment accords. They are likely to take on a much more concrete form under China’s Obor initiative. That envisages a huge nexus of land and sea connections being established right across the Eurasian continent and into the Middle East, parts of North Africa and beyond.

“Although China’s belt and road initiative is not operational in Vietnam yet, this important [undertaking] could, in principle, help foster regional cooperation in the areas of trade, investment, and finance,” says Mr Rhee.

“It could bring much-needed infrastructure and connectivity to the region [and could] also serve as a platform to strengthen regional dialogue and multilateralism.”

Vietnam, says Mr Sawada, seems to be becoming more of a key regional player. Its hosting of the Apec meeting “helped Vietnam to advance its role in Asia Pacific integration and free trade and investment”.

“The meeting signed a declaration on Creating a New Dynamism, which reaffirms leaders’ commitment to Apec’s basic mission to support sustainable growth and prosperity in Asia Pacific through integrated trade and investment. The meeting was a major success and Vietnam’s status was enhanced.”