Vietnam's trade with China

Fellow travellers, fellow traders

AS MUCH as their official media tend to extol grand friendship between a pair of great nations, Vietnam and China have a long and tumultuous history as neighbours. More recent friendly manoeuvres between Vietnam and America are understood to comprise a kind of diplomatic bulwark against a certain unmentioned giant to the north. Vietnam’s relationship with China is complicated on a number of fronts, not least of which is trade. 

At the beginning of the month America’s defence secretary, Leon Panetta, dropped in at Cam Ranh Bay, a deepwater port that was controlled by America’s navy during its war with Vietnam. He was there to exchange artefacts from the war with its victors, in Hanoi. Which set minds to wondering at the strengthening of ties between these “former-foes-turned-unlikely-allies”, as the American press tends to style them. 

Was it all part of a containment policy for China? Vietnam’s and America’s defence ministers have been exchanging visits annually since 2003. The previous secretary of defence, Robert Gates, supplemented that routine in coming to Vietnam for an ASEAN-sponsored summit of defence ministers in 2010.

Certainly Vietnam is suspicious of China, and has been for centuries, if not millennia. For hundreds of years at a stretch China’s emperors ruled over parts of Vietnam; today the names of the country’s biggest boulevards commemorate heroes who fought against foreign invaders, including the Chinese. Though hardliners within the Communist Party leadership might prefer to look to China for inspiration before turning to the America, especially when it comes to issues of internal security, post-revolutionary Vietnam is not always happy with its neighbour. Last year 12 weeks of essentially government-sanctioned protests against China’s actions in the South China Sea were a vivid demonstration of that. 

Carlyle Thayer, a Vietnam specialist at the Australian Defence Force Academy, wrote that “Secretary Panetta must be at pains to ensure that any form of stepped-up defence co-operation is not construed by Vietnamese Party conservatives as an attempt to enlist Vietnam into an anti-China containment policy.”

All is not mutual suspicion however. Throughout recent years Vietnam and China have excelled at trade. China is Vietnam’s largest trading partner. Last year their two-way trade stood at $36 billion, while trade between America and Vietnam was $22 billion. Their two-way trade however is a bit more one-way than the Vietnamese would like. Their trade deficit already stands at $1.85 billion for the first two months of 2012, according to Vietnam’s General Statistics Office. 

This doesn’t even take into account for the huge black-market border trade at places like Mong Cai, in the north of the country, or Lang Son, which is known, among other things, for its large sex-toy market (dildos being technically illegal in Vietnam). 

Jonathan Pincus, an economist at Harvard, reckons part of the problem comes down to the export industry itself. Vietnam must import the raw materials for many of things it makes for export from China. Leather for shoes, fabric for the huge garment industry, and so on. Possibly the state-owned companies should focus on this and not, say, utterly unrelated industries. (To be fair, in the face of their huge financial losses, the government has tried to wean the SOEs from their penchant for excessive diversifying). 

Le Dang Doanh, a Vietnamese economist, sounded frustrated when speaking at a conference more than a year ago. Vietnam, he said, “exports coal and then imports power. It exports rubber and then imports car tyres. As for the garment industry, if China were to stop supplying materials, the industry would face big difficulties.” 

It is the spectre of dependency that has many of Vietnam’s leaders feeling cagey; no one wants to be reliant on China. In fact, it was the fear of becoming a captive market that fuelled protests against the development of bauxite mines in 2009 and 2010. The mines, which were to be run by Chinese companies, attracted huge criticism from a number of areas. Environmental concerns were paramount. But so was the fear Vietnam would be stuck exporting its relatively cheap alumina yield to China. “Containing” China is a crowd-pleasing goal in some quarters, but containing the trade imbalance might prove to be the more popular achievement.

By Banyan for The Economist