Against China, Vietnam Stands Alone

Forecast
Vietnam will pursue its island reclamation projects and defense partnerships more discreetly to avoid directly challenging China. Despite Vietnam’s efforts to connect with global markets, its reliance on imports of raw materials and incomplete industrial chains may mean that such integration could damage its export-oriented economy in the long run. Rising protectionism in the developed world will hamper Vietnam’s attempts to overcome its structural economic flaws, rising debt, and inefficient state-owned enterprises. Analysis
The balance of power in Southeast Asia has been quietly shifting in China’s favor, and perhaps no country feels it more than Vietnam. In the span of a few months, Hanoi – once the staunchest advocate for the Trans-Pacific Partnership (TPP) – became the first participant to shelve the trade pact, well before US President-elect Donald Trump announced his intention to withdraw from it. At the same time, Vietnam softened its criticisms of China and took steps to mend ties with Beijing. Rather than positioning itself squarely in China’s crosshairs, Hanoi began a more subtle pursuit of its maritime claims and alliances with stronger partners, keeping its options open and its defenses ready.
More so than most of its neighbors, Vietnam can neither fully reject nor embrace the growing power on its northern border. Some, such as the Philippines and Malaysia, have eagerly joined Chinese-led trade blocs and dispute-settling mechanisms. Others, like Japan and Singapore, have firmly backed Washington’s regional agenda. Vietnam has historically opted to strike a delicate balance between the two, but as the region adjusts to a new political reality, Hanoi’s strategy is becoming increasingly difficult to pull off.

This post was published at FinancialSense on 12/22/2016.