China and Vietnam put business
first By Karl D John
HANOI - China and Vietnam have put aside
their past antagonisms to forge a potent new
economic partnership, representing Beijing's most
sensitive and yet strategically significant
soft-power foray into mainland Southeast Asia.
Growing bilateral trade and investment now
overshadow the longtime regional rivals'
territorial disputes and tumultuous history,
including brief armed conflicts in 1974 and 1979,
as the two nominally communist countries ramp up
in tandem their ambitious market-reform programs.
Vietnam's communist leaders have long
taken their economic-reform
cues from China, which launched its reforms in the
late 1970s along its southeastern seaboard.
This year marks the 20th anniversary of
Vietnam's similar doi moi, or economic
renovation and reform program, which has more
slowly moved the centrally planned economy to one
that is market-oriented. Now China's
outward-looking investment policies are kicking
Vietnam's growth and reform trajectory on to a
higher plane, in the process developing
significant economic linkages between Asia's two
fastest-growing countries.
As of mid-2006,
China had 377 directly invested projects in
Vietnam, with a total registered capital of
US$795.6 million, ranking China 15th among 74
countries that have invested in Vietnam.
Chinese investments in Vietnam have
focused on developing the energy and transport
sectors, including the $710 million Cao Ngan
thermal-power project, the $340 million Hanoi-Ha
Dong urban railway project, a $64 million project
to upgrade the signal system for three northern
railway lines, and a $62 million project to
modernize the information and signal system on the
Vinh-to-Ho Chi Minh City railway line.
The
Ha Bac Nitrogenous Fertilizer Factory, which was a
gift from China to Vietnam in the 1960s, before
the two communist-led regimes fell out
diplomatically, was recently given a $32 million
Chinese capital injection to upgrade the factory's
capacity. The China National Offshore Oil Corp
(CNOOC) late last year signed an agreement to
explore jointly for oil and gas in Vietnam's Beibu
Bay. Moreover, a new highway connecting Hanoi to
the Chinese industrial city of Nanning has
recently been cooperatively completed,
significantly reducing travel time between the two
commercial hubs.
Vietnam's northern
region, where average wages and real estate are
notably cheaper than in coastal China, is fast
developing the infrastructure to position itself
as a major trade gateway to China. Last year Hanoi
overtook for the first time the more commercially
oriented Ho Chi Minh City in luring foreign direct
investment (FDI), attracting $1.6 billion compared
with the southern city's $738 million. Vietnam
attracted a total $6.2 billion in FDI last year,
and is on pace to attract more foreign money this
year as more multinational companies locate in
northern areas to facilitate trade with southern
China.
China and Vietnam share a
1,643-kilometer land border, and officials from
both countries are seeking ways to facilitate a
new economic corridor linking four of their
localities. In theory, the corridor would stretch
from China's southwestern city of Kunming to
Vietnam's capital Hanoi, and encompass the
Vietnamese industrial town of Hai Phong as well as
tourist attractions in the northern province of
Quang Ninh.
Underscoring the importance
Vietnam puts on the relationship, Chinese
President Hu Jintao was last November the first
foreign leader to address Vietnam's National
Assembly, where he said: "It is in line with the
fundamental interests of the two peoples to
enhance our friendship and trust, propel
cooperation for mutual benefit and promote common
development."
Vietnam's new prime
minister, Nguyen Tan Dun, has indicated his desire
to ramp up economic cooperation with China, saying
before his appointment to the premiership that
"these localities should increase their
cooperation to accelerate trade promotion and
investment, plus organize trade fairs and
exhibitions, to help each other seek more trade
and investment opportunities".
The United
States is currently Vietnam's largest
single-country export market, but many Chinese and
multinational companies believe that as the
transport infrastructure is put in place, that
distinction could soon shift to China. If so, it
would mark a rapid transition from isolation to
engagement.
China and Vietnam resumed
official economic and trade relations in 1991,
ending a Cold War standoff in which Vietnam allied
itself with the Soviet Union. Since, bilateral
Chinese-Vietnamese trade has grown at an
astronomical 40% annual average, jumping from $32
million in 1991 to $8.8 billion in 2005. Vietnam's
deputy trade minister, Phan The Rue, recently said
at a meeting of the Vietnam-China Committee for
Economic and Commercial Cooperation that economic
planners have targeted bilateral trade to
accelerate to $10 billion by 2007 and $15 billion
by 2010.
China is so far getting the
better end of the deal, notching up a trade
surplus of $1.7 billion in 2004, $2.8 billion in
2005 and $1.8 billion in the first six months of
2006. That's largely because Vietnam's main
exports to China are raw materials, including
rubber, crude oil and coal, as well as
low-value-added manufactured goods and foodstuffs,
such as footwear, coffee, seafood, fruits and
vegetables. On the other hand, China sends
higher-value-added goods, including
pharmaceuticals, petroleum, fertilizers, motorbike
parts, cars, machinery and equipment, to Vietnam.
Division of labor Further
Chinese investments, some analysts contend, could
entrench that lopsided division of labor.
"The risk for Vietnam, if it opens its
border to trade but does not upgrade technically
to make value-added products, is it becomes an
assembly factory and producer of raw materials for
China," said Jonathan Pincus, senior country
economist at the United Nations Development
Program in Hanoi.
At the same time,
growing economic linkages are transforming Vietnam
into "the emerging China", according to the
economic counselor and director of the
International Monetary Fund's Hanoi-based research
department.
China is far and away the
largest source of tourists to Vietnam, which in
2004 reached an all-time high of 778,400 Chinese
travelers and fell slightly to about 752,600 in
2005. Many Chinese revelers are taking advantage
of improved infrastructure to travel over land to
casinos that have been strategically built just
across the two countries' shared border. In the
first eight months of 2006, Chinese tourist
arrivals fell 25.2% compared with the previous
period last year because of new restrictions
imposed by Beijing on border-hopping punters.
Vietnam has long viewed China as both a
model to follow and a threat to guard against, and
the two countries still have significant
unresolved territorial disputes. China seized
control over the Paracel Islands in 1974, when its
troops seized a South Vietnamese garrison
occupying the western islands in the battle of
Hoang Sa. Vietnam and Taiwan both lay claim to the
uninhabited islands, where China has developed
port facilities and an airport and has announced
plans to open them to tourism.
More
significant, the two rivals, as well as Taiwan,
Malaysia, Brunei and the Philippines, have
competing territorial claims to the Spratly
Islands, a group of more than 100 reefs and islets
in the South China Sea that are reportedly rich in
oil resources. China added fuel to that antagonism
in 1999 when it built a military installation on
Mischief Reef. Vietnam still considers China its
greatest strategic threat, and has recently
developed more strategic ties with the United
States.
Vietnam has also maintained close
economic ties with China's main regional rival,
Taiwan, which Beijing still considers a renegade
province rather than an independent country.
Taiwan's Central Trading and Development Corp
(CTDC) has invested in Vietnam for 17 years and
heavily participated in the redevelopment of Ho
Chi Minh City.
The CTDC's chairman
recently said: "China is a good market, but
Vietnam is good for business expansion. Production
costs are lower than in Shanghai."
Taiwanese-invested Taya Electronic Wire &
Cable became the first foreign company to make an
initial public offering in Vietnam and could soon
be followed by the Taiwanese-owned Royal Casino at
Vietnam's tourist destination Halong Bay.
At least for now, China and Vietnam are
taking a conciliatory rather than confrontational
approach toward each other. China is in the
process of negotiating a broad free-trade
agreement with the Association of Southeast Asian
Nations (ASEAN), along with various multilateral
agreements on anti-narcotics, agricultural
cooperation, and a landmark declaration that aims
to defuse tensions over the Spratly Islands.
A China-ASEAN trade pact would create the
world's biggest free-trade area and provide even
more incentive to expand trade and investment ties
with Vietnam.
Karl D John is
chief executive officer of the TCK Group
(www.tckgroup.org), a Vietnam-based investment
consulting group. He has more than a decade of
involvement with Vietnam and lives in Hanoi.
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