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2 Vietnam, China lurch towards
crisis By Peter Lee
The economies of
the People's Republic of China (PRC) and Vietnam
are both lurching into crisis, creating new
opportunities for friction between the two hostile
neighbors and bringing the prospect of intensified
geopolitical migraine for the United States.
Certainly, the geostrategic foundations
for conflict have been laid.
In a few
years, Wikipedia might have an article like this:
The PRC ... was ... growing
increasingly defiant against the United States.
On November 3, 2018, the United States and
Vietnam signed a 25-year mutual defense treaty,
which made Vietnam the
"linchpin" in the United
States' "drive to contain China."
On
January 1, 2019, Xi Jinping [having taken over
from Hu Jintao as party general secretary in
2012] declared that China planned to conduct a
limited attack on Vietnam. The reason cited for
the attack was the mistreatment of Vietnam's
ethnic Chinese minority and the Vietnamese
occupation of the Spratly Islands (claimed by
the PRC). ... In response to China's
attack, the United States sent several naval
vessels and initiated a US arms airlift to
Vietnam. However the United States felt that
there was simply no way that they could directly
support Vietnam against the PRC; the distances
were too great to be an effective ally ...
Vietnam was important to US policy but not
enough for the Americans to go to war. When
Washington did not intervene, Beijing publicly
proclaimed that the United States had broken its
numerous promises to assist Vietnam.
The punch line is, this Wikipedia
article on the Sino-Vietnamese War already exists,
with minor edits. [1] For the United States, just
substitute "the Soviet Union" and for "2019"
pencil in "1979".
It isn't clear who "won"
the 1979 war - a subject that is still debated
today by partisans on Internet message board with
the civility and detachment typical of most
discussions concerning Sino-Vietnamese issues. [2]
The bloody campaign revealed numerous
shortcomings of the People's Liberation Army in
its late-Mao/post Cultural Revolution incarnation,
and the hardened, motivated, and well-equipped
Vietnamese units gave a good account of
themselves.
However, if it was Deng
Xiaoping's intention to demonstrate to Vietnam
that it would have to confront China alone and
without significant assistance from the Soviet
Union, he succeeded.
It is safe to say
that the United States would very much prefer not
to be forced into the same predicament as the
Soviet Union, ie called on to make good militarily
on its contain-China commitments in Asia in the
case of Chinese aggression against Vietnam.
The ideal scenario for conflict-averse
leaders in Beijing, Washington, and Hanoi would be
for surging economic growth to create division of
labor, shared prosperity, and a win-win outcome in
the region.
However, thanks to the
mis-steps of the North Atlantic financial combine
in 2008-2009, political roadblocks to stimulus in
the United States, and the German-driven austerity
fad sweeping Europe, surging economic growth
simply isn't on the agenda.
Dee Woo, a
columnist and provocateur from the pro-panda side
of the street, contended in a column that war
between China and Vietnam was "inevitable" since
the PRC would find the temptation to give Vietnam
a military comeuppance irresistible, and the
United States and the international oil companies
would see no alternative to abandoning Hanoi for
the sake of joint development of South China Sea
oil resources. [3]
Indeed, as the bad news
stacks up, the stresses on the export-reliant
economies of China and Vietnam mean that
competition, beggar-thy-neighbor policies,
jingoism and, when necessary, confrontation are
more likely to appear on each country's agenda.
Nevertheless, the signs are that the PRC
and Vietnam are responding independently to their
shared economic difficulties in complementary
ways, giving hope that the mutual temptation to
make political and nationalistic mischief will be
trumped by a shared desire by each party to keep
its own economy on track.
Because of its
massive economic footprint, China's travails
attract the most international attention. But
Vietnam is experiencing severe growing pains of
its own.
Prime Minister Nguyen Tan Dung's
ambitious plan of nurturing chaebol-style
privatized industrial and service conglomerates
manifested itself in a program of indiscriminate
bank lending to politically-connected cronies and
creaky state-run behemoths. The program's first
fruits included growth and inflation; as inflation
was tamed, the world economy hit the wall, exports
have slowed and corporate profits have sagged, and
the problems of non-performing loans and dodgy
bank liquidity have emerged.
Aggregate
non-performing loans are rumored to reach 10% of
loans outstanding. In a normal banking
environment, that translates into insolvency. For
Vietnam's small buccaneer banks, bad loans may
account for a 50% share.
Bad banking news
was compounded by the arrest of high-profile
Vietnamese banking tycoon Nguyen Duc Kien on
August 21 for murkily defined economic crimes -
perhaps a pyramid scheme to obtain hundreds of
millions of dollars of bank funding on dubious
collateral - followed by a run on his Asia
Commercial Bank. The Vietnamese government pumped
$900 million in liquidity into the banking system
to make sure no anxious depositor would go home
empty-handed. Vietnam's stock index, heavily
weighted toward financial companies, sagged 9%.
These recent developments were
contemplated with remarkable equanimity by the
international analytic and pundit community.
Kien's detention was viewed as a consequence of a
power struggle between his economic godfather,
Prime Minister Dung, and the more old-school
communists clustered around the President, Truong
Tan Sang, rather than a harbinger of impending
economic collapse.
Apparently, Leninist
rigor counts for more than free market discipline
with emerging-market financiers.
Kien's
arrest - following a management purge at Vietnam's
particularly inept state-owned shipbuilder,
Vinashin, and the government mediated merger of a
faltering bank with a stronger rival - was seen as
the culmination of a process of political
correction meant to ensure social and economic
order.
Perhaps international optimism
contains a dash of wishful thinking attributable
to capitalist blue chip Standard Charter's 15%
share in Kien's flagship bank, ACB, and the
eagerness of foreign financiers to participate in
the restructuring of Vietnam's banking industry as
investors and/or M&A overlords. Standard &
Poor's decided that the government had a handle on
the banking situation and contagion - a pervasive
loss of confidence and evaporation of liquidity
that characterized the Wall Street crisis of 2008
- was unlikely, at least for now. [4]
With
price/earnings ratios down to 9.4 as a result of
the collapse of the price of equities, Vietnamese
stocks turned into a modest buying opportunity.
Perhaps attitudes within the ruling
circles of the Vietnamese Communist Party are less
blase. Dropping the hammer on Kien involved
sizable expenditure of cash to prop up the banking
system just for the day; a certainpercentage of
that cash turned into private gold holdings
(Vietnam reportedly has the highest per capita
holdings of gold in the world) that probably won't
come back into the banking system as deposits any
time soon.
If, as news reports imply, Kien
was running a pyramid scheme involving trillions
of dong in cash obtained from Vietnamese banks
through loans or bond sales based on dodgy assets,
it would also appear to be untenable for banks not
to write down their losses and they will have to
be recapitalized largely at government expense.
[5]
It isn't as if vibrant
economic performance and elite unity made this a
good time to clear out the financial and political
deadwood and undertake an expensive overhaul of
the banking system. As Agence France-Presse
reported from Hanoi, things aren't going
particularly well:
[W]ith economic growth now just 4.4%
year-on-year in the first half of 2012, foreign
direct investment down nearly 30% in the same
period and toxic debt in the fragile banking
system at "alarming levels" according to the
central bank, there has been increasingly vocal
criticism of Dung.
"Never has Vietnamese
society faced so many unheavals which weaken the
Party's leadership and threaten the survival of
the whole political regime," a retired National
Assembly deputy told AFP. "Some party leaders
have lost patience, and feel it is time to act
to eliminate these potential threats and regain
public confidence," he added, speaking on
condition of anonymity.
In a scathing
op-ed on Thursday, President Truong Tan Sang -
one of Dung's main political rivals - said that
"Vietnam is now under not insignificant pressure
because of broken state-owned
enterprises."
This is a degree of
economic, social, and political difficulty that
does not automatically translate into a "let
bygones be bygones" atmosphere between Prime
Minister Dung and his critics in the Politburo,
especially if public dissatisfaction turns
militant.
As a prominent Vietnamese
economist told the New York Times:
The problem in Vietnam is a very
toxic cocktail from the European debt crisis,
the stagnation in the US economy plus a very
critical situation in the domestic economy. It's
a very dangerous mixture. [6]
Economic
crisis, corruption, public discontent, and a
leadership split were the ingredients for near
catastrophe for the Chinese Communist Party in
1989. If all those conditions apply to Vietnam in
2012, it will be a difficult time for the
Vietnamese Communist Party and foreign investors
as well.
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