The Politics of “Struggling Co-evolution“: Trade, Power, and Vision in Vietnam’s Relations with China

China’s increasing presence, economically and militarily, has the potential to lead to a Chinese sphere of influence in which Southeast Asia is regarded as China’s “backyard.” For realist scholars, China’s regional leadership constitutes an irresistible outcome of its technology, military forces, economic scale, and population. Among them, military and economic indicators are the two crucial factors determining the degree of its influence.¹ Specialists favoring a historical-cultural approach emphasize, additionally, that Southeast Asia includes countries that belonged to the “Chinese tribute system” in the past. John King Faibank’s well-known concept of the “Chinese world order” provides a model to understand international relations in Asia, which depicts China’s centrality and superiority in this system. With the long history of hierarchical order in Asia, the prospect that the Middle Kingdom would return to the central position as the most dominant power on the regional ladder should not be surprising.²

Of all the countries in Southeast Asia, Vietnam has the most complicated and multifaceted relationship with China. Sino-Vietnamese interactions are far more complex than historical, cultural, or ideological issues alone. In the post-Cold War era, four factors characterized China’s main interests in Vietnam: 1) to gain advantage in territorial disputes with Hanoi; 2) to keep Hanoi from veering toward the United States; 3) to encourage Hanoi to pursue pro-China policies on the Taiwan issue and other international affairs; and 4) to encourage Hanoi to give preferential treatment to Chinese products and businesses.³. Since the early-1990s’ normalization of Vietnam-China ties, Hanoi has assiduously pursued a strategy of hedging its bets toward China: On the one hand, it has undertaken measures to increase economic engagement as well as deepen party-to-party relations; on the other, Vietnam has sought to diversify its external strategic relations by reaching out to other powers (i.e., Russia, India, and the United States) in order to check Chinese territorial adventurism.

While Beijing and Hanoi cooperate where they can, there has also been a deepening struggle in this relationship. The context has shifted to what is aptly called “struggling co-evolution,” as the two countries are continuously searching for a “glue” to keep their relations together for both their international and domestic affairs. Meanwhile, Beijing wants to control Hanoi within its sphere of influence as much as possible, and Vietnam tries to manage the asymmetries to maintain its autonomy. The “struggling co-evolution” between both countries is more and more comprehensive: commercial, political, diplomatic, and technological, even in the “ideal” world where China tries to provide “objective and common” knowledge that supports regional planning and cooperation and create the image of a regional order led by it.

Asymmetric Trade Dependence and Inclusion-Exclusion Logic 

Economic interdependence rarely means economic equality; one side benefits more in such a relationship and, as a result, has powerful leverage over the other. Sino-Vietnamese economic relations exemplify this reality. While China is Vietnam’s top trading partner, Vietnam is not China’s top partner. Vietnam is strongly dependent on cheap exports from China and investment from Chinese businesses, whereas the same could not be said for China. If China closed its southern border with Vietnam, both countries would be hurt economically, but because Vietnam’s economy is smaller and more dependent on China than vice versa, it would be less able to sustain the economic consequences. China holds an important economic advantage, and its rise will pose an increasing threat to Vietnam as its power continues to grow relative to that of Vietnam. In 1991, bilateral trade was only USD 32 million. China is now Vietnam’s largest partner, with trade totaling USD 50.21 billion in 2013 and expected to reach USD 60 billion this year, while bilateral trade with the United States in 2013 was USD 30 billion.⁴

China is also the country with which Vietnam has the biggest trade gap, an imbalance that has grown wider over the years. Unprocessed goods, such as crude oil and coal, account for a significant proportion of Vietnam’s export basket to China. The problems deepen for Vietnam’s production industry, as enterprises, even export-centric ones, are becoming more reliant on Chinese inputs for value-chain production. Imported goods from China encompass various essential materials for export-specified production, including raw materials, machinery and equipment, steel, chemicals, oil, and fabrics. Vietnam is now importing nearly 50 percent of yarns and fabrics needed for its textile industry from China. If China disrupted the yarn supply, it would greatly damage Vietnam’s labor-intensive garment industry, culminating in mass unemployment.

Vietnamese have concerns about being under the shadow of the dragon and being dominated in the long term by China’s increasing economic and political power, but closer economic relations may make Hanoi reluctant to adopt a policy against China in their territorial dispute. For instance, conservative Vietnamese leaders might learn the ongoing lesson from Europe as the Ukraine economy is heavily hit by Russian economic pressure and sanctions. A Vietnamese report says the impact of China’s unilateral deployment of an offshore drilling rig into Vietnam’s exclusive economic zone in 2014 might cost Vietnam’s economy USD 1.0-1.5 billion.⁵ The figure could have been bigger if China had not one-sidedly withdrawn the rig sooner than scheduled.

Vietnam’s trade deficit with China and the asymmetrical north-south divide between their economies are important reasons why the Trans-Pacific Partnership (TPP) is significant in Vietnamese eyes. The benefit of opening another market needs to be understood in this context: Vietnam would pay a higher cost of missed opportunities, especially after other new trade initiatives led by China are emerging. On January 1, 2010, the ASEAN-China Free Trade Agreement (ACFTA) was formally established with zero-tariffs implemented between China and the six founding member states of ASEAN on over 90 percent of products. For the less developed ASEAN members, such as Cambodia, Laos, Myanmar, and Vietnam, the zero-tariff policy for 90 percent of Chinese products will be implemented in 2015 (and 2016).

The TPP partners, including the United States and Japan, are complementary to the Vietnamese market. Since the first round of negotiations in 2009, TPP has been regarded as a means for securing Vietnam’s economic interests vis-à-vis China. Hanoi worries that China’s size, geographical proximity, and mercantilist policies will harm Vietnam’s economic development. In the shadow of the dragon, the concern that core industries could be wiped out or, at least, dominated by Chinese companies is becoming very real. However, Vietnam may be able to compensate for its trade deficit with China through a surplus in trade with TPP members, especially the United States. It could also have a spillover effect in the form of deeper cooperation in areas such as intellectual property, services, and investments. TPP membership is the best bet for Vietnam at the moment, helping it to expand its export market and indirectly mitigating the unfavorable trade balance vis-à-vis China.

Since early 2014, however, some doubts have begun to emerge among Vietnamese policymakers. Economists question the ability to quantify tradeoffs for the economy and determine domestic losers under TPP. Other experts question the model itself, arguing for instance, that Chinese trade competition in the long term has proven very difficult for Vietnam to manage. This should mean that TPP’s “China exclusion” effect will become valuable, particularly in the textile, garment, and footwear industries, in which Vietnam’s competitiveness is expected to reap relative advantage over China’s. Still, Vietnam’s economic benefits are far from certain. The “yarn forward” rules of origin being pressed by the United States in negotiations put some of these apparent benefits in question. Vietnam’s supply chain is heavily dependent on Chinese textiles and other inputs, which are disqualified by the “yarn forward” rule that requires TPP signatories to use TPP member-produced yarn in textiles. For Vietnamese garment makers to get access to zero tariffs under TPP, they have to seek alternative suppliers inside the treaty zone.

For a time, the outlook for promoting US-Vietnam bilateral relations via TPP was murky, as was the chance of using the trade bloc as a “soft alliance” against China. The negotiations process was sluggish, with multiple missed deadlines. Vietnam’s government decided to fast-track alternatives, including free trade talks with South Korea (completed in May 2015), the Russia-led Eurasian Customs Union linked to the Eurasian Economic Union (completed in May 2015) and EU talks, as promising alternative markets.

While Vietnam is striving to reduce its dependence on the Chinese economy, recent economic diplomacy under the Xi Jinping administration has put Hanoi’s leaders in a difficult situation again. China’s “One Belt and One Road” (OBOR) initiative, fully unveiled at the 2014 APEC summit in Beijing, aims at nothing less than establishing a web of traffic, transport, and communications networks between China and neighboring regions, including Central Asia, the Russian Far East, Southeast Asia, and ultimately Europe. The necessary financial backbone will be provided by several new China-led funding institutions, most notably the USD 40 billion Silk Road Fund and the USD 100 billion Asian Infrastructure Investment Bank (AIIB). The task of both agencies is to use their financial instruments for creating “connectivity partnerships.” Beijing’s outlook is extraordinarily far-reaching, especially compared with its rather limited goals over the last three decades. The Silk Road initiatives in particular and Beijing’s foreign policy ambitions in general, increasingly embody Xi’s dream “for the great renewal of the Chinese nation.”⁶

Rational calculations about the expected costs, direct and indirect, of (non-) followership lie behind Hanoi’s decisions. Exclusion from a free-trade agreement may make a small economy lose its competitiveness to other countries. China’s charm offensive from many large-scale projects and cooperative initiatives, however, have, at times, been mired in controversy over economic sovereignty and political priorities. This is clearly a dilemma since economic interests are closely intertwined with security. Not only will China be much more powerful than it is today, but viewed in Hanoi, it will also remain deeply committed to making Vietnam part of its sphere of influence. For Vietnam, joining TPP could be the second step of “Doi Moi,” or renovation, launched by the Communist Party in 1986 by opening the door to more competent, transparent governance and to pressure to overhaul domestic corporations to be more competitive. Is joining OBOR or AIIB the same? It has not been clear to Vietnam until now.

Triangular Dynamics

The South China Sea (SCS),⁷ China’s front yard, is of particular importance in the context of China-Vietnam relations. Not only does it hold great economic value (e.g., due to its huge significance for global Sea Lines of Communication (SLOC) as well as its often noted yet still hard to quantify riches of energy⁸ and seafood), but it is also significant to China’s regional strategy and future regional role. Indeed, it is fair to say that the SCS is the most important waterway of our time in SLOC that connects Singapore with Northeast Asia. Years ago, the economic value and volume of goods in this SLOC surpassed that of the SLOC between Rotterdam and New York. Around two-thirds of the Asian route runs through the SCS, making it the maritime economic runway of the Asia-Pacific essential for the region’s future economic development.

By attempting to incorporate the SCS into the People’s Republic as undisputed Chinese territory, Beijing is able to put strategic pressure on the SLOCs important for three regional US allies (Japan, South Korea and Taiwan) to gain a potentially very energy rich area right at its doorstep, and, thus, to further reduce Chinese dependency on ship-based energy transports from the Middle East and Africa (which are strategically vulnerable to other nations’ naval assets) as well as to demonstrate to neighboring states its ability to shape its “near abroad.” Chinese maritime thinkers such as Admiral Liu Huaqing have emphasized that nation states are engaged in an intense competition over resource-rich areas and that China’s navy has an important role to play in protecting Chinese maritime interests and in developing China into a maritime great power.⁹

China, the strongest party in the disputes, gave the appearance of a hegemonic stabilizer by leveraging Code of Conduct (COC) negotiations with ASEAN since 1998 as a force for building a rule-based order. The resulting order based on law and norms has yet to be achieved, but a temporary outcome resulted from the establishment of a Declaration of Conduct (DOC), which has served as the conflict management mechanism in the SCS. The agreement was significant because China engaged in a “peace enhancing process” to form long-term relations with its neighbors. As the balance of power has been shifting in China’s favor since the economic crisis in 2008, China’s attitude towards the DOC/COC in the SCS has changed significantly. Contrary to its earlier relatively peaceful approach, recent actions by China have alarmed other claimants as it competed for sovereignty, jurisdiction, and control of the SCS. China is becoming too powerful and has not agreed to limit its power by institutional frameworks.

This change has resulted from the regional power shift since 2008 with China’s clear-cut military superiority in the SCS over the combined forces of ASEAN countries. Although both the Philippines and Vietnam are currently engaged in territorial struggles with China over islands in the SCS, Vietnam faces two distinct disadvantages compared to the Philippines. First, it is in conflict with China in both the Paracel and Spratly Islands. While the Spratly Islands involve other SEA nations and directly affect regional maritime freedom, disputes on the Paracels remain a bilateral issue. Second, more importantly, Vietnam’s long-time “three no’s” non-alliance policy—no military alliances, no allowance for any country to set up military bases on Vietnamese territory, and no reliance on any countries for help in combating other countries—sets the country apart, although it has become more controversial.

After the events linked to the HD-981 oilrig, Vietnamese strategists realized that it is difficult to make the case that territorial conflicts are tests of maritime freedom, an obvious US concern. Therefore, with neither an alliance nor military support, Vietnam will be badly hurt in physically confronting China in the Paracel Islands. A slow but steady move to military cooperation with the United States is hardly inevitable. In April 2014, two US navy ships participated in the fifth annual six-days of joint non-combat exercises with the Vietnamese navy, symbolizing closer defense cooperation between the two former adversaries. They forge the basis for building mutual trust and understanding between the United States and Vietnam, hopefully catering to each other’s priorities. During his trip to Vietnam last December, Secretary of State John Kerry announced that the Vietnamese Coast Guard would receive USD 18 million in aid with five fast patrol-boats to enhance its maritime police capacity.¹⁰

Vietnam is not going to establish a formal alliance with the United States in the foreseeable future, mainly because policy makers do not want to see a strengthened US relationship disproportional to frayed Sino-Vietnamese relations in a zero-sum game. Hanoi will not risk ruining its relationship with China in order to make an alliance with the United States. Vietnam and China have already established an institutionalized mechanism to undergird their bilateral relationship with annual high-ranking official visits and frequent discussions on border issues, maritime security, defense cooperation, territorial waters, and joint fishing activities. Even though China is increasingly aggressive in the SCS disputes, Vietnam keeps reiterating the critical importance of a friendly relationship with China.

A fundamental problem for Vietnam’s political elite is the absence of convergence in “threat perceptions” toward China.. At the Tenth Plenum of the 11th Party Congress earlier this year, the Vietnamese Communist Party’s (VCP) chief, Nguyen Phu Trong, faced with the age-old question of whether “China is friend or foe,” emphasized that the answer could be found in the party documents and resolutions of the Central Committee. Resolution No. 28 on contemporary strategies for national defense states that the Standing Committee of the Central Committee continues to focus on identifying “partners and targets” (doi tac va doi tuong). What constitutes a strategic “partner?” The document asserts: “Those who respect the sovereignty of Vietnam, who seek to establish and expand their friendship and equal, win-win cooperation with Vietnam, are considered as our partners; however, those who plan at subverting our nation’s objectives, as well as our project of building and protecting the Fatherland are considered as our adversaries.”¹¹

The forces that support Vietnam’s policies and development are considered (strategic) partners. In contrast, those who disrupt and harm Vietnam are considered adversaries—necessitating appropriate counter-maneuvers. Following the above description, it is hard to put China in a specific category; China could be considered both a partner, primarily in economic terms, and a threat, especially in light of the deepening territorial disputes in the SCS. In this light, Vietnam will have to adopt a dualistic strategy, which, on one hand, preserves stable economic relations with China as a strategic partner, while simultaneously exploring means to keep Chinese maritime ambitions within Vietnamese-claimed waters in check. This is where the United States is of paramount importance.

Given the US-Vietnam-China triangular relationship, the high-profile state visit of Vietnam’s paramount leader to Washington in July was expected to stir controversy, raising critical questions over the evolving dynamics of a long-standing hedging strategy toward the great powers. After considerable preparation and strategic contemplation, VCP General Secretary Trong made important visits both to China and to the United States over the summer. Some analysts have interpreted this as a sign that Hanoi continues to place greater emphasis on maintaining stable, if not cordial, ties with its giant neighbor, despite their intensified jostling in the SCS, which can undermine the VCP’s internal legitimacy. Some pundits interpreted those trips as indicative of subordination and one-sided leaning of the VCP towards Beijing. Such arguments are deeply affected by Cold War thinking and tell only one side of the story. Strategists in Hanoi’s inner circle consider “such obedience” a diplomatic means to coax China into reorienting her focus towards Hanoi’s priorities. Indeed, upon closer inspection, it becomes clear that the trip to Beijing was largely designed as a “shock absorber”—to offset the strategic fallout from Trong’s visit to Washington. Vietnam’s foreign policy is to enhance defense and economic times with the United States while maintaining a good relationship with the northern juggernaut. What Hanoi wants is not to defeat the Chinese military, but instead to make Beijing pay a huge price in case of a preventive strike in the SCS. They believe that with conventional deterrence, walking a delicate balancing act between these two superpowers can still work.

Vietnam has good strategic motivation to be comfortable with multilateral arrangements in dealing with powerful China. ASEAN can indeed bring to Vietnam’s table two important things: the first is its normative clout. Norms are an important facet of SCS disputes. Contending parties frame their respective claims in distinct normative contexts. The main illustration is that, whereas China resorts to a concept of “historical waters” and historical legitimacy to back its expansive claims, another claimant like Vietnam, the Philippines or Indonesia opposes it with the Convention on the Law of the Sea (UNCLOS). Interpretations of states’ rights and obligations under UNCLOS and its applicability to the SCS context also diverge from one actor to the other. From Vietnam’s stance, given the power discrepancy with China, having ASEAN defend the validity of existing rules and procedures, and their usefulness in dispute management in the SCS is a major asset. All claimants seek the moral high ground.

The second is enhancing bargaining power. A multilateral framework like ASEAN tends to favor weaker actors by giving them more “voice” opportunities toward the powerful (in comparison with bilateral arrangements, where China could maximize its political leverage towards then weaker actors), just as multilateral institutions allow the weaker to raise their voice collectively to influence the decision making process. ASEAN and its various initiatives have not only become an important consideration for stabilizing Sino–ASEAN political and economic relations, but also can serve as a mechanism protecting weaker Southeast Asian states from the advantages of the hegemonic power. In the case of SCS disputes, the same argument for peaceful settlement and institutionalizing for greater political autonomy can be found in the more general attitudes of weaker states towards dispute settlement.

The main challenge for ASEAN to become a harmonized group successfully employing institutionalization is its internal division. Member states can be generally divided into three groups regarding their behavior in the SCS dispute: those on the front lines of the sovereignty issue (Vietnam and the Philippines); those with significant interest in the ultimate outcomes of the conflict (Indonesia, Malaysia, Singapore, and Brunei); and those tilted towards accommodating China (Cambodia, Laos, Myanmar, and Thailand).¹² This division signifies a major problem facing ASEAN as a single bloc in reacting unanimously vis-à-vis China in SCS territorial disputes. Singapore’s Law Minister K. Shanmugam brilliantly summed up the prevailing state of mind of the majority of ASEAN nations when he bluntly stated: “If you start looking at ASEAN-China relations through the prism of the South China Sea, you are getting it wrong completely…The facts on the ground are the very substantial economic, security, political relationship between China and every country in ASEAN and ASEAN as a whole. The SCS forms part of it, and we will not be doing our duty for our country and our people if we forget that”.¹³ In short, the SCS disputes do not and should not define the overall texture of China-ASEAN relations. It is not worth alienating a key trading partner, so the argument goes, over disputes that are essentially bilateral in nature.¹⁴

One World, Different Views

Reinforcing China’s regional dominance is its scientific and engineering expertise. Drawing on its enormous experience in dam building and having a massive construction industry that operates worldwide, Chinese actors assume a dominant position when it comes to knowledge about planning, constructing, and operating large infrastructure. Hydropower development in the Great Mekong Sub-region (GMS) is an example. Other actors along the Mekong depend on the data, engineering skills, and scientific assessments delivered by their northern neighbor. This is particularly relevant for undertaking environmental (and social) impact assessments for the dozens of planned dam projects. China’s previous non-cooperative stance in information sharing between upstream and downstream-states renders trust-based common understanding as well as objective knowledge about the large-scale trans-boundary impact of dams very difficult. Nonetheless, the overall role of China could be seen as a “giver of last resort” of information, regarding the management of hydropower planning for the Mekong River.

The exploitation of the river affects the interests of countries in the region. The impact on species and people living in and along the river depends on the balance among economic development, social security, and environmental issues. Besides contested images of how “sovereignty” and technologies ought to be reconciled, the vision of a “prosperous and peaceful Mekong region” presents a central controversial point. China has utilized its projects in hydropower development as a tool for pursuing its long-standing vision of “common prosperity” for the whole region. However, in building hydropower plants on the Mekong River and assessing environmental impact, one can observe a normative divergence between China and the GMS countries, especially Vietnam. This infrastructure is linked to different collective visions of the public good. While some GMS countries have accepted China as their partner supporting them to construct dams (Lao PDR and Cambodia) and others are big importers of electricity from China (Thailand and Vietnam), the three downstream states of Thailand, Cambodia, and Vietnam have pursued diverse benefits in development of the GMS. Resolving environmental issues and aiming at a more sustainable future may require sacrificing short-term economic benefits by controlling the hydropower boom, which goes against the assumptions ingrained in the Chinese government’s outlook, i.e., the priority of electricity generation and economic development in general.

At the core, authoritative knowledge is complex and certainly not apolitical. Thus, the question “who” provides objective knowledge that supports planning and decision-making is important. In fact, to counterbalance the overwhelming knowledge gap relative to China, the other states have undertaken major efforts. US-led cooperative initiatives such as the Low Mekong Initiative (LMI) attempt to rebalance the regional knowledge hegemony. Instead of focusing on state-sponsored mega-projects, LMI offers “projects involving the innovative technologies of Intel, the educational excellence of the Harvard Kennedy School, and advice on impact assessments and standards from the US Mississippi River Commission and US Geological Survey.”¹⁵

As a key part of the massively expanded program LMI 2015, an action-oriented group was created in Myanmar, focusing mainly on “environment and water.” Its goal is to help increase the knowledge and research capacities of the less developed ASEAN countries Cambodia, Laos, and Vietnam. The establishment of the DRAGON Institute in southern Vietnam is one of the best examples.¹⁶ DRAGON is a cooperative product of the governments of the United States and Vietnam, aiming to develop into a prominent research center on ecosystems and the sustainability of major river deltas in a changing climate.¹⁷ While riparian states accept China’s dominance with respect to construction and markets, DRAGON and further knowledge-oriented initiatives indicate that they are less inclined to accept a Chinese quasi hegemony over scientific knowledge production. More and diverse perspectives with respect to water management and hydropower development in the region decrease epistemological dependence on China.

Social imagination plays an important role in forming “a common GMS” since it creates shared understanding, expectations, and knowledge, and, thus, orients behavior. China’s main competitors in fostering a regional order are the United States and Japan. The competition to become a “spiritual leader” is evident. It is manifested, for instance, in the struggle between an “inclusive development” idea, considering many aspects of human needs (including management of trans-boundary water resources, infectious diseases, and vulnerability to climate change) and “extractive growth,“ focusing on fostering economic dynamism with the involvement of the GMS countries in order to create a regional economy with hydropower at its center. In other words, the contest over images of hydropower is linked to the support of different outside actors.

The underlying process is not one-way. It is much more complicated than the portrait of regional states that buy “into the hegemon’s vision of international order and accept it as their own.”¹⁸ The process of finding principles and agreeing on certain value judgments for the use of the Mekong’s waters remains open-ended. These diverging visions crosscut societies, political actors, elites, populations, and interest groups between China and Vietnam. More importantly, they are part of larger images about hydropower technology in the region. To China’ detriment, the struggle about the future of hydropower development prominently entails the question which “external” actors should be included in its governance and which forms of governance should be adopted. The persistence of differing standpoints and coalitions on both issues means that no regional order is stabilized yet.

Conclusion

The strong growth of the Chinese economy is a fundamental foundation for its advanced sciences, its powerful military, and an increase in its political influence on surrounding countries. The consequences of this rise, basically, are confirmed by the growing concern of the region and the world on how China will use its power and influence. Beijing’s pursuit of either substantive policies harmonious with the common interests of other countries in the region or policies rejecting existing general rules will lead to a different impact on regional security. How other countries view China is also an important question.

Chinese elites should realize that pursuing a policy of hard power could draw the attention of the United States and result in confrontation. Since 2009, China has faced the dilemma of choosing between using its growing power or complying with international law and institutions. China’s internal debates (between elites and think tanks) have discussed different approaches and viewpoints.¹⁹ While one side believes that the current context provides an opportunity for China to take the initiative in resolving sovereignty disputes, the other calls for more caution. The existing power gap between the United States and China means that any direct, or indirect, confrontation in the South China Sea would wreak tremendous havoc on the Chinese economy.

Vietnam’s main concern is whether China’s rise will enhance or undermine its national security. Actually, this worry was aroused even before Chinese power emerged rapidly, stemming from a long history of dominance by China in the region and its policy of aggression threatening neighboring countries, notably the Vietnam–China border conflict in 1979 or current territorial disputes in the SCS. Vietnam does not own a wide range of alternatives to falling under the shadow of the dragon, which would be a “nightmare” to it. Therefore, it is crucial to create a “social contract” with powers from inside and outside the region, which includes a commitment about use of power, methods to solve common issues, and rules to be utilized as common norms of the community. For Vietnam, this is the appropriate time to foster this process, before the power scale inclines completely to one side.