By: Benedict Lynn
HANOI – During talks in Hanoi on Friday, Fumio Kishida, Japan’s visiting foreign minister, announced that Japan would be giving Vietnam six used naval ships for patrols in the South China Sea.
The offer, worth 500 million yen (US$5 million), is to include training and equipment to help coastguard and fisheries surveillance, and comes at a time when Vietnam is already seeking to drastically expand its fleet of coastguard vessels.
According to China security policy expert Yun Sun, the gift could be seen as “an alignment of positions” with Japan and “perceived as hostility by China.”
Vietnam and China have had a long yet turbulent relationship. Both nations have a communist government, share an 840-mile border and excel at trade.
Indeed, Vietnam’s General Department of Customs reported earlier this year that China continues to be their largest trading partner. Furthermore, Chinese investment in Vietnam increased dramatically over 2013, both in terms of capital value and project number, and with the addition of the ASEAN-China FTA, trade between the two neighbors has been forecasted to be worth some US$500 billion by 2015.
However, Vietnam is still smarting from early May when Beijing moved its Haiyang Shiyou 981 rig into disputed waters in the South China Sea. The incident sparked violent anti-China demonstrations throughout the country and several skirmishes between Chinese and Vietnamese vessels around the rig.
It was the lowest point in China-Vietnam relations in over three decades. As Chinese-owned factories were looted and burned, the violence spilled over into the facilities of other global manufacturers. Chinese nationals fled the country and foreign investors grew nervous.
RELATED: Anti-Chinese Vietnam Factory Riots a Passing Phase
The deep-sea oil-drilling rig has since been removed and China remains Vietnam’s largest trading partner. Yet Hanoi’s acceptance of Japan’s gift suggests she might be looking to lessen dependence on her northern neighbor.
Slowing ties with such a large and important trading partner could prove problematic, but Vietnam, one of Asia’s “Tiger Economies” has shown itself to be remarkably resilient while navigating the Global Financial Crisis. Furthermore, it has definitely been China getting the better deal so far; last year, Vietnam’s China trade deficit stood at US$23.7 billion.
And it is after all Japan, not China, who is Vietnam’s biggest investor. Countries like Japan are increasingly moving their operations from China, where labor costs continue to rise, to Vietnam, fast becoming a global manufacturing hub, where labor is cheap and the economy growing.
But a significant portion of China’s imports to Vietnam are made up of partially manufactured goods such as factory machines and electronics. They are finished in Vietnam, and then sent on to the rest of the world. So while it seems likely that Vietnam could survive a shift away from the world’s fastest growing superpower, the rest of us might not.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asia@dezshira.com or visit www.dezshira.com.
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