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South China Morning Post
17-7-14

Drilling for diplomacy: How China’s rig removal affects change in Vietnam

Kristine Kwok

China’s decision to remove a controversial oil rig from disputed South China Sea waters may hinder Vietnamese efforts to seek new alliances

Just 10 months ago, Pham Quang Nghi was greeted by top Chinese officials while praising the importance of fostering the “traditional relationship” with China during a visit to Beijing.

But things have changed drastically since then. On Sunday, the member of Vietnam’s decision-making body, the Politburo, will lead a delegation to visit another key player in the region: the United States. In what one observer described as an unofficial “scouting trip”, Nghi is expected to test how far Washington is willing to go to help Hanoi deter an increasingly assertive China in disputes that include the placement of an oil rig and sovereignty and freedom of navigation in the South China Sea.

Nghi’s trip underscores the difficult choices Vietnam faces since China’s abrupt deployment of the oil rig at its doorstep in May set off the worst dustup between the ideological allies since a brief border war in 1979. And Beijing’s decision to remove the oil rig on Tuesday did not end the dispute.

Since May, analysts have noted a growing desire in Hanoi to veer away from China, both politically and economically. Though that won’t happen quickly.

Some in the Vietnamese government and public see silver linings to the oil-rig crisis: It might spark more action to push through long-awaited economic reforms such as the government’s “master plan” to become a modern, industrialised nation by 2020. It might also engender support for free-trade agreements with Western countries.

Supporters of those changes fear the rig’s early removal will mean the loss of a catalyst.

The rig’s deployment had deepened the discord within the Vietnamese government over how to balance the relationship with China and the US, the two major powers competing for influence in the region.

“And beneath the politburo the fire is burning to move away from China towards [the] US,” said Carl Thayer, a Vietnam expert from the University of New South Wales at the Australian Defence Force Academy. “I don’t think that’s going to happen but it’s a very palpable force now.”

Both he and a source close to Vietnam’s foreign ministry said Nghi’s trip to Washington would not involve high-profile formal meetings, but would offer opportunities for the US and Vietnam to explore their relationship.

“The sense is [Nghi] is not going to the White House or meeting [US Secretary of State John] Kerry extensively. The trip is something else. It would provide the opportunity for the US to get authoritative insider’s view, and likewise for Vietnam to find out from the US [what it is] willing to do,” Thayer said. “It’s a scouting trip.”

The divide between China and Vietnam widened after meetings in June between Vietnamese officials and Chinese State Councillor Yang Jiechi , the highest-ranking official overseeing the country’s foreign policy, failed to warm the countries’ chilly relationship. Yang reportedly told the Vietnamese contingent to stop “hyping things up”.

Vietnamese officials were more inclined to reconcile with China before Yang’s visit, Thayer said. A plan for the deputy prime minister and foreign minister, Phan Binh Minh, to visit the US in May or June was scrapped for fear of provoking China, Thayer and the ministry source said.

But the meetings with Yang disappointed many in Hanoi and indicated to Vietnam that it had to move in a different direction, said Edmund Malesky, an associate professor of political economy from Duke University in the US state of North Carolina.

“The group of policymakers who are pushing for strengthening the relationship with the West are in a stronger position right now,” Malesky, who has been working on a Vietnamese government project involving China, said before the rig was removed. To Beijing’s chagrin, Vietnam has threatened to pursue legal actions in response to China’s recent behaviour.

Decision makers in Hanoi were considering two legal options, said Ton Nu Thi Ninh, a former ambassador and vice chairwoman of the National Assembly Foreign Affairs Committee. They might challenge China’s sovereignty claims in the South China Sea at the International Court of Justice, as the Philippines did. They may instead decide to seek out international arbitration, a quicker option that would bear less impact.

Many analysts have warned that the consequences to Vietnam’s growth could be dire should China choose to retaliate economically.

So far, it has imposed no sanctions. But Chinese agricultural imports have reportedly declined. China has banned state-owned enterprises from bidding new contracts in Vietnam. And the number of tourists from China dropped by 29.5 per cent between mid-May and June.

As with many other countries in the region, Vietnam relies heavily on China. According to figures from the country’s customs office, Vietnam imported US$36.95 billion worth of goods, or 28 per cent of its total imports, from China last year. It exported some US$13.3 billion worth of goods to China in the same period – 10 per cent of the country’s total exports.

But the Vietnamese government is looking for ways to reduce such dependence.

Some top researchers in the country are studying possible impacts should the economic relationship with China deteriorate, Malesky said.

“That’s a pretty good sign that Vietnam is preparing for what might happen,” Malesky said.

Ninh said public opinion has also forced the Vietnamese government to try to recalibrate its trading policy.

“The government is now recognising this; the public says we are over-dependent on Chinese,” she said. “Of course we need to have the best possible relations with the larger neighbour. We are realistic. But the question is, to get there, in the context of an assertive China, what will work best” for Vietnam, she asked.

Ninh said many in Vietnam believed the country should send a dual message to China, “that Vietnam is committed to peace and maintaining sound relations with China”.

But “at the same time we should send the message that economic and other interests cannot override the principles of territorial sovereignty, national independence and mutual respect,” she said.

For those advocating for closer economic ties with the West, the crisis with China had been a boon, inciting greater interest in moving forward with the US-led negotiations for the Trans-Pacific Partnership free-trade agreement, Malesky said.

But the China’s cooperative overture in removing the rig might hinder these efforts.

“China’s actions have effectively snookered Vietnam,” Thayer said. “Vietnam will restrain from pursuing a legal case in order to prevent undermining diplomacy. China’s actions will undercut those leaders in Vietnam who favour moving closer to the United States and Japan.”

China’s deft change of direction would also to some extent nullify any possible attempt to make an issue out of its assertiveness at next month’s Asean regional forum, to be held in Myanmar, Thayer said.

“Conservatives will argue there is no need to shift alignments because Vietnam can work at restoring its comprehensive strategic partnership with China,” he said.

But Ninh said the oil rig withdrawal would do little to repair bilateral ties: “Past experience teaches us that China’s deeds often do not match, and sometimes even contradict, its words.”

The Chinese foreign ministry and the oil company that operates the rig, China National Petroleum Corp, have said the withdrawal was because the early exploration tasks were done.

Chinese scholars also denied that the decision was a result of any diplomatic pressure from Vietnam or the US, whose Senate passed a resolution on July 10 condemning China’s behaviour in the South China Sea.

But the withdrawal was only temporary, said Kang Lin , a researcher with China’s National Institute for South China Sea Studies. With the discovery of a “good amount” of possible oil and gas reserves, Kang said that although China was not ready to conduct commercial operations in the area, its oil rigs would eventually return. “Vietnam will have to try to get used to this,” he said.

And even if Vietnam decides to continue its efforts to reduce its economic reliance on China, analysts said the biggest challenge lay in finding an alternative source of materials to fuel Vietnam’s manufacturing.

Of Vietnam’s imports from China last year, 33 per cent were materials and equipment vital to the country’s manufacturing, said Ha Nguyen, managing director of Bower Group Asia’s Vietnam branch.

“The export revenue will be reduced while domestic manufacturers will have a hard time [finding] sources to substitute Chinese imported materials,” Nguyen said.

Should the TPP negotiations succeed, the regional free trade agreement would also force Vietnam to look for alternative suppliers of manufacturing materials. Under the agreement, only products made from materials supplied by members could enjoy the lowest tariff when exported to other member states. China is not a party to the talks.

“This is actually an opportunity for Vietnam to reduce economic reliance on China, which it should not miss.” Nguyen said. As the region grows more wary of China’s assertive posturing, Vietnam is not alone in trying to lessen its reliance on its neighbour.

But some remain sceptical on whether the efforts will pay off.

“The ability to move out of China’s economic orbit is harder than moving into American’s orbit politically,” said Nick Bisley, a professor of international relations at La Trobe University in Australia.

“But the benefit of building relations with America is not as great as they think, and I think the risk of remaining economic dependence with China is not as great as people may think.”

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