Brantly Womack. China and Vietnam - Managing An Asymmetric Relationship in An Era of Economic Uncertainty.

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Asian Politics & Policy—Volume 2, Number 4—Pages 583–600
1 China and Vietnam: Managing an

2 Asymmetric Relationship in an Era of
3 Economic Uncertainty
4
5 Brantly Womack
6 University of Virginia
7
8
9 The financial crisis of 2008 has ushered in an era of uncertainty that is redefining the
10 post–Cold War world. While the United States, as a global actor, focuses on systemic
11 effects, every international relationship is affected by the need for caution and by changes
12 in relative position. China and Vietnam have always had an asymmetric relationship, but
13 the gap has grown with China’s strong recovery and increased regional and global
14 presence. Both countries are interested in improving cooperation, but for Vietnam the
15 risks as well as the opportunities are more immediate. New strength in regional coopera-
16 tion as well as the continued global presence of the United States provides important
17 contexts of reassurance to bilateral normalcy.
18
19 Key words: ASEAN, asymmetry, China, global financial crisis, Vietnam
20
21
22
23
T he global financial crisis that crested in the second half of 2008 brought to
world politics a new era of economic uncertainty. Although the initial panic
was quieted by determined efforts to stimulate economic growth, major concerns
24 persist regarding financial stability and changes in the structure of the interna-
25 tional political economy. Globalization has exposed every country to the uncer-
26 tainties of the new era, but each reacts in its own way. The relationship between
27 China and Vietnam merits careful study because it is one of the most sensitive in
28 Asia.
29 China and Vietnam have much in common. There is no country more similar to
30 China than Vietnam, and there is no country more similar to Vietnam than China.
31 They share a Sinitic cultural background. They are led by communist parties that
32 came to power by means of rural revolutions. Perhaps most importantly, they are
33 now committed (China since 1978, Vietnam since 1986) to market-based eco-
34 nomic reforms, and their economic reorientations have been remarkably success-
35 ful. However, both have leaned heavily on the global economic order centered on
36 the United States and were caught off balance by the financial crisis.
584 Asian Politics & Policy
1 The relationship between China and Vietnam is normal but not friendly. The
2 most recent war of both states was with one another, but hostility ended in 1991
3 and interaction has flourished since 1999. At present, together with the rest of the
4 world, they both face a sharp increase in global economic uncertainty, though the
5 effect on Vietnam is considerably greater than on China. Both China and Vietnam
6 will have to adjust their development strategies. Part of the adjustment is likely to
7 include rethinking regional institutions as well as bilateral relationships. What
8 effects will global uncertainty have on the prospects of each country and on their
9 relationship?
10
11 China and Vietnam

12 The relationship between China and Vietnam has been normal for a decade
13 and is likely to remain so. However, it is also an asymmetric relationship
14 (Womack, 2006). Each side has a different exposure to the relationship, and a
15 global event such as the current crisis affects each differently. Vietnam’s eco-
16 nomic situation is considerably less stable than China’s. The opportunities pre-
17 sented by China’s continued development are attractive to Vietnam, but at the
18 same time both the government and the population of Vietnam are concerned
19 about increasing dependence on China.
20 This article will first discuss the precrisis situation of the Sino-Vietnamese
21 relationship and then the likely scope of the current global economic crisis. The
22 second major part of the article will discuss the challenges posed individually
23 to Vietnam and to China by the new era. Some challenges are similar, such as
24 the development of domestic markets and the reorientation of foreign trade.
25 However, they will also face challenges specific to their individual situations. For
26 Vietnam the problem of economic adjustment is more urgent, whereas for China
27 the problem of sustainable development is more urgent.
28 The final part concerns the Vietnam-China relationship in the new era. The
29 existing principles and institutions of the relationship provide a strong founda-
30 tion for continued cooperation. However, global turbulence provides a new and
31 uncertain context for the relationship, and because of Vietnam’s greater exposure
32 to China, its anxieties about dependence on China are heightened. Given the
33 asymmetry of the relationship, it is important that it is buffered by other rela-
34 tionships as well as regional and global organizations.
35
36 The Global Economic Crisis

37
38 The Precrisis Situation
39 China and Vietnam formally normalized their relationship in late 1991, after
40 the resolution in principle of the Cambodia dispute and the return of Prince
41 Sihanouk to Phnom Penh. Building momentum and overcoming suspicions took
42 time, but by 1999 both governments committed themselves to “long-term, stable,
43 future-oriented, good neighborly, and all-round cooperative relations” [Changqi
44 wending, mianxiang weilai, mulin youhao, quanmian hezuo]. This “16 Word 11
45 Guideline” became the mantra to be repeated at every official meeting, but it was
Managing an Asymmetric Relationship in an Era of Economic Uncertainty 585
1 Figure 1. Vietnam’s trade growth, indexed 1999

2 Source: General Statistical Office of Vietnam (GSOV) 2009.
4 not empty talk. It was assumed that the relationship would be one of increasing
5 mutual benefit, and that problems and differences could be managed in that
6 context (Do, 2006).
7 The first major milestones of normalcy were agreements on demarcating the
8 land border and a series of discussions on utilization of the Gulf of Tongking. No
9 progress was made on resolving conflicting claims to the Paracel and Spratly
10 island groups, but the 2002 agreement between China and ASEAN concerning
11 peaceful conduct in the South China Sea helped to limit the conflict potential of
12 this arena. Meanwhile, diplomatic and economic contact increased enormously.
13 As Figure 1 illustrates, trade with China has outpaced the generally rapid
14 growth of Vietnam’s total trade, increasing its share from 6.1% in 1999 to 14.3%
15 in 2007, and from one-fourth of Vietnam’s trade with the rest of ASEAN to
16 two-thirds. Keeping pace with thickening economic relations, exchanges of offi-
17 cial visits at all levels, educational exchanges, and tourism have also grown
18 rapidly.
19 However, the relationship between China and Vietnam is asymmetric in every
20 respect, and asymmetry creates fundamentally different perspectives on the rela-
21 tionship. Vietnam’s GDP in 2007 was 3% of China’s.1 China is the world’s second
22 largest merchandise exporter and third largest importer; Vietnam ranks 50th and
23 41st, respectively. China and Vietnam have comparable levels of trade per capita,
24 but for Vietnam trade is proportionately twice as important. Vietnam’s trade-to-
25 GDP ratio is 156, while China’s is 71.3. Trade structure is quite different. For
26 Vietnam, agricultural, fuel, and mining products are 46.3% of total exports; for
1 Figure 2. Vietnam’s China imports and exports, indexed 1999

2 Source: GSOV (2009).
4 China they constitute only 6.7%.2 Vietnam is a net exporter of oil and coal; China
5 is also a net exporter of coal. Chinese goods fill Vietnamese markets. China is the
6 chief source of Vietnam’s machinery, computers, chemicals, and textiles. More
7 surprisingly, China sells three times more fruit and vegetables to Vietnam than it
8 buys. These differences in economic capacity and structure, as well as in global
9 weight, create a general asymmetric framework for the economic relationship.
10 As Figure 2 illustrates, the disparity between the economies of China and
11 Vietnam is accentuated by an imbalance between imports and exports. China is
12 easily Vietnam’s number one source of imports, equal to 79% of imports from all
13 of ASEAN, and the latter includes a large amount of refined oil products from
14 Singapore. While Vietnam exports textiles as well as commodities such as gems
15 and coffee to developed countries, most of China’s purchases are raw materials.
16 For example, Vietnam exports 70% of its rubber to China, but it buys two-thirds
17 more rubber products from China than it sells. Generally speaking, Vietnam
18 relies on China for a very broad range of its imports, 20% of its total imports, and
19 sells coal, oil, and food products to China.
20 Vietnam is a perfect external market for Chinese goods because of similar
21 economic conditions and consumer cultures and low transportation costs. While
22 Vietnam cannot find a comparably priced source for much of what it buys from
23 China, China can get its fuel and tropical products elsewhere.3 Moreover, Viet-
24 nam’s coal reserves are dwindling relative to demand, and more investment
25 would be necessary to increase supply. In 2010 domestic demand for coal will
26 approximate total production, and by 2015 Vietnam expects to import 25 million
27 tons, more than half the amount of current domestic production. But already in
1 Figure 3. Vietnam’s U.S. surplus, China deficit (million U.S.$)

2 Source: GSOV (2009).
3
4 the first six months of 2009 more than half of production was exported—two-
5 thirds of the total to China—and it will be difficult to replace coal’s foreign
6 exchange earnings (Vietnam News Agency, 2009). Meanwhile, oil output has
7 declined since 2005. Oil exports in 2007 were lower than they had been in 2000,
8 though earnings were greater due to price hikes. Thus the trends in bilateral
9 China trade are against Vietnam. It imports ever more, and in the absence of a
10 significant change in the composition of its exports, it will have less to sell.
11 For China, trade with Vietnam is much less important than it is for Vietnam. In
12 2007, Vietnam ranked 22nd in China’s exports, between Thailand and Mexico,
13 and 38th in imports, between Mexico and Venezuela.. Among Asian partners,
14 Vietnam ranked 16th in exports, behind all of the “big five” ASEAN states, and
15 11th in imports, behind Singapore, Malaysia, Indonesia, and Thailand.
16 While Vietnam’s trade deficit with China has been large and growing, Figure 3
17 shows that it has been balanced by its trade surplus with the United States.
18 However, the sharp rise in the China imbalance overtook the American surplus
19 in 2005. Vietnam also runs a large surplus with the European Union (EU), but as
20 a result of the current financial crisis, the developed country consumer market is
21 down, while Vietnam’s demand for Chinese goods continues to grow. In 2007,
22 the U.S. surplus covered 92% of the China deficit. In the first half of 2009, it
23 covered 81%. Meanwhile, although the Vietnamese economy is growing, in
24 August 2009 its imports were down 28%, its exports were down 14%, and
25 tourism was down 18% over the previous year.4 The current crisis is thus not only
26 a domestic problem for Vietnam, but it also directly affects economic and trade
27 dimensions of its relationship with China. As we shall see, it affects the political
28 relationship as well.
1 Global Uncertainty
2 The global economic crisis that has riveted world attention since mid-2008 is
3 the most serious systemic economic crisis since the Great Depression. As a
4 systemic crisis, its chief existential effect is a vast increase in uncertainty. The two
5 major crises of the post–Cold War era—the collapse of the Russian economy in
6 the 1990s and the Asian financial crisis of 1997—occurred within a global system
7 that was widely presumed to be stable and that indeed absorbed the shock. The
8 effects of the 2008 crisis touched off by the United States rocked the world
9 economy, and its effects continue to reverberate.
10 Consider fluctuations in the price of oil. In December 2003, it was US$30 per
11 barrel. In July 2008, it reached US$145 per barrel before plummeting by Decem-
12 ber 2008 to less than US$40. In the 12 months from April 2009 to April 2010, the
13 price varied by almost 100% (U.S. Energy Information Administration, 2010).
14 And oil is only one indicator of the current fluctuation of asset values.
15 By early 2010 the global economy showed signs of stabilization, but earlier
16 structural problems remain and in many countries they may be exacerbated by
17 the increased debt burden associated with stimulus packages. The global
18 economy shrunk by 2.2% in 2009, but the impact was uneven. High-income
19 countries lost 3.3%, whereas developing countries gained 1.2%. The World Bank
20 predicts for 2010 a high-income growth of 1.8% and developing country growth
21 of 5.2%, for a total of 2.7% (World Bank, 2010, p. 8). However, as of early 2010 it
22 is difficult to exclude the possibility that the problems of the Greek economy
23 presage a new type of global fiscal crisis caused by unsupportable debt.
24 Prediction becomes virtually impossible in a systemic crisis. Even a correct
25 structural analysis cannot specify when a predicted event will occur. It is possible
26 to judge a bridge unsound but impossible to know exactly when it will collapse.
27 Moreover, structural change is rarely driven by a single structural element, but
28 rather by the interaction of various factors.
29 The previous global systemic crisis, the Great Depression of the 1930s, is a poor
30 model for prediction. There were far fewer sovereign actors in the colonial era.
31 Vietnam was hurt more than France because France subordinated Vietnamese
32 interests to its own (Ngo, 1991; Wolf, 1973). Now the 192 members of the United
33 Nations will be making their own decisions. It is still the case that not all states are
34 equal, but the clout of state actors has become more complex as well. A debtor
35 United States must work with a creditor China. There were also no functioning
36 regional or global economic organizations in the 1930s. Now there are both
37 regional and global venues for cooperation on common policies. A more mixed
38 blessing of the present era is the role of the dollar as the global currency. On the
39 one hand, it provides an international standard of exchange. On the other hand,
40 it might prove an unreliable standard, and it is notable that the United States was
41 the source of the current crisis. Lastly, the transportation and communications
42 revolutions have created a near-instantaneous capacity for international interac-
43 tion. The problems, processes, and solutions of the present crisis will necessarily
44 be novel.
45 Thus the key characteristic of the current crisis is not that all suffer (though
46 they do—even the least affected are not “winners”), but that all are uncertain
47 about when and how the suffering will end. The dimensions of the current
48 uncertainty will exert a profound effect on the planning and priorities of indi-
1 viduals and nations. In relatively stable times, it is rational to act according to

2 one’s marginal advantage, to choose the better instead of the merely good. In
3 times of uncertainty, it is rational to be cautious. If future prospects are uncertain,
4 it becomes more important to secure a solid benefit than to take a better but more
5 risky option. In general, the developed world has been relatively stable and
6 prosperous during the post–Cold War era, and it has become habituated to acting
7 according to marginal advantage. The stability and progress of the developed
8 world has also had a broader stabilizing effect on the global economy. Currently
9 that situation and its logic are in a period of traumatic transition. We are now in
10 a new era, one of uncertainty.
11 Uncertainty is not new to Asia. The Asian financial crisis of 1997 was a pro-
12 found experience of regional economic uncertainty. Although China and Vietnam
13 were not the hardest hit, growth slowed. The Asian financial crisis led to greater
14 determination on the part of ASEAN to coordinate economic policies, and even-
15 tually to greater ASEAN-China and ASEAN+3 cooperation (Ba, 2009).
16 However, the Asian financial crisis was different in three major ways from the
17 current crisis. First, the Asian financial crisis took place within a relatively stable
18 global environment. Uncertainty was limited to the region, and it was limited to
19 finance and its budgetary consequences. Second, recovery plans could be based
20 on familiar patterns of increasing production and selling to markets in the United
21 States and Europe. Now these markets are undercut by more cautious consump-
22 tion, and the danger of tariff wars among nations is high. For both China and
23 Vietnam, membership in the WTO played an important role in encouraging trade
24 and investment while limiting their tariff and trade options in responding to the
25 crisis. Third, the developed countries, especially the United States, were rather
26 indifferent to the difficulties of Asian governments. It is unclear whether coun-
27 tries will help each other in the current crisis, but globally they are all in the same
28 stormy waters, though in different boats.
29
30 Global Certainties
31 The largest nodes in the multinodal international economy are the United
32 States and Europe, and, as Giovanni Arrighi argues, they are likely to remain the
33 largest nodes even in an era of uncertainty.5 Their share of the world market and
34 of investment will decline, but they are large and wealthy economies, with
35 tremendous advantages in capital and technology. Even as they try to protect
36 their domestic producers, they will find that they have become dependent on
37 imports that cannot be sourced internally. To be sure, lower consumer demand,
38 higher transportation costs, and pressures to create jobs at home will reduce the
39 current prominence in the world economy of the United States and Europe, but
40 other than the upper-income segments of the world’s largest cities there are no
41 markets like them, and no comparable concentrations of financial services. The
42 United States has 22.5% of the world’s GDP, and the five largest states of Europe
43 together have 16.7% (International Comparison Program, 2005, 2008, pp. 9–12). 22
44 That said, another major trend in the world economy that is likely to continue
45 and even strengthen is the growth of middle-income countries and the emer-
46 gence of some low-income countries from destitution. In 2005, middle-income
47 countries accounted for 32% of world GDP, and lower-income countries another
1 7%—together the same as the United States and the top five European economies
2 combined. China (9.7%) and India (4.3%) are, of course, important individual
3 components, but together they are less than half of the middle-income share
4 (International Comparison Program, 2005, 2008, p. 11). To the extent that middle-
5 income GDP is dependent on producing for high-income markets it is influenced
6 by world crisis, but to the extent that it produces for itself it should be relatively
7 better off. Assuming that there is more room for growth in middle-income
8 consumer markets, they are likely to become relatively stronger over the next 5
9 years.
10 Another global trend that will help some countries and slow others is growing
11 pressures on world resources, including energy, materials, and food. These pres-
12 sures will be offset somewhat by decreased demand from developed countries
13 and in the case of oil by alternative energy sources, but the limitations of sources
14 and increasing costs of inputs (labor and technology) will cause prices to rise.
15 Since the export volume of many of these products is generated by middle-
16 income countries, this trend should encourage the increase in middle-income
17 share in both absolute and relative terms. However, the specific impact of higher
18 resource prices will be different in each country. The effects are complicated for
19 China and Vietnam. Vietnam is a resource exporter, but with limited production
20 and reserves and an urgent need to pay for imports. China is a resource importer,
21 but with dollars to pay for them.
22 Related to the increasing price of resources will be increasing problems of
23 sustainable development. Sustainable development is broader than the availabil-
24 ity of resources, since it also includes the by-products of production: pollution,
25 water shortage, and social disruption. Population density is as important as level
26 of development in determining the urgency of sustainable development issues,
27 since the population immediately surrounding a production site is most exposed
28 to its environmental effects. Beyond the immediate by-products of production,
29 rapid development can exacerbate economic inequalities and insecurity, and can
30 lead to social disruption. China’s concentration on maximum growth during the
31 reform era has made it vulnerable to a broad range of sustainability crises, from
32 food and water shortages to social unrest. Vietnam has also pursued maximum
33 growth, but ironically its later start and more modest achievements have not
34 sharpened the contradictions of sustainability to the same degree.
35 Finally, the number and seriousness of truly transnational and global issues,
36 such as pandemic disease, terrorism, and so forth, are likely to increase. These
37 issues can only be effectively addressed through international cooperation. The
38 region’s experience with SARS in 2004 was a sobering lesson, and the flickering
39 cases of avian flu are a reminder that worse can happen.
40
41 Challenges for China and Vietnam in the New Era

42
43 Similarities
44 Both China and Vietnam have set a high priority on maximizing economic
45 growth, and a major component of this strategy has been the encouragement of
46 production for developed country markets. As Table 1 shows, both rely on
47 markets in the United States and Europe for roughly one-third of their exports,
1 Table 1. Exports to Developed Countries

23
4 Vietnam China
5 1997 2000 2005 1997 2000 2005
6 Exports (mil US$)

7 USA 287 733 5,924 32,715 52,099 162,891
8 Eu5* 2,284 2,733 7,929 16,126 25,219 83,272
9 US+Eu5 2,570 3,466 13,853 48,841 77,319 246,162
10 Percent total exports
11 USA 3.1 5.1 18.3 17.9 20.9 21.4
12 Eu5 12.0 13.4 11.2 8.8 10.1 10.9
13 US+Eu5 15.1 18.5 29.5 26.7 31.0 32.3
14 Trade balance (mil US$)
15 USA 84 104 395 16,414 29,736 114,269
16 Eu5 34 937 1,978 1,713 3,567 29,011
17 US+Eu5 118 1,041 2,374 18,126 33,303 143,280
18
19
20 Note: Calculated from respective official data.
21 *Eu5 are Germany, United Kingdom, France, Italy, and Spain.
22
23 and trade to these markets has more than kept pace with their general increase in
24 trade. Moreover, both China and Vietnam rely on heavily favorable balances in
25 their developed country trade to counter deficits in other areas. Considering that
26 the United States and the five largest European economies together are 39% of the
27 world’s economy, it is understandable that they would be major parts of the
28 export strategies of other countries. Nevertheless, it amounts to a large exposure
29 to the epicenter of the current global uncertainties.
30 The precrisis trade pattern therefore accentuates the effects of global economic
31 crisis for both China and Vietnam, and will require readjustment of priorities.
32 Although the United States and Europe will remain major markets, they will
33 certainly contract. Losses are unavoidable in sectors of the economy that have
34 been created specially to serve these markets. The capital losses are felt primarily
35 by foreign investors—foreign-invested enterprises accounted for 63% of China’s
36 total exports in 2005 (Naughton, 2007, pp. 387–388), but the job losses are a
37 domestic problem. Moreover, these problems are concentrated in export-
38 oriented localities that have hitherto been leaders in economic development. The
39 most immediate challenge, therefore, for both China and Vietnam will be to
40 soften the losses for those most affected by the crisis.
41 The deeper and more important challenge is to shift external development
42 strategy away from producing goods for existing markets toward developing
43 new markets. It is important to maintain share in shrinking markets, but it is
44 more important to establish share in growing markets. The fastest-growing
45 markets in the new era of uncertainty are likely to be in the middle-income
46 countries, including China itself, and the greatest long-term opportunities will be
47 in the poorest countries. Both China and Vietnam have special advantages in
48 these markets because they are themselves developing countries and therefore
1 are acquainted with the needs of such economies. However, foreign direct invest-
2 ment is not likely to play a leading role in production for developing country
3 markets, so governments will have to be active in encouraging local entrepre-
4 neurship and development.
5 The most important challenge of market development will be within the
6 domestic economies of China and Vietnam. One’s own market is the most reli-
7 able one in a time of global uncertainty. Spreading the national economic infra-
8 structure and developing domestic consumption are always major priorities, but
9 they take on new importance in uncertain times. Moreover, for both China and
10 Vietnam, the Chinese domestic market is the major opportunity in Asia.
11 Global uncertainty has lowered rates of GDP growth in China and Vietnam,
12 and this creates the temptation to try to maintain the current growth rates at all
13 costs. Both China and Vietnam have adopted major stimulus packages—15% and
14 6.8% of their respective GDPs—in order to counter the initial effects of the
15 slowdown (Le, 2009, p. 71). However, the concentration on maximum economic
16 growth is a problematic strategy in good economic times, and it is more ques-
17 tionable in bad times. Sustainable development should be even more important
18 in an era of global uncertainty. Unsustainable development creates crises in the
19 present and future. A slower but more solid pattern of development prevents the
20 magnification of uncertainties. As Premier Wen Jiabao has argued, scientific
21 development must address the problems of social inequalities and promote
22 social harmony as well as coping with obvious industrial problems such as
23 pollution.
24 A final common challenge for Vietnam, China, and their neighbors is to
25 develop and strengthen regional institutions, especially in areas of development,
26 trade, and finance. The weakness and variability of the U.S. dollar underlines the
27 importance of East Asia’s providing its own international financial stability, and
28 the problems of big international service providers such as AIG and the now-
29 defunct Lehman Brothers show the advisability of locally and regionally based
30 institutions. However, the strength of ASEAN, the most successful regional
31 institution in East Asia, has been based on openness to the rest of the world rather
32 than the formation of a closed system, and this should remain a principle of
33 future institutional development.
34
35 Differences
36 Despite the basic similarities of the situations of China and Vietnam in facing
37 global economic uncertainty, the challenges they face are different in some
38 important respects.
39 Vietnam is a smaller economy, and it is less wealthy than China. China has had
40 the advantage of seven additional years of reform and openness, and it did not
41 have the disadvantages of war and of lingering international hostility. The United
42 States normalized relations with China in 1979, but with Vietnam only in 1995.
43 Moreover, Vietnam entered the WTO in 2007, while China entered in 2001.
44 Since Vietnam is a smaller boat riding lower in the water, it has more urgent
45 difficulties in adjusting to the current crisis. Before the crisis began, inflation was
46 a problem, peaking at 28% in August 2008. Deflationary measures adopted in
47 April 2008 eventually brought inflation under control, but the collapse of devel-
1 oped country exports (total exports down 24% year-on-year in January 2009) led
2 to opposite policies of fiscal stimulus and damage control. China went through a
3 similar cycle of inflationary pressures, deflationary policies, and stimulus, but
4 inflation was much milder (5%) and it had a huge trade surplus. Since 2003
5 Vietnam has run trade deficits with all ASEAN countries except Cambodia and
6 the Philippines, and except for those two and South Africa, the rest of its sur-
7 pluses have been with developed countries. In June 2009 the International Mon-
8 etary Fund (IMF) estimated Vietnam 2009 GDP growth at 3.5% “and judged it to
9 be “weathering the crisis relatively well” (IMF, 2009). Actual growth for 2009 was
10 5.3%, with a relatively low inflation rate of 6.9%. However, the IMF was con-
11 cerned about the possible fiscally destabilizing effects of the stimulus package.
12 Clearly Vietnam’s most urgent problem is managing as best it can the problems
13 caused by the current crisis.
14 As to market reorientation, Vietnam’s greatest single opportunity is China. Its
15 borders with Guangxi and Yunnan provinces give special access to southwest
16 China, and it has good maritime access to Guangdong and Hainan. But besides
17 these neighboring areas, the vast improvements in China’s rail and road trans-
18 portation in the south greatly facilitate Vietnam’s access. Joint development
19 projects at the major gateways of Lang Son/Pingxiang and Mong Cai/Dongxing
20 offer unique advantages, as do larger projects such as plans to develop the Gulf
21 of Tonkin region.
22 Exports to China have increased. Trade grew by 11 times from 1999 to 2007, but
23 the export of petroleum, coal, and other resources is a significant part of the
24 increase. In the first half of 2009, total trade with China was 16%, almost at the
25 level of ASEAN trade (18.4%). Exports to China were 7.5% of total exports, about
26 half of exports to the United States (19.5%), while China was the source of 23% of
27 Vietnam’s imports, almost three times the imports from the EU and a billion
28 dollars more than from ASEAN (GSOV, 2009).
29 Vietnam’s challenge in diversifying exports to China is that it is difficult to find
30 products and areas of consumption in which it can compete successfully with
31 domestic Chinese producers. However, a more sophisticated and sensitive mar-
32 keting effort of manufactured products to China should yield results. Many
33 developed countries trade commodities with one another in categories where
34 neither has a clear competitive advantage. Vietnamese manufacturers could
35 establish brand names and reputations in Chinese markets and search for market
36 niches where their products would be better than locally available ones.
37 Besides trade with China, Vietnam’s markets in ASEAN and East Asia have
38 room for expansion. Its export increases in 1995–2005 with Singapore, Taiwan,
39 South Korea, Hong Kong, and Japan were below the average export growth of
40 595%. While these markets are hit hard by the current crisis, there may be areas
41 for improvement. Beyond Asia, China’s successes in Latin America, the Middle
42 East, and Africa suggest opportunities since Vietnam has similar factor advan-
43 tages in production, if not in scale and capital. The increases in Vietnam’s trade
44 with South Africa, Australia, and New Zealand are heartening.
45 Vietnam does not have enough capital for a general program of long-term
46 investments in poorer countries, but its close relations with Cambodia and Laos
47 could be developed further. As China builds longitudinal links to mainland
48 Southeast Asia, Vietnam can continue to cooperate with neighbors to strengthen
1 latitudinal links. These projects are not in conflict and should enhance the ben-
2 efits of each.
3 In contrast to Vietnam, China’s currency problems are ones that most other
4 countries would envy—too many dollars and an undervalued currency. While
5 these also pose sharp and unusual problems for China’s leadership, these prob-
6 lems are not comparable to Vietnam’s in scale and urgency. Moreover, while its
7 export industries aimed at developed markets will suffer, the rest of the economy
8 will be more able than Vietnam’s to pick up the slack. China’s major strategic
9 challenge will be rethinking its commitment to maximum economic growth and
10 decisively shifting its priorities to sustainable development. If China does not
11 cope successfully with the challenges of controlling the environmental and social
12 effects of maximum growth, then it will face a future crisis more serious for itself
13 than the current global one.
14 In the current crisis, China has been the least negatively affected of the major
15 world economies, and since it already has the highest growth rate, its share of the
16 world economy is likely to rise in absolute terms and still more rapidly in relative
17 terms. More important than China’s fiscal advantage are its large and dynamic
18 domestic market and its forward-looking investments in transportation and com-
19 munication infrastructure (Selden, 2009). Moreover, China’s investment in higher
20 education and research has prepared it to move to the front lines of technological
21 innovation. In general, Asia’s share in the world economy can be expected to rise,
22 and China’s centrality to Asia will increase. However, if China does not address
23 the problems of sustainable development in a timely fashion, it will find itself
24 increasingly distracted by environmental and societal crises.
25 Sustainability confronts China with complex economic and political challenges
26 (Womack, 2010). It made sense for China to stress maximum growth and political
27 stability while it was climbing to middle-income status. However, continued
28 growth and avoidance of internal crises increasingly require more attention to
29 public goods and to the rule of law. China’s task is to find a middle way between
30 uncontrolled market forces and the temptation to slip back into a neo-
31 commandist political economy.
32 Before the crisis, China was already very well positioned in the global
33 economy. It lists approximately 250 trading partners. Its investments in Latin
34 America and Africa have created new markets and new sources for raw materi-
35 als. From 1997 to 2006 its trade with Latin America and Africa grew 978% and
36 838%, respectively, far outpacing its general trade growth. Trade growth with
37 other regions was also impressive, however, ranging from 500% to 600%, with
38 the weakest region being Asia. Of course, trade with Asia was increasing from a
39 higher base. By moving beyond its immediate neighborhoods and developing
40 markets and sources throughout the world, China has reduced its exposure to
41 particular economic fluctuations and has increased its opportunities.
42 Both China and Vietnam face the challenges of regional reorganization, but
43 from different vantage points. For China, the problem is a multiregional one
44 (Womack, 2009a). It must simultaneously manage its relationships with North-
45 east Asia, Southeast Asia, and Central Asia. Its position as the new center of the
46 general Asian economy and as its most promising market puts it in the macro-
47 regional leadership position, capable of voicing important concerns and ideas
48 regarding global structures. Japan’s recent election puts it in a better position to
1 cooperate with China in regional initiatives. For Vietnam, the most important
2 regional task is to strengthen ASEAN, both internally and in ASEAN’s collective
3 relationships with China and India.
4
5 The Vietnam-China Relationship in the New Era

6 It is the good fortune of China and Vietnam that before the current era of global
7 uncertainty, they normalized their relationship using principles and practices
8 that are quite compatible with the requirements of the new era. The “16 Word
9 Guideline” enunciated in February 1999 is still applicable. More generally, the
10 mutual commitment to the Five Principles of Peaceful Coexistence formulated
11 in1954—multipolarity, openness, autonomy, and the peaceful settlement of
12 differences—remain a vital framework for the relationship. More specifically, the 33
13 settlement of the land border, the management of Gulf of Tonkin differences, and
14 the decision in principle to cooperate in developing the Spratly Islands are
15 important not only because they reduce points of conflict, but also because the
16 successful negotiation of these sensitive issues provides a pattern for the future.
17 Nevertheless, managing an asymmetric relationship poses special challenges
18 for each side (Womack, 2009b). For the larger side, the challenge is to reassure the
19 smaller side that it respects its identity and autonomy. Because the larger side is
20 capable of infringing on the interests of the smaller side, it must demonstrate that
21 it respects the smaller side’s autonomy and is willing to negotiate rather than
22 bully. For its part, the smaller side must convince the larger that it respects the
23 differences in capacities and does not intend to challenge the larger. In a word,
24 the smaller side must be deferential. But deference does not mean that the larger
25 side controls the smaller and can dominate the relationship. Quite the opposite.
26 The smaller side can be deferential only if the larger respects its interests and
27 autonomy. The exchange of deference by the smaller side and recognition of
28 autonomy by the larger side makes possible normal asymmetric negotiation. A
29 normal bilateral relationship is beneficial to China as well as to Vietnam. While it
30 might seem that the larger side could get more from the relationship by simply
31 bullying the smaller side rather than compromising, in fact the smaller side is
32 quite capable of resisting the larger. No country has a longer history of patriotic
33 resistance than Vietnam. If a hostile stalemate develops between the two, then
34 both sides lose the opportunities of mutually beneficial relations.
35 Despite the general commitment to normalcy, there have been tensions
36 between China’s tendency toward complacent self-assertion and Vietnam’s anxi-
37 eties concerning its vulnerability to China. Despite the official settlement of the
38 land border by a 50-50 assignment of disputed territory, there has been an
39 undercurrent of patriotic disapproval in Vietnam of yielding any Vietnamese land
40 to China. Incidents in the Gulf of Tonkin and South China Sea do not now lead to
41 the official confrontations that occurred even in the 1990s, but they are watched
42 closely as signs of possible encroachment. More seriously, moves by China in 2007
43 to enforce its claim to sole sovereignty of the Paracel and Spratly islands led to
44 rare public demonstrations in Hanoi and Ho Chi Minh City.6 The island disputes
45 are viewed by both sides as the most serious security threat to the relationship.
46 China’s development of a submarine base in Hainan stirred Hanoi to contract in
47 April 2009 for six Russian submarines at an estimated cost of more than $1 billion
1 (“Vietnam Buys,” 2010). The Vietnamese navy has also purchased shore-to-ship
2 missiles from Israel and fighter jets from Russia (Karniol, 2010). These tensions in
3 the relationship are magnified in the international media and by anti-regime
4 activists among the overseas Vietnamese, but they do express a common uneasi-
5 ness about vulnerability to China and a suspicion about China’s motives.
6 Trade with China has been an acutely mixed blessing for Vietnam ever since it
7 resumed in 1990 (Womack & Gu, 2000). On the one hand, much-desired con-
8 sumer goods began to flood in, accompanied by important producer goods such
9 as insecticides and tools. On the other hand, the competition from Chinese
10 products was devastating for Vietnamese industry. This led to import bans on
11 Chinese products in 1992, but smuggling was so prevalent that the bans were
12 ineffective. Having the Chinese superstore next door is good for shopping but
13 bad for the neighborhood store.
14 Global uncertainty has made more difficult the management of bilateral asym-
15 metric relationships. The best example in 2009 was the hotly disputed decision to
16 allow a Chinese company, Chalco, to develop a bauxite mine in Vietnam’s Central
17 Highlands (Thayer, 2009). The world’s third largest bauxite deposits are located
18 there, and Vietnam is hoping to attract US$15 billion in investment by 2025. In
19 2007, Vietnam reached agreements with Alcoa and Chalco concerning joint ven-
20 tures on mining and processing projects, but there was public outcry. General
21 Giap, now 97 years old, wrote a letter of protest to the Politburo, and many others
22 questioned the move. Environmental problems included disruption in Central
23 Highlands, with large-scale surface mining and electric power and toxic
24 by-products from the processing of bauxite. But the China-invested project was
25 particularly targeted, with claims that thousands of Chinese workers would be
26 brought in to do jobs that unemployed Vietnamese could do, and that the Chinese
27 presence would be a security threat. In April the government announced that the
28 current project under contract with Chalco would continue, but that it would
29 postpone the decision concerning foreign investment in bauxite mining and
30 processing. Other projects would require additional environmental and economic
31 assessments.
32 Vietnam is hardly the only country facing dilemmas concerning Chinese
33 investment in resources. The United States prevented the sale of Unocal to China
34 National Offshore Oil Company (CNOOC) in 2005, and Australia is wrestling
35 with questions of how much Chinese investment to allow in its natural resources.
36 But for Vietnam these concerns are amplified by the disparity between it and its
37 larger neighbor.
38 The dilemma that the Vietnamese government faces in the bauxite project
39 points to the basic dilemma of asymmetric relations made more acute by global
40 uncertainty. On the one hand, Vietnam is in need of investment and trade. Chalco
41 is the world’s third largest aluminum producer and China currently imports
42 three-fourths of its alumina. The development of a major new resource is an
43 opportunity that cannot be ignored, and China is a natural partner. On the other
44 hand, the fact that China is growing so fast and the idea of China as threat is so
45 ingrained in national consciousness create a fear that rises in proportion to the
46 opportunity. Just as the opportunity would benefit some more than others in
47 Vietnam, the fear can be exploited by interested groups to claim the flag of true
48 patriotism. Vietnam has proved itself capable of going it alone on other projects.
1 In February 2009 it opened the $2.5 billion Dung Quat oil refinery, a project that
2 had been abandoned because of expected unprofitability by three different
3 groups of major international partners since construction began in 1995.
4 However, uncertainty raises the cost of stubbornness as well as its incentive. If
5 the world economy were more stable, Vietnam would neither be so desperate nor
6 so anxious. Uncertainty increases the interest in opportunity but at the same time
7 extends the horizons of doubt and fear.
8 Just as the tensions of bilateral asymmetric relationships are heightened by
9 international uncertainty, they can be buffered by multilateral regional and global
10 institutions. If Vietnam had not succeeded in joining WTO before the current
11 crisis, it would be more anxious and fearful in its relationship with China.
12 Ironically, its factor similarity to China attracted investment from companies
13 wanting to diversify their political exposure. Multilateral agreements and insti-
14 tutions provide a web of common international expectations that reduce concerns
15 about fluctuation in bilateral relations.
16 The most important multilateral organization buffering the Sino-Vietnamese
17 relationship is ASEAN and, more broadly, to ASEAN +3. Only one-fourth of
18 ASEAN trade is within ASEAN, and, as a consensus organization, it is more
19 impressive for the regional atmosphere it creates than for the policies it adopts.
20 But over time it has transformed both the regional political environment of
21 Southeast Asia and the region’s external image (Ba, 2009). The admission of
22 Vietnam into ASEAN in 1995 had two important bilateral effects. It prodded the
23 United States into finally recognizing Vietnam, and it gave Vietnam the confi-
24 dence to pursue closer relations with China. Rather than balancing against China,
25 regional security (and normalization with the United States) enabled Vietnam to
26 feel less isolated and therefore less at risk in an asymmetric bilateral relationship,
27 especially one that was similar to that of its fellow ASEAN members.
28 ASEAN’s soft-line, consensual approach prompts predictions of its demise
29 whenever Southeast Asia faces major crises. But unlike a defensive alliance such
30 as NATO, its function is not to counter an identified external threat, but rather to
31 facilitate a regional adjustment to new situations. The Vietnamese invasion of
32 Cambodia in 1979 led to the alignment of ASEAN in an anti-Vietnamese entente,
33 with Thailand designated as the frontline member. ASEAN seemed fragmented
34 in its policy as the Cambodian stalemate moved into endgame in the second half
35 of the 1980s, but by the mid-1990s it took the bold move of becoming a truly
36 regional organization by admitting Vietnam, Cambodia, Laos, and Myanmar.
37 The adoption of the ASEAN Charter on the organization’s 30th anniversary in
38 2007 marked a new level of formal commitment to regional structure.
39 ASEAN’s efforts at economic coordination had been weak before the Asian
40 financial crisis, but beginning with the Sixth ASEAN Summit in Hanoi in Decem-
41 ber 1998, members recommitted themselves to an ASEAN free trade area (AFTA),
42 and, perhaps more importantly, took a more active role in developing regional
43 relations with Japan, China, and Korea (ASEAN +3). The most spectacular result
44 of these explorations was the ASEAN-China free trade area (ACFTA or CAFTA)
45 announced in 2002 and formally inaugurated in January 2010 on schedule. The
46 economic progress was complemented on the political and security side by the
47 “Declaration on the Conduct of Parties in the South China Sea” signed in 2002
48 and China’s accession to the ASEAN Treaty of Amity (as the first non-ASEAN
1 member) in 2003.7 Vietnam’s participation in the ASEAN initiatives helped reas-

2 sure China of Vietnam’s deference and also provided Vietnam with a regional
3 umbrella for its own bilateral policies.
4 How will ASEAN respond to the current crisis? With the momentum of
5 ASEAN and more broadly Asian economic integration since 2002, the least
6 likely response would be the demise of ASEAN. Even in the unlikely event of
7 protectionism in the developed world, ASEAN and East Asia will probably be
8 cooperative and inclusive in their response. Considering the common economic
9 problems of dollar exchange rate uncertainty, disruptions in employment and
10 foreign investment, weakening of developed country consumer markets, and
11 the need to develop domestic consumer bases, a variety of new initiatives
12 might be anticipated. On the foreign exchange and investment front, the
13 Chiang Mai currency swap facility was raised from $80 billion to $120 billion in
14 February 2009, and further efforts to buffer local currencies and international
15 projects against third-party currency fluctuations can be expected. One might
16 expect more grand international infrastructure projects, especially ones that
17 open up interiors or promise employment and new consumers. With regard to
18 ASEAN-China relations, it might be expected that ASEAN will do more to
19 encourage exports to China and Chinese investment in ASEAN.
20 ASEAN has taken the lead in broader regional cooperation, but it is concerned
21 about being sidelined in a framework that includes all of the big powers. ASEAN
22 first proposed discussing East Asian integration in 1999 and sponsored the East
23 Asia Summit in 2005. Japan made a rather vague proposal for an East Asia
24 Community in 2009, but ASEAN and its members are concerned that larger
25 organizations could simply become multilateral platforms for big power decision
26 making. However, ASEAN’s inclusive approach to regional cooperation commits
27 it to a set of widening circles of contact.
28 The era of global economic uncertainty has greatly enhanced China’s global
29 role. Not only has the G-20 effectively replaced the G-8 as the primary forum for
30 global economic leadership,8 but there is talk of a “G-2” relationship between
31 China and the United States (Economy & Segal, 2009; Hirsch, 2009). But China’s
32 new global prominence is a mixed blessing for Vietnam and other neighbors. On
33 the one hand, China’s interests and viewpoint are closer than those of the
34 Western developed countries. On the other hand, China’s new global status
35 strengthens its hand as a regional power, thus increasing the asymmetry between
36 itself and its neighbors.
37 While the rise of China is not threatening per se to its neighbors, the continued
38 presence of the United States as the decisive global power in the Western Pacific
39 is important for the peace of mind of countries like Vietnam. Vietnam does not
40 want to use the United States to balance against China, but an American presence
41 buffers its increasing exposure to China. This attitude is common throughout
42 Southeast Asia, as indicated by the following colorful metaphor of Surin Pitsu-
43 wan, the Secretary General of ASEAN (2010):
44
45 Like a ceremonial umbrella, which is not held straight overhead, the US has to be
46 symbolically behind, not overwhelming, not imposing, but there to provide a
47 sense of security, trust and confidence to the region. For that reason, the US has
48 been playing that role of the umbrella but not quite above, as it did earlier during
1 the Vietnam War. That sensitivity has to be taken very seriously. Then everybody
2 can be comfortable and confident.
3
4 Of course, continuing a global role in a situation of increasing budgetary
5 pressure and no hostile relationships places a considerable strain on the United
6 States. Ultimately American presence will have to be rethought in terms of pro-
7 viding security in a framework of cooperation with China and the region.
9 Conclusion: Beyond Win-Win

10 The normalcy of the relationship between China and Vietnam has not been
11 threatened by the era of global economic uncertainty, but there has been a subtle
12 yet significant change in its context. China’s relative economic strength has
13 increased rapidly, making the relationship more asymmetric. New prominence
14 has led to a reglobalization of China’s idea of its place in the world. In contrast to
15 its cautious and defensive mood in the 1990s when its turn toward regional
16 cooperation began, China is rising, and not only within Asia, but beyond. China
17 is now thinking big. However, China’s general line of foreign policy in the reform
18 era remains the same. Cooperation on the basis of mutual respect and noninter-
19 ference in domestic affairs remains basic. The short formulation—found on bill-
20 boards all over Nanning City during the China-ASEAN Trade Exposition held
21 there in October 2009, is “win-win.” For China, expansion of its economic and
22 social contacts with its neighbors, including Vietnam, is all win and no risk.
23 But “win-win” looks different from the other side of an asymmetric relation-
24 ship. True, it is better than the alternative of “I win—you lose.” But the smaller
25 side is more exposed to the risks of the relationship, and its commitment to
26 cooperation is proportionally much larger. Both the opportunities and the risks of
27 the relationship loom larger, but in a time of general uncertainty the risks appear
28 more vivid.
29 Vietnam is therefore understandably more anxious about China even though
30 cooperation with China is its most significant immediate opportunity. Since both
31 countries share common concerns about the world economy, there is room for
32 multilateral as well as bilateral cooperation. But for the peace of mind of China’s
33 neighbors, regional integration must remain part of an open world order.
34
35 Acknowledgments
36 An earlier version of this study was presented at the Third International Vietnam Studies Confer-
37 ence, Hanoi, in December 2008, and appeared in Japan Focus. My thanks to Mark Selden, Herman
38 Schwartz, Nguyen Tuan Viet, and Ho Hai Thuy for their comments.
39
40 Notes
1
41 In purchasing power parity (PPP). In current dollars, it is 2%.
2
42 Unless otherwise indicated, data cited are taken or calculated from that provided by the respective
43 national statistical bureaus of China (National Bureau of Statistics, accessed by electronic subscription
44 through China Data Online) and Vietnam (GSOV, public access at http://www.gso.gov.vn/
45 default_en.aspx?tabid=491). Data for 2007 are given in this section because it was the last full precrisis
46 year.
3
1 Coal is somewhat of an exception. Vietnam supplies one-third of China’s total coal imports and
2 two-thirds of its anthracite (hard coal) imports.
4
3 The first 8 months of 2009 compared to the same period during the previous year.
5
4 As interviewed in Selden (2009).
6
5 In November 2007, China set up a county-level administrative unit in Hainan with responsibilities
6 for its territories in the South China Sea. There was a demonstration in Hanoi on December 9,
7 prompting a public remonstrance from China, which was followed by a second demonstration on
8 December 15.
7
9 China set a powerful example. Among many others, the EU and the United States signed in July
10 2009.
8
11 The East Asia members of the G-20 are China, Japan, South Korea, and Indonesia.
12
13 References
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Asian Politics & Policy—Volume 2, Number 4—Pages 583–600

1 China and Vietnam: Managing an

584 Asian Politics & Policy

11 China and Vietnam

36 The Global Economic Crisis

Managing an Asymmetric Relationship in an Era of Economic Uncertainty 585

1 Figure 1. Vietnam’s trade growth, indexed 1999

586 Asian Politics & Policy

1 Figure 2. Vietnam’s China imports and exports, indexed 1999

Managing an Asymmetric Relationship in an Era of Economic Uncertainty 587

1 Figure 3. Vietnam’s U.S. surplus, China deﬁcit (million U.S.$)

588 Asian Politics & Policy

Managing an Asymmetric Relationship in an Era of Economic Uncertainty 589

1 viduals and nations. In relatively stable times, it is rational to act according to

590 Asian Politics & Policy

41 Challenges for China and Vietnam in the New Era

Managing an Asymmetric Relationship in an Era of Economic Uncertainty 591

1 Table 1. Exports to Developed Countries

5 1997 2000 2005 1997 2000 2005

6 Exports (mil US$)

592 Asian Politics & Policy

Managing an Asymmetric Relationship in an Era of Economic Uncertainty 593

594 Asian Politics & Policy

Managing an Asymmetric Relationship in an Era of Economic Uncertainty 595

5 The Vietnam-China Relationship in the New Era

596 Asian Politics & Policy

Managing an Asymmetric Relationship in an Era of Economic Uncertainty 597

598 Asian Politics & Policy

1 member) in 2003.7 Vietnam’s participation in the ASEAN initiatives helped reas-

Managing an Asymmetric Relationship in an Era of Economic Uncertainty 599

9 Conclusion: Beyond Win-Win

600 Asian Politics & Policy

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