The world is closely watching the developments in Hong Kong. Brave youngsters are testing the limits and patience of the Hong Kong authorities, first protesting against the extradition law, enabling Hong Kong citizens to be sent to China in case of serious allegations, and now with much broader demands for several kinds of liberties. Anybody with who cares for personal and political freedom can only watch in great sympathy, knowing that this is a modern day version of a number of small Davids against the towering power of the Chinese autocratic Goliath, with the Hong Kong authorities as its stumbling middle man.
I happened to be in Hong Kong for a few days, just for touristic purposes, in the first half of the past week. Arriving from mainland China on Monday, we encountered the protests a number of times. The protests caused major traffic jams, making it impossible to leave the train station in the regular way. Yet a small detour on the metro sufficed to reach our hotel. Later that night, we tried to reach one of the night markets, which turned out to be impossible: not only had the traders already packed their stuff, because a prominent protest location was just around the corner, students had also blocked the road and made sure our taxi returned nicely to where it came from.
In the hotel we could watch live footage from confrontations between the police and the protesters, with the latter throwing stones and rocks against a police station just a few hundred meters from our hotel in Kowloon City. At times, it seemed there were as many journalists as there were protesters, which is of course an encouraging sign from the perspective of press freedom. The next day we went to Hong Kong University, but only the Student Union was in full protest mode, there were no visible signs of other unrest at the campus.
There were lots of protests at night though, as the coverage in the main Hong Kong quality paper South China Morning Post made clear.
One of the main questions this week was whether the Chinese army or police force would interfere. The local Chinese army commander hinted at it, while about 12,000 policemen gathered in nearby Shenzhen, just across the border in the mainland. The Hong Kong authorities, notably executive leader Carrie Lam and several police commanders, emphasized they were perfectly capable of handling this situation themselves. Given the developments in the past months one can question this, but the hesitation of Beijing to interfere is comprehendible. They do not want unrest, in the wake of the 70th anniversary of the People’s Republic later this year, while they know that direct action will make it impossible to get realigned with Taiwan in the foreseeable future, which has been a main goal of any Chinese leader since Mao, current leader Xi Jinping in particular.
Lam hinted at a press conference that the protests only foster the quick termination of the ‘one country two systems’ situation, agreed as part of the handover Treaty with the British in the nineteen eighties. One of the important elements is that Hong Kong keeps its own liberal laws and regulations for the first 50 years after the transfer of sovereignty in 1997.
Earlier protests died down, without much change achieved, mainly because the protesters did not succeed in broadening their movement to the wider public in Hong Kong. Although there was a supporting demonstration of public servants last Friday, this may happen again. On Wednesday, small traders already complained about the income they lose due to all the protests. And there are the mysterious groups of men in white t-shirts who beat up the protesters.
However, in the midterm, the protests will be futile. In the end this is an internal Chinese issue. Sure enough, there will be international protests, and depending on the outcome of the current crisis, perhaps also economic sanctions against China, if it just ends the protests by police or army action. These international protests are mainly symbolic though. Economic sanctions are the instruments of the impotent, not the powerful. Never have they worked to change a regime, or to make live very miserable for the leaders of a country. They do hit the population, but his and her concerns are easily overlooked in the international arena. The sad but undeniable truth is that no foreigner is going to die for Hong Kong. The great powers will treat this an internal Chinese affair. The USA already said so. No foreign power will intervene in China if the terms of the Sino-British Treaty are tampered with. At present, it is far more likely that Hong Kong will lose its special status, perhaps also earlier than the 50 years agreed, than that China will change into the liberal direction. The world may protest, but in the end the Chinese will have their way.
There is a clear consensus with regard to the fact that Vietnam has been one of the economic success stories of recent years.
The country has witnessed robust economic growth (GDP growth rate for 2018 was estimated at 7.15%, while the growth rate for 2019 is estimated at 6.6%) and has been successful in poverty reduction. Foreign Direct Investment (FDI) for the first five months of 2019 reached a four year high of over $16 billion (a year on year increase of over 69%).
If one were to look at a sectoral break up of the FDI, manufacturing and processing came right on top, receiving over $10 billion.
US appreciation for Vietnam’s economic achievements
Today, an opening Vietnamese economy is one of the fastest-growing economies on Earth. It has already increased more than 30 times over, and the Vietnamese students rank among the best students in the world.
In 2019, on the sidelines of his Summit with North Korean leader Kim Jong Un, the US President, while acknowledging Vietnam’s progress, stated that North Korea could emerge as another Vietnam if it denuclearized.
US Secretary of State Mike Pompeo had made a similar point while addressing a meeting of the US-Vietnamese business community in 2018.
Increasing FDI and factors which have contributed to it
It would be important to point out that FDI in Vietnam is also not restricted to any one particular region or city. While Hanoi (the Vietnamese capital), which drew well over $2.7 billion, and Bin Doung province in South Vietnam, are on top, North Vietnam too, is managing to draw significant investments. The shipping hub of Haiphong has witnessed significant economic growth since, after the imposition of US tariffs, a number of Chinese companies have shifted to the Shenzhen-Haiphong Economic and Trade Cooperation Zone.
Economic reforms (dubbed as Doi Moi) which began in 1986 have played a crucial role in Vietnam’s economic success. The main advantages which Vietnam has over its competitors are relatively low labor costs (though the country has witnessed a significant year on year growth in minimum wages between 2015 and 2019), increasing consumption as the result of a burgeoning middle class (currently 13% of its total population; it is estimated, by the World Bank, that in 2026 over one quarter of Vietnam’s population will be part of the middle class), and its geographical location.
Vietnam a beneficiary of the US-China Trade war and the CPTPP
Vietnam has benefited significantly from the US-China Trade war. A number of companies have shifted manufacturing operations from China to Vietnam, and others like Apple (which plans to shift anywhere between 15% and 30% of it’s iPhone production), Microsoft, Amazon, Sony, Nintendo, and Dell are likely to shift in a big way to Vietnam.
The Southeast Asian country is also gaining significantly by being part of the CPTPP. Exports to both Japan and Canada have risen significantly in the first quarter of 2019, if one were to look at the year on year figures.
In the past two decades ties between the US and Vietnam have improved significantly. The foundations were laid by Bill Clinton; during his first tenure, the Vietnam Foreign Ministry opened its office in Washington DC (1993), and the US State Department opened its office in Hanoi in the same year. Similarly, the US lifted its trade embargo on Vietnam in 1994. Vietnam also figured importantly in Obama’s ‘Pivot to Asia’ and was part of the Trans Pacific Partnership (TPP) that the US abandoned.
US President Donald Trump has given mixed signals on Vietnam. Trump has, though, referred to the geopolitical relevance of Vietnam, and it is for this reason that the US President articulated his vision for a free and open Indo-Pacific in Vietnam in 2017 (while speaking at the APEC CEO Summit at Da Nang).
In March 2018, U.S. Navy aircraft carrier USS Carl Vinson visited the port city of Da Nang for the first time since the end of the Vietnam war in 1975. Former Defence Secretary Jim Mattis visited Vietnam twice in 2018, and reiterated on both visits the increasing relevance of the Washington-Hanoi relationship.
The fact that the US President chose Hanoi for his 2nd summit with North Korean leader Kim Jong Un was significant not just in terms of symbolism, but also in sending a message that the Southeast Asian country was strategically relevant. During his visit in 2019, Trump of course praised Vietnam for its economic success, but a number of trade deals (Boeing inked a deal of over $12 billion to sell 100 planes to Vietnamese budget carrier, Viet Jet, for example) were also arranged.
Imposition of Trade Tariffs
As a result of trade wars, Vietnam’s exports to US have also witnessed a sudden rise. Exports for the period January-June 2019 rose 27.4% year on year. The US trade deficit with Vietnam for the first six months was estimated at $25.3 billion (in 2018, this was $40 billion).
US has recently imposed tariffs of 456% on certain steel products which were imported from Vietnam. According to the US Commerce Department, certain corrosion resistant steel products and cold-rolled steel which were supposed to be manufactured in Vietnam actually underwent only minor processing in the Southeast Asian country, but used substrate of Taiwanese and South Korean origin (duties on these South Korean and Taiwanese products had been imposed in 2015 and 2016 respectively).
Imposition of tariffs by the US is not likely to end here. There are strong indicators that the US could impose further tariffs on Vietnam, citing the reason that a number of Chinese goods are rebranded there to avoid tariffs (this is dubbed as transshipment). Trump had made some harsh remarks, including in an interview with Fox News:
Vietnam is almost the single worst — that’s much smaller than China, much — but it’s almost the single worst abuser of everybody.
It remains to be seen as to what impact the imposition of tariffs will have not just on Vietnam’s economy (the increase in bilateral trade and exports), but also on the bilateral relationship which has witnessed significant improvement due to the efforts of successive US Presidents. Vietnam’s growth and prosperity is also important from a strategic perspective, as it is one of the countries which has been strengthening defense ties with the US, Japan, and India. While Vietnam does have robust economic ties with China, it also has serious differences over the South China Sea (only recently, tensions between both countries had escalated when a Chinese survey ship and coastguard vessels had entered disputed waters near the Spratly Islands).
Vietnam provides a good lesson for many other countries. It has stuck to the basics, and so far has been very astute in balancing out economic relationships between China and other countries. Vietnam’s real test lies in how it deals with Trump’s unpredictability, and deals with the turbulence resulting out of Trump’s brash decisions. If the US President actually slaps more tariffs on Vietnam, not only will it have an adverse impact on bilateral ties and undo all the good work of previous US and Vietnamese administrations, but fissures between Hanoi and Washington will also have an adverse impact on efforts towards promoting a Free and Open Indo Pacific. On the other hand, Beijing, the biggest loser of the China-US trade war, would certainly not mind tensions between Washington and Hanoi (which has been a big beneficiary of the trade war).
There has been a growing scepticism with regard to the Belt and Road Initiative (BRI) project in many quarters, due to the lack of transparency with regards to terms and conditions as well as the economic implications for countries which are part of the project. A report published in April 2018 by the Center for Global Development (CGD) in Washington flagged 8 countries (including Pakistan, Maldives, Laos, and Djibouti) where the level of debts are unsustainable.
Apart from the red flag raised by a number of researchers, the removal of Pro-China leadership in countries like Malaysia, Maldives, and Sri Lanka has also resulted in problems with the BRI project, and China’s economic dealings (which are clearly skewed in favour of Beijing) with other countries is drawing more attention.
The most vocal critic of China’s economic links has been Malaysian Prime Minister Mahathir Mohamad. During a visit to China in August 2018, Mahathir, alluded to China’s trade relations with poorer countries as ‘a new version of colonialism’. Mahathir later on denied that his statement was targeted at China or the BRI. The fact is that the Malaysian Prime Minister did scrap projects estimated at well over $20 billion (which includes a rail project, East Coast Link, as well as two gas pipelines).
Top officials in the Trump Administration, including US Vice President Mike Pence, have also been critical of the BRI project for a variety of reasons. The major criticism from US policy makers has been the economic ‘unsustainability’ of the project as well as the point that the project is skewed in favour of China.
Italy to join BRI Continue reading
While addressing a joint press conference in Hanoi, after his summit with North Korean Leader Kim Jong Un, US President Donald Trump spoke not just about the Summit, but also the current state of US-China relations. Trump criticised his predecessors for not doing enough to address the trade imbalance with China, while also making the point that he was all for China’s economic progress and growth, but not at the cost of the US.
If one were to look beyond the Summit in terms of the US-Vietnam economic relations, top US companies – Boeing and General Electric – sealed some important deals.
Given the focus of Trump’s visit (which was the Summit with Kim), perhaps these deals did not draw the attention they ought to have. The fact is that the US has begun to recognise Vietnam’s economic potential, as well as its geopolitical significance in Asia. This long note will give a backgrounder to Vietnam’s economic growth story in recent years, highlight some of it’s key strategic relationships, and then examine the nature of the China-US-Vietnam economic triangle.
Vietnam’s growth story: The key reasons Continue reading