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Economy

Chinese ties are an economic boon but a diplomatic minefield

Vietnam struggles to strike a foreign policy balance between Beijing, Washington

The Po Nagar temple in Nha Trang, Vietnam, is popular with Chinese tourists. (Photo by Shinya Sawai)

NHA TRANG, Vietnam Now is not an easy time to be a Vietnamese official. China is ramping up its saber-rattling in the South China Sea, reportedly sending its first aircraft carrier to Hainan, a Chinese island across the Gulf of Tonkin, on Dec. 26. Meanwhile, an influx of Chinese tourists is generating both profits and friction in the resort towns of Nha Trang and Danang.

The addition of a new U.S. president not afraid of riling Beijing will only make diplomatic life more difficult for Vietnam as it looks for ways to deal with an increasingly assertive yet economically vital neighbor.

STUCK IN THE MIDDLE Many believe Beijing is flexing its military muscles in the South China Sea out of anger over U.S. President-elect Donald Trump's telephone conversation with Taiwanese President Tsai Ing-wen in early December. Vietnam, for its part, is still considering how to engage with the incoming Trump administration.

U.S.-Vietnamese relations have come a long way since the Vietnam War. In May 2016, Washington lifted its weapons embargo on the Southeast Asian nation, more than two decades after diplomatic relations were normalized. That progress may be threatened under Trump, whose policies are still anybody's guess.

Prime Minister Nguyen Xuan Phuc spoke on the phone with Trump on Dec. 14, in a rare call between a Vietnamese leader and an incoming foreign head of state. Hanoi's foreign ministry did not disclose the content of the conversation, but a Japanese diplomatic source said the two likely discussed the Trans-Pacific Partnership free trade agreement, the South China Sea territorial disputes and other weighty issues.

Once an enemy, the U.S. has become a key partner for Vietnam. America is the biggest market for Vietnamese exports, taking in a fifth of their total value. Even with the TPP effectively dead in the water, the possibility of a bilateral free trade agreement is very much alive, and expanded commerce between the two nations is all but certain.

Vietnam's ties with the U.S. are also effective when it comes to containing Chinese power in the South China Sea. With the U.S. arms embargo lifted, Hanoi is rumored to be looking to purchase American-made P-3C anti-submarine planes, as well as C-2 military cargo aircraft.

But China still looms large in Vietnam's world. Though the two neighbors are at odds over the South China Sea, Chinese goods make up a leading 30% of all imports to Vietnam. Power plants, roads, urban rail lines and other infrastructure projects, meanwhile, rely on investment and engineering from Chinese companies.

Vietnam's Communist Party-led state is basically a carbon copy of China's own leadership. The Doi Moi economic reforms introduced in 1986 borrowed extensively from the reform and opening-up policies of Chinese leader Deng Xiaoping. More recently, however, Vietnam has sought to ease its overreliance on China by moving closer to the U.S.

UNCOMFORTABLE INFLUX As territorial tensions continue to simmer, a different kind of invasion is generating more mixed feelings.

Chinese tourists shop for souvenirs in Nha Trang. (Photo by Shinya Sawai)

Some 10 million foreigners visited Vietnam during 2016, a 26% increase on the year. Among them were 2.7 million Chinese, a 51% jump. Part of the reason is property ownership. The Vietnamese government began allowing foreigners to own real estate in July 2015, and the Chinese have become some of the most conspicuous buyers. More budget airline routes from major Chinese cities to Vietnam are also springing up.

Nha Trang and Danang are among the most popular destinations.

Nha Trang is Vietnam's biggest coastal resort. It has long been popular with Russians, since both the Soviet Union and later Russia had a naval base at nearby Cam Ranh Bay between 1979 and 2002. But in 2016, the city saw a surge in Chinese visitors.

This influx has transformed the beach city into a veritable Chinatown, complete with Chinese restaurants and stores with signs written in Chinese. Sixteen-year-old Nguyen Thi Minh works at one such establishment, a souvenir shop owned by her mother. She helps out by speaking to customers in fluent Chinese.

Pham Van Thong, a 42-year-old taxi driver, pointed to a high-rise apartment building facing a pristine sandy beach. "Most of the people buying those condos are Chinese," he said. "People who hail rides from here are all Chinese."

In Danang, a resort city in central Vietnam, Chinese have snapped up so much real estate that the local People's Committee is considering restrictions. In many cases, however, Chinese-owned property is registered under local names, making it difficult for authorities to do anything.

Chinese tourists have also been a source of friction in Danang. In June, police looked into allegations that a Chinese traveler burned a Vietnamese bank note at a bar after being told the establishment does not accept yuan. (Burning Vietnamese money, which bears the image of national hero Ho Chi Minh, is a crime.) Authorities had to order another restaurant to take down a sign telling Chinese visitors to go eat somewhere else.

The sheer number of Chinese tourists has led to local rumors that Beijing subsidizes the trips. A five-day package tour to Nha Trang, including plane fare and hotel accommodations, is relatively affordable, costing less than $500.

AN INDIAN ANSWER? For better or worse, Vietnam's ties with China are deepening even as its relationship with the U.S. becomes less certain. The challenge for Hanoi is to maintain an equal diplomatic distance from both powers. For help in this, the country could look to India.

India, like Vietnam, employs Russian-made arms, and Vietnam is training the crews of India's growing fleet of Russian-built Kilo submarines in conjunction with the Indian navy. Moreover, the two countries recently signed a civil nuclear-cooperation agreement. Privately owned budget carrier VietJet Air has landed a deal with flag carrier Air India to partner on ticketing, training and tourism promotion, among other areas.

India is wary of China's Belt and Road Initiative, which is aimed at building infrastructure links across Asia, and of Beijing's coziness with Pakistan. At the same time, it wants to reap the economic benefits of Chinese cooperation. Because Vietnam and India share many of the same concerns, they may be in a position to forge stronger ties of their own.

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