DAVOS, Switzerland -- Vietnamese Prime Minister Nguyen Xuan Phuc on Jan. 24 expressed his desire to enhance economic ties with China but reasserted that his country will defend its interests and sovereignty in the South China Sea.
Speaking to the Nikkei Asian Review on the sidelines of the annual meeting of the World Economic Forum here, Phuc stated that "China is our neighbor and our friend," and that Hanoi will "try to resolve all issues with them," so that the two countries can expand trade further.
But on the fundamental issue of territorial integrity, Phuc said Vietnam will "protect our own legitimate interests and sovereignty" even while enhancing economic ties. China's sweeping claims to the islands and the waters in the South China Sea set it directly at odds with Vietnam's claims to Hoang Sa (Paracel) and the Truong Sa (Spratly) island chains.
Turning inward, the prime minister admitted that the key policy of reforming state-owned enterprises needs to accelerate to benefit the economy. Phuc pointed to partial successes in inviting overseas investments in banking and other state-owned sectors, but said, "I agree that this process needs to take place much faster."
During the dialogue session, Phuc stressed the importance of state-owned enterprise reform and the sale of stakes in these companies. The policy not only seeks to improve efficiency under both domestic and foreign private capital, but also carries a crucial mission "to monitor and to reduce corruption."
In reality, Hanoi is far behind schedule on such reforms and is set to miss its five-year target to drastically cut back the number of wholly state-owned enterprises to 103 by 2020 from 583 in 2016. The number was still over 500 at the end of last year.
Phuc's comments come at a time when Hanoi looks for ways to shield its economy from the U.S.-China trade war, and the impact of a slowing Chinese economy. The slowdown is taking an expensive toll on all of China's neighbors, but especially for Vietnam, as its relationship with its powerful neighbor is further complicated by the South China Sea disputes.
On the surface, Vietnam is on friendly terms with China. On Jan. 22, Vietnam's supreme leader Nguyen Phu Trong, general secretary the Communist Party and president of the country, expressed his willingness to further consolidate and develop his friendship to the recently appointed Chinese ambassador, Xiong Bo, according to Chinese state-owned mouthpiece Xinhua.
China is Vietnam's second-largest trading partner after the U.S., and direct inward investments by Chinese companies are surging. Vietnam has been reaping windfalls from the Beijing-Washington trade war as multinationals relocate factories to its shores. But the gradual slowdown in China is beginning to bite into Vietnam's growth prospects too.
Gareth Leather, senior Asia economist at Capital Economics, wrote on Jan. 22: "Weaker growth in China is already weighing on exports from the rest of Asia, and a further slowdown in the economy is one of the biggest risks clouding the outlook for the rest of the region." He especially pointed to Vietnam and Taiwan, with notably close Chinese trade ties, as the ones to suffer the most collateral damage.