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Politics

Vietnam-China strife an old issue worth ending

The historic discord between Vietnam and China is akin to the ancient family feud from Shakespeare's "Romeo and Juliet." The hostilities between the two countries reach further back than current generations can remember, just as they did between the Montagues and the Capulets. And neither party is prepared to forgive and forget the past.     

     In Shakespeare's play, the fighting spilled into the streets of Verona, embroiling a reluctant citizenry. In the past few days, Vietnam-China antagonism escalated into vandalism and violence that gripped the Vietnamese cities of Binh Duong and Ha Tinh, as angry protesters hit out at Chinese companies, as well as Taiwanese, South Korean and other Asian companies.

     The big question for Vietnam -- and for regional investors already nervous of ongoing upheavals in Thailand -- is how to respond to the events. Will this weeklong rampage affect investor confidence in Vietnam and more significantly, undermine relations in the region?

What's in a feud?

From a Vietnamese viewpoint, China's move to relocate an oil rig to within 190km of the Vietnamese coastline, in waters claimed by both countries, was an inexcusable provocation. The Chinese knew this, although they probably would quibble over the word "inexcusable."

     China's strategic planners should not be surprised at the reactions from Vietnam -- some of them quite possibly still to come. The presence of protesters outside the Chinese Embassy in Hanoi was predictable. So, too, were the attacks on Chinese companies. After all, Chinese protesters similarly demonstrated and rioted at Japanese establishments in 2012, when Japan repossessed the Diaoyu/Senkaku islands claimed by China.

     What was not predictable was the way Vietnamese protesters vented their fury at Taiwanese and other Asian factories. The largest recipient of their ire was a Taiwanese-owned steel plant in Ha Tinh, on Vietnam's north-central coast. It seemed an odd choice. The plant was still under construction and is located in a poor part of the country. The project is one of the largest foreign direct investments in Vietnam, with capital exceeding $10 billion.

     The reasons are still elusive, but the questions are clear. Did the protesters simply not know the difference between China and Taiwan? Or if they are informed, were they well enough aware of the links between some mainland and Taiwanese businesses, especially some of those operating in Vietnam? Did the attacks highlight a xenophobic, historic dislike of the Chinese in general, rather than just the People's Republic of China? The burning of a Singaporean flag at another location suggests the existence of a more menacing undercurrent.

     Also, were the factory's rioting workers simply using the opportunity presented by China's perceived encroachment to express their dissatisfaction with labor conditions in Chinese, Taiwanese and Asian factories in general?

     And lastly, why were the protests limited to a few provinces?

     These questions are mostly academic in nature. Businessmen are not usually academics. They are creatures well-adapted to shrug off short-term phenomena, including abrupt reversals, if potential gains are still in the line of sight. If the riots subside quickly, as could very well happen, businesses will presumably resume activity where they left off. Even if low-scale rioting rumbles on, the turmoil seen in Thailand would suggest it could be a while before thick-skinned businessmen take much heed.

Strive to mend

The risk departments of numerous companies will send in their experts to review their internal ratings for Vietnam. It would be unfortunate if the events of the past few days causes revisions. These riots do not warrant such action. It would be premature to do so until there are answers to some of the questions asked earlier, or there is more rioting.

     But the rioting is not the only issue. The Chinese oil rig is still there, sitting in waters claimed by Vietnam. Unless Hanoi backs down, which is very unlikely, investors will view that rig as a source of potential risk, or at least as a symbol of the historic tensions between the two countries. The resurgent discord that had been successfully obscured for the past 20 years is likely to stay in the open.

     Vietnam attracted foreign investment not because it is an inherently easy place to do business. Its safety and stability were important factors in investment decisions. The Japanese, among the largest investors in Vietnam, are particularly keen on the combination. Continuing tensions over the rig -- and competing claims on maritime territory -- could delay investment decisions from around the world, not just from China and Taiwan. It is possible that China could exert pressure on Vietnam simply by doing nothing, thereby affecting those investment decisions.

     Even if China pursues such a course, it still knows of the nationalism that permeates Vietnam. Any decision by Beijing to maintain economic pressure on Hanoi in this way will involve a difficult calculus for Chinese planners. The consequences of pushing too far can easily be predicted.

     Eventually, as Shakespeare's feuding families found, a peace is possible. For those families' strife, it came at the cost of two star-crossed lovers. For Vietnam and China, it would be better if reconciliation occurred before the two sides have to pay further costs.

Tony Foster is the Hanoi-based managing partner of Freshfields Bruckhaus Deringer; the views expressed here are the personal views of the author.

 

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