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Hanoi proves that appearances can deceive

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General Secretary Nguyen Phu Trong, bottom center, attends a session during the 12th National Congress of the Vietnam Communist Party in Hanoi on Jan. 26, flanked by President Truong Tan Sang, left, and Prime Minister Nguyen Tan Dung, right.   © Reuters

While observers were still busy analyzing the finer points of the new leadership lineup named at the 12th Congress of the Vietnamese Communist Party, the country's leaders saw little time to waste. A special envoy sent by Chinese President Xi Jinping came on Jan. 29, a day after the congress ended, to take stock of the leadership transition and meet senior party officials. Immediately after the visit, a delegation of senior Vietnamese officials, accompanied by business representatives, left to attend the Feb. 4 signing ceremony of the Trans-Pacific Partnership agreement in New Zealand. At the same time, the cabinet met to discuss ways to ensure the supply and quality of holiday gifts ahead of the Lunar New Year holidays in early Febuary, an important barometer of public satisfaction, as well as to debate travel safety.

     For many Hanoi insiders, the results of the congress were not entirely surprising: current VCP General-Secretary Nguyen Phu Trong was re-elected to serve another five-year term, while the ambitious prime minister, Nguyen Tan Dung, one-time contender to succeed Trong, was forced to retire. Some observers say that Dung's defeat will result in a slower pace of reform, while others insist that Trong's re-election will not change the overall direction of the country.

     The reality is somewhere in between. Vietnam is already on a path of political as well as economic change, and any incoming will leaders have the responsibility of preparing this country of more than 90 million people for the opportunities and obstacles that will inevitably come with it.

     The economy has grown unevenly for the past 30 years since Hanoi adopted market-oriented reforms in 1986. Foreign direct investment -- which went primarily to the garment and electronics manufacturing sectors -- has continued to surge in recent years, reaching $23 billion in 2015. Yet Vietnam still occupies the lower end of the global supply chain.

     Privatization of state-owned enterprises, many of them chronically unprofitable, has taken years to gain momentum. The country, which last year boasted Asia's best-performing stock market, remains hobbled by an under-performing banking sector. The government wants to use the TPP as a tool for economic restructuring that can help Vietnam reform its legal framework and domestic institutions, create an export powerhouse, gain access to technology, build a stronger domestic private sector and move up the value chain. But abundant promises offered by the TPP have yet to take root.

Security factor

Externally, Vietnam finds itself the target of increasing Chinese aggression in the South China Sea. It is also at the center of a geostrategic contest between China and the U.S. and regional allies. Few of Vietnam's leaders can feel comfortable that China deployed its now infamous oil drilling rig to disputed waters between the two countries on the eve of the congress, but undoing the historical party-to-party ties with Beijing would only spell more uncertainty. While Vietnam has been inching closer to the U.S. for strategic purposes, many of the elite remain suspicious that the U.S. is trying to sow the seeds of "peaceful evolution" in Vietnam. They are ultimately determined not to be caught between the major powers as happened during the Vietnam War. Hanoi started to diversify its foreign partnerships in 2011, expanding cooperation with partners including India, Japan, and South Korea, but is still in the early stage of this process.

     A U.S. diplomat once said that despite Vietnam's advantages, Hanoi was just not comfortable with the pendulum of globalization. Now it has embraced it, unanimously signing up to pioneering free trade agreements with more developed economies; scrapping foreign ownership limits on most industries (banking and enterprises linked to national security being the exception); gradually divesting stakes in some of its largest state-owned companies; jettisoning the earlier fixed exchange rate against the U.S. dollar; and actively building the conditions for an upgrade of its stock market from frontier to emerging market status in the Morgan Stanley Capital International index to jumpstart capital markets.

     There is no turning back, but for a tightly governed one-party state, pursuing this agenda while maintaining strict party control comes with unprecedented challenges, as seen from Hanoi's perspective.

     That explains the consensus among many of the party's top leaders that Dung -- known for his bold public statements about democracy and handling relations with China as well as his ambition to consolidate power should he ascend to the top job -- had to go. As some said, the prime minister "leapfrogged the system." He had also taken important decision-making powers away from the party during his 10 years in office. So if the party is to accede to the demands of the next phase of reforms, it will be on its own terms and without Dung.

     Should Trong's extended term be cause for concern, given he is seen as a conservative and closer to China? The party chief emphasized the underlying principle guiding the VCP at a post-congress press conference: that of collective leadership and rule by consensus. The takeaway: a vote for Trong, as opposed to the alternative, is a vote for stability.

     The congress also elected a new 19-member politburo, the all-powerful body at the top of the party that decides most national matters. The three highest-ranking politburo members -- General Secretary Trong, Public Security Minister Tran Dai Quang, and the National Assembly Vice-chairwoman Nguyen Thi Kim Ngan -- have led successful visits to the U.S. in the past year. Quang is tipped to become the next president, and Ngan the next chairperson of the National Assembly. Meanwhile, sources in Hanoi believe that even Trong's attitude toward America, Vietnam's former military foe, has evolved since his U.S. visit last July, where he was warmly feted by the government, business, academia and think tanks. In addition, four of the politburo members have managed economic portfolios, and two -- former Education Minister Nguyen Thien Nhan and Foreign Minister Pham Binh Minh -- are young technocrats educated in the U.S. The takeaway: none of Vietnam's incoming leaders have their minds firmly made up about leaning toward either China or America.

     The new government will officially convene in late May. What the new leadership first decides to do will be a key indicator of how ardently Hanoi will pursue its ambitious reform agenda. Until then, life goes on in Hanoi, as if the intense internal struggle never even happened.

Phuong Nguyen is associate fellow at the Chair for Southeast Asia Studies at the Center for Strategic and International Studies in Washington, D.C.

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