http://www.atimes.com/atimes/Southeast_Asia/HJ25Ae02.html
Oct 25, 2006 China and Vietnam put business first By Karl D John HANOI - China and Vietnam have put aside their past antagonisms to forge a potent new economic partnership, representing Beijing's most sensitive and yet strategically significant soft-power foray into mainland Southeast Asia. Growing bilateral trade and investment now overshadow the longtime regional rivals' territorial disputes and tumultuous history, including brief armed conflicts in 1974 and 1979, as the two nominally communist countries ramp up in tandem their ambitious market-reform programs. Vietnam's communist leaders have long taken their economic-reform cues from China, which launched its reforms in the late 1970s along its southeastern seaboard. This year marks the 20th anniversary of Vietnam's similar doi moi, or economic renovation and reform program, which has more slowly moved the centrally planned economy to one that is market-oriented. Now China's outward-looking investment policies are kicking Vietnam's growth and reform trajectory on to a higher plane, in the process developing significant economic linkages between Asia's two fastest-growing countries. As of mid-2006, China had 377 directly invested projects in Vietnam, with a total registered capital of US$795.6 million, ranking China 15th among 74 countries that have invested in Vietnam. Chinese investments in Vietnam have focused on developing the energy and transport sectors, including the $710 million Cao Ngan thermal-power project, the $340 million Hanoi-Ha Dong urban railway project, a $64 million project to upgrade the signal system for three northern railway lines, and a $62 million project to modernize the information and signal system on the Vinh-to-Ho Chi Minh City railway line. The Ha Bac Nitrogenous Fertilizer Factory, which was a gift from China to Vietnam in the 1960s, before the two communist-led regimes fell out diplomatically, was recently given a $32 million Chinese capital injection to upgrade the factory's capacity. The China National Offshore Oil Corp (CNOOC) late last year signed an agreement to explore jointly for oil and gas in Vietnam's Beibu Bay. Moreover, a new highway connecting Hanoi to the Chinese industrial city of Nanning has recently been cooperatively completed, significantly reducing travel time between the two commercial hubs. Vietnam's northern region, where average wages and real estate are notably cheaper than in coastal China, is fast developing the infrastructure to position itself as a major trade gateway to China. Last year Hanoi overtook for the first time the more commercially oriented Ho Chi Minh City in luring foreign direct investment (FDI), attracting $1.6 billion compared with the southern city's $738 million. Vietnam attracted a total $6.2 billion in FDI last year, and is on pace to attract more foreign money this year as more multinational companies locate in northern areas to facilitate trade with southern China. China and Vietnam share a 1,643-kilometer land border, and officials from both countries are seeking ways to facilitate a new economic corridor linking four of their localities. In theory, the corridor would stretch from China's southwestern city of Kunming to Vietnam's capital Hanoi, and encompass the Vietnamese industrial town of Hai Phong as well as tourist attractions in the northern province of Quang Ninh. Underscoring the importance Vietnam puts on the relationship, Chinese President Hu Jintao was last November the first foreign leader to address Vietnam's National Assembly, where he said: "It is in line with the fundamental interests of the two peoples to enhance our friendship and trust, propel cooperation for mutual benefit and promote common development." Vietnam's new prime minister, Nguyen Tan Dun, has indicated his desire to ramp up economic cooperation with China, saying before his appointment to the premiership that "these localities should increase their cooperation to accelerate trade promotion and investment, plus organize trade fairs and exhibitions, to help each other seek more trade and investment opportunities". The United States is currently Vietnam's largest single-country export market, but many Chinese and multinational companies believe that as the transport infrastructure is put in place, that distinction could soon shift to China. If so, it would mark a rapid transition from isolation to engagement. China and Vietnam resumed official economic and trade relations in 1991, ending a Cold War standoff in which Vietnam allied itself with the Soviet Union. Since, bilateral Chinese-Vietnamese trade has grown at an astronomical 40% annual average, jumping from $32 million in 1991 to $8.8 billion in 2005. Vietnam's deputy trade minister, Phan The Rue, recently said at a meeting of the Vietnam-China Committee for Economic and Commercial Cooperation that economic planners have targeted bilateral trade to accelerate to $10 billion by 2007 and $15 billion by 2010. China is so far getting the better end of the deal, notching up a trade surplus of $1.7 billion in 2004, $2.8 billion in 2005 and $1.8 billion in the first six months of 2006. That's largely because Vietnam's main exports to China are raw materials, including rubber, crude oil and coal, as well as low-value-added manufactured goods and foodstuffs, such as footwear, coffee, seafood, fruits and vegetables. On the other hand, China sends higher-value-added goods, including pharmaceuticals, petroleum, fertilizers, motorbike parts, cars, machinery and equipment, to Vietnam. Division of labor Further Chinese investments, some analysts contend, could entrench that lopsided division of labor. "The risk for Vietnam, if it opens its border to trade but does not upgrade technically to make value-added products, is it becomes an assembly factory and producer of raw materials for China," said Jonathan Pincus, senior country economist at the United Nations Development Program in Hanoi. At the same time, growing economic linkages are transforming Vietnam into "the emerging China", according to the economic counselor and director of the International Monetary Fund's Hanoi-based research department. China is far and away the largest source of tourists to Vietnam, which in 2004 reached an all-time high of 778,400 Chinese travelers and fell slightly to about 752,600 in 2005. Many Chinese revelers are taking advantage of improved infrastructure to travel over land to casinos that have been strategically built just across the two countries' shared border. In the first eight months of 2006, Chinese tourist arrivals fell 25.2% compared with the previous period last year because of new restrictions imposed by Beijing on border-hopping punters. Vietnam has long viewed China as both a model to follow and a threat to guard against, and the two countries still have significant unresolved territorial disputes. China seized control over the Paracel Islands in 1974, when its troops seized a South Vietnamese garrison occupying the western islands in the battle of Hoang Sa. Vietnam and Taiwan both lay claim to the uninhabited islands, where China has developed port facilities and an airport and has announced plans to open them to tourism. More significant, the two rivals, as well as Taiwan, Malaysia, Brunei and the Philippines, have competing territorial claims to the Spratly Islands, a group of more than 100 reefs and islets in the South China Sea that are reportedly rich in oil resources. China added fuel to that antagonism in 1999 when it built a military installation on Mischief Reef. Vietnam still considers China its greatest strategic threat, and has recently developed more strategic ties with the United States. Vietnam has also maintained close economic ties with China's main regional rival, Taiwan, which Beijing still considers a renegade province rather than an independent country. Taiwan's Central Trading and Development Corp (CTDC) has invested in Vietnam for 17 years and heavily participated in the redevelopment of Ho Chi Minh City. The CTDC's chairman recently said: "China is a good market, but Vietnam is good for business expansion. Production costs are lower than in Shanghai." Taiwanese-invested Taya Electronic Wire & Cable became the first foreign company to make an initial public offering in Vietnam and could soon be followed by the Taiwanese-owned Royal Casino at Vietnam's tourist destination Halong Bay. At least for now, China and Vietnam are taking a conciliatory rather than confrontational approach toward each other. China is in the process of negotiating a broad free-trade agreement with the Association of Southeast Asian Nations (ASEAN), along with various multilateral agreements on anti-narcotics, agricultural cooperation, and a landmark declaration that aims to defuse tensions over the Spratly Islands. A China-ASEAN trade pact would create the world's biggest free-trade area and provide even more incentive to expand trade and investment ties with Vietnam. Karl D John is chief executive officer of the TCK Group (www.tckgroup.org), a Vietnam-based investment consulting group. He has more than a decade of involvement with Vietnam and lives in Hanoi. (Copyright 2006 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing .) [Non-text portions of this message have been removed] Post message: [EMAIL PROTECTED] Subscribe : [EMAIL PROTECTED] Unsubscribe : [EMAIL PROTECTED] List owner : [EMAIL PROTECTED] Homepage : http://proletar.8m.com/ Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/proletar/ <*> Your email settings: Individual Email | Traditional <*> To change settings online go to: http://groups.yahoo.com/group/proletar/join (Yahoo! ID required) <*> To change settings via email: mailto:[EMAIL PROTECTED] mailto:[EMAIL PROTECTED] <*> To unsubscribe from this group, send an email to: [EMAIL PROTECTED] <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/
