It’s time to build more meaningful relations with Vietnam.
HISTORICAL BACKGROUND
The Indo-China region in Southeast Asia, consisting of present-day Vietnam, Cambodia, and Laos, has had significant trade, cultural, and historical relations with its immediate neighbour, China. Similarity in ethnicity and religious faith has contributed to their closeness. The Vietnamese are believed to have migrated from Tibet, though their distinct Mongoloid features suggest a mixed heritage. Compared to Myanmar, Malaysia, and Singapore, Indian migration to this region has been less prominent than the Chinese migration. Nevertheless, there was a notable cultural and religious influence. Buddhism, founded in India, has been the primary faith, and Hindu cultural influence spread during the Gupta period (A.D. 320-550) had reached the Indo-China region as well.
Before Western colonizers began seeking trade and territories in Southeast Asia, the Indo-China states had strong administrations, codified regulations, a well-recognized hierarchical social order, territorial divisions with defined bureaucratic systems, and fairly self-sufficient economies. The French, who had a role in the late eighteenth century in the Nguyen Kingdom, had to wait until the second half of the nineteenth century for making their territorial conquests. Inspired by British success in South Asia and in “opening” China, they employed a similar tactic, citing alleged religious persecution as a pretext for opening Vietnam. In the 1840s, French ships blockaded and bombed the port of Tourane (Da Nang) to secure the release of Bishop Dominique Levant, condemned to death by the Vietnamese ruler. In a coalition of interests among the church, traders, and manufacturers seeking new markets, the French under Napoleon III acquired territories in South Vietnam, augmenting their power and prestige. The French aimed to develop Saigon as an alternative to Hong Kong for funnelling trade into interior China.
After a three-year long war, the better-equipped French forces secured a treaty from Vietnamese Emperor Tu Duc, ceding three provinces in the Gia Dinh region, including Saigon, which they named Cochin China. They also obtained rights to other ports and an agreement that no part of Vietnam would be alienated to a foreign power other than France. Christianity was to be tolerated, and the French were granted navigation rights on the Mekong River. Within five years, the French had secured the remaining provinces of Cochin China, establishing control over the entire Mekong Delta, including Cambodia, whose king, in grave political trouble, had invited the French to intervene.
Buoyed by further victories, particularly the 1873 victory in the Tong King Delta on the Red River in Northern Vietnam—a region crucial to South China’s trade in silk, tea, and textiles—the French imposed revised treaties on the local ruler in 1883 and 1884, making Tong King a French protectorate. To secure central Vietnam, the French fought the Chinese, to whom Vietnam’s sovereign had appealed for help. The subsequent Treaty of Tientsin vested in the French the right to construct a railway parallel to the Red River from Hanoi to Kunming on the Chinese border. Historians consider this treaty to mark the end of Vietnam’s two-millennia-old subordinate relationship to China. Soon after, the French captured adjoining Cambodia and Laos along similar lines.
Few countries have suffered as much in recent times as Vietnam. After being forced to grant independence in 1954, the French left Vietnam to fight a prolonged war against U.S. forces in southern Vietnam until the early 1970s. In 1978, Vietnam engaged in conflicts with neighbouring Cambodia and, finally, China in early 1979. An estimated 3 million Vietnamese were killed in these conflicts.
VIETNAM ASPIRING TO BECOME AN ECONOMIC SUPERPOWER
Following the integration of the South with the North in 1975, the country, which had been virtually destroyed by the Americans in a decade-long war, undertook the arduous task of economic reconstruction. It adopted the socialist path, collectivizing and nationalizing industry and agriculture, pursuing ideological transformation, and initiating scientific and technological revolutions. To achieve these, Vietnam launched Five-Year Plans with the support of the Soviet Union and Eastern Europe, although the USA backed out of its Geneva Accords commitments due to the South’s forcible occupation by the North. The failure of the Second Plan compelled a reduction in state intervention, paving the way for economic liberalization in the subsequent Five-Year Plan (1981-85). This process gained momentum with the cataclysmic changes in the Communist world in the late 1980s. With the Soviet Union disintegrating, its economic predicament led Vietnam to move closer to the USA.
Vietnam, an upper-middle-income nation of 97 million and a per capita income of around US$5,000, has demonstrated the ability to survive on its own terms. It is now a regional force in matters of security and the economy. Following the withdrawal of a half-million-strong U.S. military force, North Vietnamese forces led by Ho Chi Minh overran the previously U.S.-defended South and confronted both Cambodia and China. Consequently, China, which exerts influence over communist Cambodia and Laos, approaches Vietnam with caution. Vietnam openly questions Chinese sovereignty over the oil-rich Spratly Islands in the South China Sea.
Thailand once viewed Vietnam as a rival for hegemony over Cambodia, which had served as a buffer between them. In pursuit of this end, Thailand sought improved relations with China, a traditional rival of Vietnam. Recently, however, both sides have taken placatory measures, and there has been an improvement in the Sino-Vietnamese ties.
In an effort to build a degree of certainty in its international relations, the Vietnamese leadership made a couple of typical “bamboo diplomacy” moves last year. Building on its working relationship with the U.S., Vietnam hosted a surprise visit from President Joe Biden in September 2023, resulting in an upgraded bilateral relationship to a comprehensive strategic partnership, the highest it has granted to any country and after skipping the intermediate stages. In a parallel move, Vietnam’s top leadership held a “mirroring trip” to China, securing a visit from President Xi Jinping, during which they signed an agreement on China’s “community of common destiny framework,” affirming the two countries’ common grounds.
While engaging with China, Vietnam remains hesitant to becoming close with it. The two nations have historically been adversaries, and periodic conflicts are attributed to China’s long-standing practice of seeking to weaken its immediate neighbours. By claiming sovereignty over Spratly islands in the South China Sea, the Chinese have now riled most Vietnamese.
Vietnam’s strategic location and persistence in maintaining sovereignty amongst the successive governments there can serve as a bilateral advantage for India and Vietnam. Augmenting aid for development and strengthening co-operation in matters of defence and technology needs to be prioritized by India more urgently. This would likely receive a positive response from Vietnam since it tends to be pragmatic in conducting its foreign affairs. An example was it recently conducting joint military exercises with Philippines in the South China Sea in response to shared concerns over Chinese threats there despite the two nations having a maritime dispute.
Stabilizing international relations became especially crucial, following tumultuous domestic developments in 2022 when several top political leaders, including President Nguyen Xuan Phuc and two Deputy PMs, were forced to resign amid widespread anti-corruption move by the new government. Several leading businessmen were also prosecuted, including a 67-year-old real estate lady-mogul sentenced to death for defrauding thousands of investors.
While the “blazing furnace” has restored political stability and empowered public security forces, it has in the process, inevitably slowed down the economy. In 2023, GDP growth dropped to 5.03%, falling short of the targeted 6.05%. Exports declined to 4.4%, impacted by China’s recession and U.S. inflation. Creditworthiness weakened as banks became hesitant to lend for risky real estate and unbacked bonds. The relatively young Vo Van Thong, appointed to replace the removed President, was himself recently replaced by an Army General. Despite the political ups and downs, with an expected 6.5% growth in 2024, the economy appears to be on a path to normalcy.
The growing FDI inflows, upon which Vietnam depends significantly, should now receive a further boost. Numerous manufacturing and processing projects are relocating from China, drawn by Vietnam’s low-cost economy, in terms of wages availability of Chinese raw materials cum intermediates and cheap land, besides the visible ease of doing business. It is also helped by its participation in multilateral trade agreements like RCEP, ASEAN, EUTA, 17 bilateral trade pacts, including with India, Double Taxation Avoidance Agreements with 80 countries, and a large number of Bilateral Investment Protection Agreements (BIPAs). Both Samsung and Apple have already established several manufacturing cum assembly facilities for i-phones. Last year their exports of these smart phones were worth US $10 bn and $52 bn respectively with this single product alone accounting for 12% of Vietnam’s exports.
Vietnam is fast moving up the value chain, and its manufacturing and exports are no longer confined to labour-intensive processes. Its National Semiconductor Program is progressing well, attracting the global giants Nvidia, Meta, Alphabet, SpaceX, and Foxconn. Foreign trade is being assiduously built up to remain the centre piece of Vietnam’s diversifying economy, with GDP growth potentially reaching 6-7% again, potentially doubling the country’s per capita income within a decade.
India and Vietnam have maintained cordial ties with no significant points of friction. The UN tasked India with monitoring the implementation of the 1954 Geneva Accords granting Vietnam independence. Ho Chi Minh, Vietnam’s venerated leader, left a profound impression on Prime Minister Nehru and President Rajendra Prasad during his visit to India in the late 1950s. India was among the first nations to criticize the U.S. military intervention in Vietnam in the late 1960s. It supports India’s bid for permanent membership of UN’s Security Council and the Asia Pacific Economic Council’s (APEC) membership. Like India, Vietnam calls for restructuring of global and regional development aid organizations.
India has extended lines of credit worth $300 million for a dozen development projects. During his visit last year, PM Modi had pledged an additional $500 million for military goods sourcing from India. It supports Vietnam in crude oil exploration in the South China Sea despite Chinese warnings to ONGC, its national oil company’s partner. Since the 2010 ASEAN trade pact, bilateral trade has grown to $12 billion, with balanced exports and imports. Indian-owned companies have invested around a billion dollars across 300 ventures in Vietnam while the Vietnamese investment in India is about a quarter thereof.
Areas for further collaboration include enhancing Vietnam’s electricity transmission and the rail network. With a significant local energy shortage, Vietnam is handicapped in importing electricity, including green, from the neighbouring countries without upgrading its grid. Additionally, its entire railway system, built during the French colonization, is considerably outdated. To further expand its trade with South Asian nations and beyond, Vietnam needs to modernize and expand this network. India, with a strong comparative advantage in both these infrastructural segments, should act quickly before China potentially attracts Vietnam with its Belt and Road Initiative (BRI).
The existing bilateral support in economic and international forums can be strengthened as both countries strive to benefit from the China Plus One strategy. They can jointly integrate into several emerging supply chains. Their shared ambition to move up the value chain through developing and deploying state-of-the-art technologies need not be an obstacle. Both have distinct comparative advantages: India in IT, AI-related fields, digitalization, space research, automobiles, pharmaceuticals, and medical care, while Vietnam has proven strengths in engineering, electronics, and entertainment industries and is demonstrating notable resilience in adopting technologies of the future.
* Dr Ajay Dua, a development economist, is a former Union Secretary, Commerce & Industry.
Part 5 covering Malaysia, Singapore and Brunei will follow.