On April 3rd, Cam Ranh International Port (CRIP) hosted an erstwhile enemy. A group of Japanese naval ships docked at a port the country once occupied in World War II. The opening of CRIP signals Hanoi’s commitment to reconciling with former enemies in order to expand, not only its foreign policy aims, but its economic ones as well.
The most recent metrics coming out of Vietnam illustrate prevailing upward trends in both economic growth and military spending. Both trends are guided by Vietnam’s relationship with the two largest powers in the region: China and the United States. A new Prime Minister, Nguyen Xuan Phuc, will have the difficult role of managing these two relationships in order to maintain Vietnam’s prosperity and safety.
Prime Minister Nguyen started off his term on April 7th with an inaugural speech highlighting the importance of Vietnam’s sovereignty. That same day Hanoi condemned China’s most recent decision to return an oil rig to waters claimed by Vietnam. The oil rig in question has a provocative role in the recent history between China and Vietnam. It was first moved into the contested waters in 2014 and has since become a lightning rod for public outcry and calls to bolster the nation’s maritime defenses against China’s new territorial claims. Prime Minister Nguyen has a balancing act between presenting a strong face to Beijing without unduly angering his largest trading partner. At the same time, he is courting stronger economic and security ties with the U.S.
Vietnam’s increased defense capability is driven largely by foreign purchases. According to the Stockholm International Peace Research Institute (SIPRI), in the past ten years, Vietnam has moved from the world’s 43rd largest arms importer to 8th. While the majority of these sales are from Russia (the big ticket items being Kilo class submarines and Su-30 fighter jets), the United States remains absent. Until recently, the U.S. banned the sale of lethal hardware to Vietnam on the grounds of human rights violations. It was only in 2014 that Congress repealed a partial ban on lethal maritime and surveillance systems. The prohibition on land based systems remains, though Congress’s stance may be changing. Repealing it would help improve strategic ties between the two countries and is likely to be a topic of conversation for President Barack Obama’s May visit to Vietnam.
Also on Hanoi’s agenda for the visit is regional security cooperation. Vietnam has slowly but surely expanded its maritime cooperation with its regional neighbors and has shown that it is open to a U.S. led regional coalition. That being said, Vietnam’s commitment is a measured one. The country still adheres to its post-Cold War policy of the “Three No’s”: no military alliances, no foreign military forces on Vietnamese territory, and no reliance on allies to maintain self-defense. For the U.S., there is a silver lining to this policy. Unlike the Philippines, which is a staunch U.S. ally but currently lacks capability, Vietnam has the means and intent to support itself while remaining open to cooperation on an area of mutual concern: China.
Vietnam prioritized the development of CRIP in part due to China’s increasing reach. The first stage of construction, completed in March 2016, is large enough for foreign naval vessels. Collin Koh, a research fellow at the S. Rajaratnam School of International Studies (RSIS), told The Cipher Brief that in order to fit within the “Three No’s” policy, “…Hanoi [is not] eyeing a foreign naval base; it is meant to be open to all.” While neither the U.S. nor China have made leasing agreements at the base, the former has expressed interest and the latter has rebuffed an invitation from Hanoi. Whether the U.S. and Vietnam sign a lease agreement will be another outcome to look for following President Obama’s visit. Hanoi’s aspirations for CRIP are not just strategic; the port would have a vital role to play in boosting Vietnam’s trade revenue and overall growth.
While Hanoi has a GDP target of 6.7% in 2016, there are concerns that it may fall short this year. Meeting this mark depends on trade revenues with its two largest partners: the U.S. and China. With an economic slowdown in China, Vietnam is unlikely to meet this year’s target. Most crucial for hitting future targets is enacting the Trans Pacific Partnership (TPP) which is projected to boost the economy by 11 percent by 2025. While the trade deal has strong support in Vietnam, its confirmation by the U.S. Congress is far less certain, and it will be another talking point for President Obama’s visit.
Foreign direct investment (FDI) is also essential to Vietnam’s continued prosperity. While the TPP will send a strong signal to international investors, it is essential for Prime Minister Nguyen to continue fostering a welcoming business climate. According to Phuong Ha a research director at Bower Group Asia, the new prime minister’s “…experience with domestic affairs and anti-graft will help keep reforms apace” while cautioning that “…cleansing the [state owned enterprises] and personal interests hard-wired into the system will be a grueling task.”
Without the TPP deal, Vietnam will have difficulty ensuring FDI and sustaining its continued economic growth. For the United States, failing to pass TPP would hinder its access to one of Asia’s most vibrant economies and would diminish the strength of any future U.S led coalition in South East Asia. Hanoi would have to rely on domestic reforms to sustain interest from foreign investors. Decreased GDP growth would have the knock-on effect of limiting military spending and therefore Vietnam’s ability to defend itself or participate in a regional maritime security coalition. Regardless of TPP’s future, it will be advantageous for the incoming Vietnamese prime minister and the outgoing American president to discuss ways in which the two former adversaries can cooperate on issues of mutual interest.
Will Edwards is an International Producer with The Cipher Brief.
