Vietnam Leader in China Seeks Export Gains Amid Sea Tension

Talks between the presidents of Vietnam and China, their first meeting since China’s leadership change, will focus on bolstering economic ties even as tensions rise over disputed territory in the South China Sea.

Vietnam President Truong Tan Sang arrived this afternoon and is set to meet President Xi Jinping during a three-day visit, the official Xinhua News Agency said. The two countries are among only five remaining Communist nations worldwide, the others being North Korea, Laos and Cuba.

Sang, facing pressure at home to stand up to China as he makes his first trip there as president, will address disputes over islands and energy resources in the South China Sea while seeking Chinese investment to boost Vietnam’s economy, which his government targets to grow 5.5 percent this year. That would be Vietnam’s first period of three straight years of growth below six percent since 1988, according to International Monetary Fund data.

“President Sang will have difficult talks in Beijing” as he balances Vietnam’s economic needs with its concern over China’s aspirations in the South China Sea, economist Le Dang Doanh, who has advised Vietnam Prime Minister Nguyen Tan Dung and was formerly president of the Central Institute for Economic Management, said in an e-mail. “Vietnam’s economy is in a very difficult situation.”

Competition for fish, gas and oil has intensified between China and other Asian countries, with Vietnam and the Philippines rejecting China’s maritime claims as a basis for joint development of oil and gas reserves. Last month Vietnam demanded compensation after a Chinese ship rammed a fishing boat off its coast.

Trade Ties

China’s trade with Vietnam is less than many other Asian countries, including those with a smaller population than Vietnam’s 89 million people. In the first five months of the year, two-way trade amounted to $24.4 billion, a 33.8 percent rise from the year-earlier period, according to Chinese customs figures. During the same period, China’s trade with Singapore was $30.7 billion and its trade with Malaysia was $43.1 billion.

Vietnam’s trade deficit with China is widening. China recorded a trade surplus with Vietnam of more than $11 billion from January through May, with exports to Vietnam rising almost 46 percent and imports increasing almost 10 percent, Chinese trade figures show.

Still, as wages in China rise, some global manufacturers, including Beaverton, Oregon-based Nike Inc. (NKE), are ramping up production in Vietnam. In 2010, Vietnam surpassed China as the largest supplier of Nike-brand footwear, according to the company’s annual reports.

Chinese Tourism

Doanh said Sang will focus on increasing Chinese tourism, seeking more Chinese investment and boosting Vietnam’s exports during his talks with Xi and other Chinese leaders.

Sang’s government has emphasized the need to keep trade in the region moving. Last month, Prime Minister Dung warned that miscalculations over territorial disputes could threaten trade along key shipping lanes.

Vietnam welcomes a stronger U.S. Naval presence in the region as a hedge against the growing military might of China, said Carlyle Thayer, an emeritus professor at the Australian Defense Force Academy in Canberra. Sang will want to gauge China’s relationship with the U.S. after Xi met President Obama earlier this month in California, he said by phone. “Vietnam will be keen to get a readout.”

Political Trust

In a statement to Bloomberg News yesterday, Vietnam Foreign Affairs Ministry spokesman Luong Thanh Nghi said the visit aims “to strengthen political trust” between the two countries. Vietnam wants to deepen relations “for peace, stability and development in the region,” he said.

He said the president’s delegation, which will include Deputy Prime Minister Nguyen Thien Nhan, will also visit China’s manufacturing hub, Guangdong province.

Chinese Foreign Ministry spokeswoman Hua Chunying told reporters on June 14 “we hope through this visit we can further strengthen mutual trust with Vietnam.”

The visit may help allay concern in China about a U.S. rebalancing toward Asia and away from the Middle East, and move toward better management of economic frictions, according to Shen Dingli, director of the Center for American Studies at Fudan University in Shanghai.

“If the economic competition is not handled well, that will hurt the political relationship,” Shen said. “We need to build a healthy, ordinary economic relationship.”

‘Guns Blazing’

Territorial tensions have led to anti-China demonstrations in Vietnam. Police in Hanoi arrested activists during a protest on June 2, the Associated Press reported.

In March Vietnam accused a Chinese ship of firing on Vietnamese fishermen near the Paracel Islands, which China has controlled since a battle with Vietnam in 1974. Vietnam and China also separately claim some of the Spratly Islands area.

Sang will encourage maritime code of conduct talks between China and members of the 10-member Association of Southeast Asian Nations, Thayer said.

“Vietnam will not go in guns blazing about the South China Sea,” he said. “Vietnam has to be very careful which battles it picks with China.”

To contact the reporter on this story: John Boudreau in Hanoi at jboudreau3@bloomberg.net

To contact the editor responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net

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