Vietnam Weighs Sea Rights Against China Business

Vietnamese protesters hold placard with an image of the late captain Nguy Van Tha who was killed in the battle of the Paracel Islands, during a march at the King Ly Thai To garden to mark the 40th anniversary of the deadly naval battle between China and South Vietnam, in Hanoi, Vietnam. Around 100 anti-China protesters gathered in Vietnam's capital to mark the anniversary. (AP Photo/Na Son Nguyen). Close

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Vietnamese protesters hold placard with an image of the late captain Nguy Van Tha who was killed in the battle of the Paracel Islands, during a march at the King Ly Thai To garden to mark the 40th anniversary of the deadly naval battle between China and South Vietnam, in Hanoi, Vietnam. Around 100 anti-China protesters gathered in Vietnam's capital to mark the anniversary. (AP Photo/Na Son Nguyen).

Vietnam’s leaders face growing pressure to challenge China in international court, risking economic retaliation by its largest trading partner, after a Vietnamese fishing boat collided with a Chinese ship and sank.

Vietnam said last week it’s considering arbitration against China over an oil rig placed near the contested Paracel Islands, following a Philippine case under way with the United Nations over shoals off its coast.

Legal action is one of the few options Vietnamese leaders have to placate a population that expects the government to counter China’s increasingly aggressive moves in the South China Sea. Deadly anti-China protests erupted in Vietnam earlier this month, targeting businesses thought to be Chinese. Elevating the dispute to an international tribunal or the UN threatens to damage economic ties between the neighboring communist countries.

“Vietnam’s leadership has very little left in their strategy,” Carlyle Thayer, an emeritus professor at the Australian Defence Force Academy in Canberra, said in a phone interview yesterday. “China will be antagonized no matter what Vietnam does. There is a concerted program to keep smashing Vietnam’s ships so they have to go back to port and are out of action. This is deadly serious.”

Vietnam is considering legal action against China, Nguyen Thi Thanh Ha, head of external affairs at the foreign ministry, said on May 23. Prime Minister Nguyen Tan Dung asked UN Under Secretary-General for Field Support, Ameerah Haq, to convey the “seriousness of the situation” to Secretary-General Ban Ki-moon, so the UN “continues to have a voice and takes action” to ensure regional stability, according to a posting on the government’s website last night.

Chinese Threat

“The Vietnamese side has been forcefully disrupting the normal operation by the Chinese side, but all these disruptions are in vain and it will in the very end hurt the interests of the Vietnamese side itself,” Qin Gang, a Chinese Foreign Ministry spokesman, said yesterday at a briefing in Beijing.

China’s actions violate international law and threaten peace, security and freedom of navigation, Dung said in a speech May 22 in Manila. The conflict threatens to disrupt the flow of goods and could even reverse the tide of the global economic recovery, Dung said.

Vietnam has been planning a legal case against China for some time, said Ha Hoang Hop, visiting senior fellow at the Institute of Southeast Asian Studies in Singapore.

“It will happen very soon,” he said by phone. “This has been the strategy of the Vietnam government.”

Crew Rescued

The fishing boat crew was rescued late in the afternoon May 26 after a group of Vietnamese vessels was encircled by about 40 Chinese ships in Vietnam’s exclusive economic zone, according to a statement on Vietnam’s government website. The clash occurred around 17 nautical miles (19.5 miles) from a Chinese oil rig located near the contested Paracel Islands, the government said.

The Vietnamese boat rammed the left side of a Chinese fishing ship after it intruded into a “precautionary area” of the oil rig, China’s Qin said yesterday.

“We hope the Vietnamese side will stop its disruptive actions and bear in mind the overall interests of the stability of the region,” Qin said. “Only by doing so can the Vietnamese side uphold the overall interests of the bilateral relationship.”

The Vietnamese government said it protested the incident with a Chinese Embassy representative in Hanoi and demanded compensation for damages yesterday.

“Provocative actions” have largely come from the Chinese side, U.S. State Department spokeswoman Jen Psaki told reporters in Washington. “We remain concerned about dangerous conduct and intimidation by vessels operating in this area by the Chinese. We continue to call on all parties to exercise restraint.”

Economic Risks

The protests in Vietnam this month led China to send ships to evacuate workers after three Chinese nationals were killed. The placement of the rig also spurred confrontations between coast guard vessels, including the use of water cannons and accusations of boats being rammed. China says the rig is in its territory and that it has long drilled in the area.

Any escalation of tensions, including legal actions, carries economic risks, Adam Sitkoff, executive director of the American Chamber of Commerce in Vietnam, said in an interview.

“China has not been afraid to use its economic weight as a way to reinforce its policies,” he said. “Senior officials in both governments are certainly aware of the risks of further escalation over this territorial dispute. Both countries risk economic damage and uncertainty that neither can afford.”

As Vietnam and China are important players in the global supply chain, “any ratcheting up of tensions that impede the flow of supplies and products between China and Vietnam will ripple across the global economy,” Sitkoff said.

Vietnam Surprised

Vietnam’s benchmark VN Index of stocks rose 0.3 percent at the mid-day break today. The gauge has retreated 8.7 percent from this year’s high on March 24. The dong was steady at 21,145 per dollar as of 11:50 a.m. local time.

China is Vietnam’s largest trading partner, with two-way trade rising 22 percent to $50.2 billion last year from 2012, according to Vietnam’s General Statistics Office. Vietnam and China aim to boost two-way trade to $60 billion in 2015, according to an April 14 statement from Vietnam’s government. Vietnam bought $37 billion of goods from China last year, according to the statistics office.

Vietnam’s leaders “did not anticipate that China would push so hard,” Alexander Vuving, a security analyst at the Asia-Pacific Center for Security Studies in Hawaii, said by phone. “They do not want to take the risk that China retaliates economically.”

China’s success in assuming control of the Scarborough Shoal, an area previously overseen by the Philippines, in 2012 highlighted the potential consequences of China asserting its territorial claims to nations from Vietnam to Japan. The May 26 incident came after Chinese aircraft flew close to Japanese planes on May 24 in disputed airspace in the East China Sea.

‘Very Upset’

China’s President Xi Jinping is expanding the country’s naval reach to back its claims in the South China Sea that are based on the “nine-dash line” map, first published in 1947. The map extends hundreds of miles south from China’s Hainan Island to equatorial waters off the coast of Borneo. China and Vietnam both claim the Paracels, and Association of Southeast Asian Nations members Brunei, Malaysia and the Philippines have claims to other areas of the South China Sea.

“It may take a lot of time for Vietnam to come to a decision about when and how to pursue legal actions against China,” Le Hong Hiep, a lecturer at Vietnam National University in Ho Chi Minh City, said by phone. “China will be very upset if Vietnam pursues legal action.”

Another option for Vietnam is to join a new alliance with the Philippines and Japan to conduct joint patrols and maritime surveillance, Thayer said. China would be hesitant about attacking a group that includes a U.S. treaty ally, he said.

PR Win

Vietnam may have scored a win on the public relations front, said Li Mingjiang, associate professor and coordinator of the China program at the S. Rajaratnam School of International Studies in Singapore.

“This will help mitigate the negative repercussions that the riots in Vietnam entailed,” he said. “No matter what narrative China tries to build for this ramming incident, mainstream international opinion will be more sympathetic to Vietnam.”

To contact Bloomberg News staff for this story: John Boudreau in Hanoi at jboudreau3@bloomberg.net; Jason Folkmanis in Ho Chi Minh City at folkmanis@bloomberg.net; K. Oanh Ha in Hanoi at oha3@bloomberg.net

To contact the editors responsible for this story: Lars Klemming at lklemming@bloomberg.net Rosalind Mathieson

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