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Anti-China demonstrations are testing the Vietnamese government's ability to manage rising nationalist sentiment. Since May 7, protesters have taken to the streets to oppose China's deployment of a deep-sea oil rig in the Paracel Islands, which Vietnam and China both claim as their own. The protests turned uncharacteristically violent, leaving several people dead and hundreds of foreign businesses aflame.
Hanoi might be tempted to draw from the wellspring of support this wave of nationalism could provide. Vietnam is beset by a variety of socio-economic problems, and the government will need all the political capital it can get as it tries to solve them. But ultimately, the costs of encouraging nationalism outweigh the benefits. Vietnam does not want to risk domestic political instability, nor does it want to discourage foreign investment. And just as important, it does not want to jeopardize its relationship with China, its largest trade partner and its long-time regional rival.
The demonstrations took place in several cities throughout the country but culminated near Binh Duong and Dong Nai, two provinces near Ho Chi Minh City that are home to several factories. On May 13, hundreds of workers took part in what began as peaceful protests at Vietnam-Singapore Industrial Park 1. However, the crowd soon swelled to about 20,000, some of whom looted and set fire to more than 15 factories owned by China, Taiwan and Hong Kong. As many as 20 people were killed in the incident, and more than 460 companies were set on fire, leaving manufacturing virtually offline.
Vietnam's neighbors soon spoke out against the incident. Beijing was particularly concerned, urging Hanoi to end the violence, and Singapore, Malaysia and Taiwan similarly voiced concern over their investments in the country. In response, Vietnamese Prime Minister Nguyen Tan Dung issued a notice May 15, imploring his people to restore order and ensure the safety of foreign citizens and assets. (Somewhat paradoxically, he later asked Vietnamese citizens to act in defense of their country's sovereignty.)
Though the public's initial outpouring of anger has subsided somewhat, nationalist sentiment has since been apparent in several instances, including low-level protests, boycotts against Chinese products and the cancellation of tourism to China.
Tacitly Endorsing Nationalism
By definition, nationalism is rooted in a nation's history. For Vietnam, nationalism stems from its geopolitical insecurity and its contentious, thousand-year-long rivalry with China. However, nationalism, and resentment toward China, became more pronounced in the late 2000s, when China began asserting its territorial claims in the contested South China Sea.
In the past, the Vietnamese government has permitted -- and even encouraged -- nationalist sentiment. This strategy has been politically beneficial on several occasions: It has made Hanoi appear more firm in its stance in maritime territorial claims, an issue it is particularly sensitive to; it enabled officials to fend off criticism of their financial and economic policies; and it has distracted the public from its discontent over government corruption and political suppression.
But the May 13 riot showed that nationalism, if left completely unchecked, could easily work against Hanoi's interests. In Vietnam, protests ordinarily are manageable; they rarely escalate to the point of violence against foreign assets. Vietnamese security forces allow protests to take place, intervening if and when they spiral out of control. It is unclear how organized the most recent riot was, but there are rumors that the government may have been complicit in its execution. In any case, if the situation continues to escalate, Hanoi may be forced to quell future protests more proactively.
Notably, the rioters did not single out Chinese companies, but also vandalized companies owned by Hong Kong and Taiwan, which have little stake in the ongoing maritime disputes in the South China Sea. If the violence continues, countries could suspend or even forego their investment, which Hanoi desperately needs. In fact, roughly 20 percent of Vietnam's foreign investment comes from China, Hong Kong and Taiwan.
Subsequent violence could also imperil Vietnam's investor confidence. Social stability has been a tenet of the business environment for the past few decades, and so Hanoi knows it must maintain that stability to maintain investor confidence. But it also must drum up just enough nationalist sentiment so that it has the mandate to take a stronger stance against China, particularly in regard to its territorial claims in the South China Sea. Hence, Hanoi's dilemma.
The China Dilemma
Despite all the anti-China sentiment and the overwhelming desire to defend its maritime territory, there is very little Vietnam can do to back up its claims. But even if it could, Hanoi is acutely aware that it needs a stable relationship with China, one of its most important benefactors.
The situation in Vietnam typifies China's economic strategy throughout Southeast Asia: Beijing accelerates trade and investment cooperation to foster economic dependencies throughout the region. As a result, China has been Vietnam's largest trade partner since 2004. Hanoi imports textiles, raw materials and processed goods in bulk -- materials crucial for Vietnam as it compensates for its inadequate industrial chain and its export-oriented economy.
Though China currently does not invest significant amounts of money in Vietnam -- it accounts for only 3-4 percent of Vietnam's total foreign investment -- its importance as an investor has risen quickly over the past few years. A much improved economic performance and newly relocated manufacturers have made Vietnam a preferred destination for foreign investment, which constitutes nearly 60 percent of the country's total export revenue and 40 percent of its industrial output. Simply put, Vietnam knows it needs to protect the investment it receives, and it would be loath to sacrifice it for the ongoing protests.
Over the years, Hanoi has tried to wean itself off its economic dependence on China, a strategy that has come alongside a plan to diversify its foreign policy and seek out other benefactors. To that end, Vietnam has expedited its economic and defense relationships with Russia, Japan and India, even as it has tried to capitalize on Washington's "Asia Pivot." But as Hanoi courts outside powers, it knows it must anticipate possible reprisals from China, as the past thousand years of history have shown.
Economic Dangers of Nationalism For Vietnam
Since May 7, protesters have taken to the streets to oppose China's deployment of a deep-sea oil rig in the Paracel Islands, which Vietnam and China both claim as their own. The demonstrations took place in several cities throughout the country but culminated near Binh Duong and Dong Nai, two provinces near Ho Chi Minh City that are home to several factories.
On May 13, hundreds of workers took part in what began as peaceful protests at Vietnam-Singapore Industrial Park 1. However, the crowd soon swelled to about 20,000, some of whom looted and set fire to more than 15 factories owned by China, Taiwan and Hong Kong. As many as 20 people were killed in the incident, and more than 460 companies were set on fire, leaving manufacturing virtually offline.
Notably, the rioters did not single out Chinese companies, but also vandalized companies owned by Hong Kong and Taiwan, which have little stake in the ongoing maritime disputes in the South China Sea. If the violence continues, countries could suspend or even forego their investment, which Hanoi desperately needs. In fact, roughly 20 percent of Vietnam's foreign investment comes from China, Hong Kong and Taiwan.
Subsequent violence could also imperil Vietnam's investor confidence. Social stability has been a hallmark of the business environment for the past few decades, and Hanoi knows it must maintain that stability to maintain investor confidence. But it also must drum up just enough nationalist sentiment so that it has the mandate to take a stronger stance against China, particularly in regard to its territorial claims in the South China Sea.
Courtesy : Stratfor (www.stratfor.com)