For the United States, the era of a “rising China” is a novel challenge. For Vietnam, it’s the reprise of a thousand year old theme. China’s quest for hegemony over the South China Sea has eroded the legitimacy of Hanoi’s communist government. Coincidentally it has accelerated movement toward a strategic entente between Hanoi and Washington.
The U.S.-Vietnam relationship now evolving has an air of belated geopolitical inevitability. Though still controversial in precincts of Vietnam’s all-powerful Communist Party (CPV), among non-members (96 percent of Vietnam’s 93 million people) the notion of an intimate connection with the U.S. is highly popular. The nation’s present and future prosperity depends greatly on access to the markets of America and its allies and to their technology and capital. However, Vietnam itself must find the political will to reform domestic institutions that limit its ability to turn access into wealth.
Forty years after its end, the “American War” no longer stirs up strong feelings in Vietnam. Almost without exception, Vietnamese insist that they don’t bear grudges, a notion dating officially from 1988 when Hanoi adopted the foreign policy goal of making “more friends and fewer enemies.” The regime had no real choice then; post-unification efforts to collectivize agriculture, build heavy industry from scratch and allocate goods according to a central plan had failed, just as Vietnam’s Soviet advisors had predicted. At that time the Soviet bloc itself was crumbling, and with it the fraternal assistance that kept Vietnam’s economy barely afloat in the face of a U.S.-sponsored trade embargo.
Internally, Hanoi embarked on “doi moi,” or economic reform. Party congresses cleared Vietnam’s way to the ‘socialist market economy,’ something that came to look a lot like capitalism. Indeed, vibrant capitalist impulses surfaced to fill the economic spaces that were poorly served by state-owned enterprises (SOEs). However, the state enterprise sector was not dismantled, nor – though agriculture was de-collectivized – was ownership of land actually returned to farmers.
That half-finished socio-economic transition sufficed for a couple of decades. Year after year Vietnam’s economy grew by about seven percent. Exports of rice, fish, coffee and cashew nuts soared. Investors from South Korea, Japan, and Taiwan provided the know-how and capital for thriving garment and footwear assembly industries. Nearly everyone was better off. Although wealth disparities were increasingly evident, they mainly prompted the desire to get rich also.
By 2007, the year Vietnam was admitted to the World Trade Organization (WTO), it had become a pillar of the Association of Southeast Asian Nations (ASEAN), and per capita income had reached US $1000, ten times the 1989 level. The Hanoi regime had forged dozens of constructive foreign relationships. Especially significant were deepening and broadening ties with the United States and China.
Though pragmatism drove Vietnam’s relationships with China and with the U.S., ideology conditioned them.
Always uncomfortably close by and insistent on the deference that a younger brother owes to an elder, China has been a central problem for Vietnamese statecraft for over a thousand years. Much of that time, the two nations have gotten along well enough. Elite contacts with China shaped Vietnamese culture. Ho Chi Minh’s battalions could not have worn down French and American armies without fraternal aid from Mao’s China. Later on, when Hanoi belatedly opted to follow Beijing on “the capitalist road,” its leaders assigned high priority to engaging Chinese counterparts at all levels of the Party and government.
Often, however, relations with Beijing have been testy. A recurring theme of Vietnamese history is dogged and ultimately successful resistance against invaders. As every schoolboy learns, most often those invading armies have been Chinese. As recently as 1979, Deng Xiao Ping sought – and failed – to “teach Vietnam a lesson” for deposing the Pol Pot regime in Cambodia.
After diplomatic relations were restored in 1995, the United States became a lucrative market for Vietnamese-made goods. Still, the CPV continued to perceive a threat. Though the ruling party had shed most of its Marxism, it was still profoundly Leninist in its determination to keep a tight grip on Vietnam’s political life. To the officials responsible for internal security in Vietnam, the U.S. had not abandoned its hostile intentions. The Americans had simply grown more subtle, said the party media, propagating the “concept of civil society” and “masterminding the peaceful evolution forces.”
As long as Vietnam’s economy boomed and China could credibly assure its neighbors that its rise to great power status would be peaceful, the Hanoi regime’s tilt to China and the public’s preference for warmer relations with the U.S. was a manageable disagreement.
Just a few years later, however, the Hanoi regime fumbled the Great Global Recession. As the nation’s export markets shrank in 2008, Vietnam’s leaders resolved to pump up domestic demand until foreign buyers returned. They did this chiefly by directing credit to the state-owned enterprise (SOE) sector. Remarkably little effort was made to supervise these firms’ use of the State Bank’s largesse. Much of the windfall went into property development schemes unrelated to the SOEs’ normal business. More went into their acquisition or creation of new banks that would then create more credit and lend it back to their shareholders.
In 2010, the property bubble burst. Borrowers defaulted in droves, and the nation’s banks were stuck with a huge percentage of non-performing loans. Regulators claim that these now amount to less than four percent of the banking system’s assets; sovereign credit rating agencies insist that the true figure is near 15 percent.
Further, the shipbuilding conglomerate Vinashin, into which Hanoi had pumped US $4 billion, required rescuing. Next to fall into bankruptcy was the state-owned ocean shipper and port operator, Vinalines. Prime Minister Nguyen Tan Dung had touted both firms as a new model for state enterprises.
In 2009, meanwhile, Beijing resurrected a claim to Chinese hegemony “since ancient times” over the South China Sea. Off Vietnam’s long coast, Chinese vessels stepped up harassment of Vietnamese fishermen and interference with oil and gas exploration.
An internet-enabled public speaks up
These events coincided with an information revolution. Though there has long been a dissident fringe in Vietnam, it didn’t have a means of reaching a large audience until the explosive growth of internet access. From 200,000 users in 2000, internet penetration in Vietnam has grown to 40 million, roughly 55 percent of Vietnamese over age 14.
As more and more citizens logged on, they found a heady broth of alternative opinion on topics that Vietnam’s licensed media were forbidden to address. Now, beyond the reach of regime censors, blogs that address serious public issues receive millions of daily hits. Facebook accounts, which over 30 million Vietnamese access regularly, are full of political chatter.
Net surfers in 2008 learned, for example, that the government had issued permits for the China Aluminum Company to strip-mine bauxite in Vietnam’s south central highlands. Early discussion emphasized social and environmental impacts of the project, but soon morphed into unprecedentedly public debate over the party-state’s alleged subservience to China at the expense of national security.
Meanwhile, Vietnam’s economic crisis deepened. In 2011 the regime was forced to tighten credit. Economists concluded that the dynamism liberated by the doi moi policies was exhausted. The public mood was sour, and non-party Vietnamese were openly venting their discontent to each other. Perhaps police agents were listening, but dissenters sensed safety in numbers, and there was plenty to deplore: the bankruptcies of hundreds of thousands of small businesses and investors, petty corruption, police brutality, inequitable access to health care and education, rolling power cuts and the regime’s conciliatory posture toward China’s offshore provocations.
The CPV was clearly in trouble, too. Few of the nation’s best and brightest any longer were choosing party careers. Those who went into public service generally had little interest in ideology; their primary objectives had become promotion and profit. According to analyst Alexander Vuving, many of the CPV’s senior cadres are neither conservatives nor modernizers, but simply opportunists who have found the status quo very comfortable. Vuving explains it this way: capitalism offers opportunities to make profit, while communism offers a monopoly of power. A mixture of the two creates conditions for using money to buy power and using power to make money.
Possibly because too many of its leaders were invested in the status quo, the CPV had long been unable to resolve certain issues. As seen already, one such issue was Vietnam’s stance toward China, on one hand, and Western countries on the other. Another was the state’s role in the economy – should it be a participant, through control of many large enterprises, or should it privatize SOEs and concentrate on providing the conditions that allow private enterprise to flourish? There was, in addition, continuing intra-party debate on management of information (while, over the past decade, the state’s ability to control it has slipped away) and on whether party actions should be bound by law and subject to review by independent judges.
At party congresses in 2001, 2006 and 2011, though there was much hand-wringing about widespread corruption, mismanagement and the Party’s ebbing legitimacy, consensus on decisive reforms had been beyond reach. Each time, positions were redistributed mainly with a view to maintaining factional and regional balance. Old cadres were retired and younger ones promoted, but policy gridlock persisted.
The Man of the Hour?
In an oblique way – namely, via a bold move to oust Prime Minister Dung – the CPV came to grips with these issues. Dung had alarmed his Politburo colleagues by obviously and energetically building a personal political network of supporters. First as a deputy prime minister and then as the head of government, Dung had plenty of patronage to distribute. He cultivated an image of being savvier on world affairs and inclined to reform. In a ruling group that prized collective responsibility, the prime minister’s ambition stood out.
Midway through 2012, a lopsided majority of the 14-member Politburo voted to oust Dung. In such a situation, the usual response is to go out quietly. Dung refused. He cashed in political debts and won a stunning reversal of the Politburo’s decision at a CPV Central Committee meeting two months later. Reportedly, the vote was not close. Since then Dung has run Vietnam’s government as though the cooperation of his Politburo colleagues is no longer essential.
By most accounts, the PM is a shrewd opportunist who has responded to popular impatience for change. In a widely applauded New Year’s speech two years ago, Dung endorsed a radical idea: that the job of the state is to create the most favorable conditions for ordinary citizens to unleash their creative potential. He has populated his cabinet with talented managers and now, sources say, he listens attentively to the advice offered by a generation of bright, Western-trained economists.
Those economists maintain that unless structural reforms return annual growth to seven or eight percent and factory productivity surges, Vietnam will not make it into the ranks of the advanced economies. That is because the birth rate has fallen sharply; the nation’s young, able, and relatively low-wage workforce – its “demographic dividend” – will begin to shrink by 2025. The government seems to have heard the message. It has tweaked regulations to favor foreign investment. Both capital and technology are flooding in. Vietnam is a founding member of the Trans-Pacific Partnership trade pact, initialed in early November. Still pending, however, are decisive actions to shrink the state sector and support domestic entrepreneurs.
Foreign policy, says Dung, is all about “building strategic trust.” By its pursuit of hegemony in the South China Sea, China has lost it, vis-a-vis Vietnam; the U.S. is on its way to winning it – and that’s an epochal shift that bolsters the position of Vietnam’s reformers.
When Beijing sent a seagoing oil drilling rig into a promising patch of Vietnam’s exclusive economic zone in June 2014, it may have expected only ineffectual pleading from Hanoi. Indeed, most of the Prime Minister’s Politburo colleagues responded true to form. Dung, however, countered by ordering Vietnamese coast guard vessels and fishing boats to harass the Chinese flotilla. Their plucky resistance roused condemnation of China abroad and stirred pride at home.
By the time Beijing pulled back the oil rig, CPV conservatives had conceded that a low posture tilt toward Beijing no longer wards off Chinese aggression. Accordingly, Vietnam set out to rebalance its relations with the superpowers. In the months that followed, several senior members of the CPV’s so-called China faction visited Washington. The visits were painstakingly orchestrated by Vietnamese and American diplomats, and the signals were good. A year after the confrontation with China, Vietnam’s top party leader, General Secretary Nguyen Phu Trong, met with President Obama in the Oval Office.
“It was a truly historic meeting,” Trong judged afterward. “The White House acknowledged Vietnam’s political structure and the Party’s leadership.”
An unlikely reformer and a reform agenda
At its 12th Congress early next year, the CPV will determine who will lead the Party until 2020. Buoyed by a string of political successes, Nguyen Tan Dung is the odds-on favorite not only to take command of the Party, but also to install protégés as prime minister and in other key positions. Dung seems poised to emerge from the congress in firmer control of the party-state than anyone since General Secretary Le Duan a half-century ago.
Still, the prospect of a party chief overly committed to reform may trigger an “anyone but Dung” reaction. Veteran Vietnam watcher Carl Thayer suspects that is why Central Committee meetings to prepare the 12th Congress seem to be making little progress. For many in the CPV, especially in its provincial and city-level organizations and in every state enterprise, the status quo is very comfortable. For a few, ideology still matters; they read Dung’s promise of more openness in government as a coded signal of dangerous experiments with pluralism. For most, however, the ties that bind one to the Party are personal and economic.
Outside the Party, other than a vocal but still relatively small collection of dissidents, the Vietnamese are not now in a revolutionary mood. Exports are booming. Per capita annual income has ticked upward to over $2000, twice the 2007 level. By and large, non-party Vietnamese hope only that the Party will repair its faults and give Vietnam firm, sound, and just leadership. They dread the chaos that predictably would attend an effort to dismantle party rule. The more vigorously Dung pursues a reform agenda, the more popular he will be with non-party Vietnamese, particularly with the nation’s entrepreneurial and professional class.
To succeed as a reformer, however, Dung must persuade his fellow party members to jettison “market socialism” (that is, direct participation in the economy) and refocus on enlightened economic management. Policy should aim at enabling Vietnamese manufacturers to secure the credit and technology they need to join export value chains. Farmers should receive title to the fields they till. State enterprises that are both broke and uncompetitive must be allowed to fail. Ideologues will push back, but the economic logic is compelling. So is the political logic: decisive action will secure the Party’s command of Vietnam’s political heights for years to come.
David E. Brown, a retired U.S. diplomat with the Department of State, served in U.S. Embassy Saigon from 1965-1969.
[Suggesting that trilateral meetings between China, South Korea, and Japan be revived] is a way to say this is not zero sum and this is not an anti-China development. It’s smart diplomacy to be saying this.
Just as the mettle of the TPP project has been tested by the United States, now it will be tested by China.