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Political storm over South China Sea makes landfall

south-china-sea-vietnam

27 May Political storm over South China Sea makes landfall

The political storm over China’s deployment of an oil rig in the contested waters of the South China Sea made landfall last week. Violent anti-China protests erupted in industrial areas in southern Vietnam, disrupting businesses, damaging property and even drawing blood.

Vietnam’s Nationalistic Response to China’s Provocation

The demonstrations came in the wake of Vietnamese Prime Minister Nguyen Tan Dung’s call to his citizens to “promote patriotism” and “protect the fatherland’s sovereignty”. The Vietnamese authorities had allegedly given the green light to the anti-China rallies that sparked the violence. Critics have also accused the Vietnamese police of being lethargic in its initial response.

Vietnam’s leaders understand that such public display of domestic displeasure may well enhance its negotiating position with China – it shows that any compromise would be difficult for Vietnam to bear. This is reminiscent of the anti-Japan protests in China over territorial claims in the East China Sea in 2012.

Vietnam’s response also counters China’s strategy of separating political-security issues from economic cooperation in its foreign policy in the Association of Southeast Asian Nations (ASEAN) region. Even as China indicates its desire for closer economic cooperation with the regional grouping, it has preferred to resolve territorial disputes bilaterally and has been stalling talks on the South China Sea Code of Conduct. The disruptive demonstrations send the signal to China that its aggressive assertion of territorial claims can hurt its business interests directly.

Affecting Business and Foreign Investment

However, the demonstrations have already harmed Vietnam’s economy. Protestors appear to have targeted factories with Chinese characters on their signs, including those owned by Singaporean and Taiwanese businesses.

The instability not only puts the US$50 billion (S$63 billion) worth of economic ties with China at stake, but endangers the US$110 billion (S$142 billion) in foreign direct investment that is a major motor in Vietnam’s economic development. Some Chinese businesses have already suspended production in Vietnam.

Vietnam recognises this drawback, but it may have been caught off-guard by the heated demonstrations that spiralled out of control. In this case, moreover, vehement nationalism was most likely conflated with discontentment with work conditions and foreign labour issues. It has since committed strong measures to quell the protests, reassured the safety of foreign-owned factories and granted tax concessions to the affected businesses.

Geopolitics has always had an impact on business in Asia, and these latest events do indeed drive the point home. It is also an indication of a worrying worldwide trend of increasing nationalism that not only leads to the escalation of conflict, but also constrains diplomatic options.

Sources:

Anti-China riots turn deadly in Vietnam [The Guardian, 15 May 2014]

Violence abates in Vietnam as US warns China for ‘provocation’ [Reuters, 16 May 2014]

Vietnam vows tough measures to avert anti-China unrest [Reuter, 17 May 2014]

Vietnam-China tensions: Why protests are not just jingoism [BBC News, 16 May 2014]

Vietnam’s commitment to investors in doubt after riots – China Daily [Reuters, 19 May 2014]