China-Vietnam eye stability and predictability under Tô Lâm’s leadership
At a Glance
- Vietnam’s new leader, Tô Lâm, was welcomed by China in his first overseas state visit destination this August, signaling Vietnam’s top priority of strengthening ties with its neighbor and largest trade partner.
- While Vietnam aspires to keep a diplomatic balancing strategy with all major powers, Lâm’s visit serves as a crucial step in reaffirming a stable relationship with China during a period of Vietnam’s leadership change.
- Vietnam plays a key role as an intermediary market and manufacturing hub, allowing China to circumvent derisking trends from Western partners. The visit allowed both sides to double down on their trade strategy, including securing new trade agreements and infrastructure projects, and reiterate commitments to deepen strategic mutual trust.
- Key outcomes for China include using Vietnam as the production and trade hub for regional and global trade in areas like textiles and apparel, digital products, technology cooperation. Key outcomes for Vietnam include securing market access for agriculture products, especially fruits, and infrastructure construction to optimize its distribution system. Both sides will also ramp up cooperation efforts in cultural and people oriented mutual interests in tourism development, healthcare, and media cooperation.
Overview
By invitation of Chinese President Xi Jinping, the newly minted General Secretary of the Communist Party of Vietnam (CPV) Central Committee and Vietnamese President, Tô Lâm, paid a state visit to China from August 18–20, 2024. This marked his first overseas visit since taking office just two weeks ago, and also represented the highest signal of commitment to bilateral relations and high-level leadership ties between the two countries.
Sino-Vietnamese ties have not always been amicable. Nevertheless, tremendous efforts at cooperation have marked bilateral ties. Tô Lâm’s landmark visit to China is a reflection of the mutual importance attached to better relations and underscores the deep ongoing efforts in Sino-Vietnamese intergovernmental communication and cooperation.
Given the dual role that Tô Lâm plays as head of both the Communist Party and the Vietnamese government, his visit represents a consolidated Vietnamese consensus towards stabilizing the Sino-Vietnamese relationship in a period of leadership change. It also signals continuity from Tô Lâm’s predecessor, Nguyễn Phú Trọng, who had secured a series of deals with President Xi last December.
Following the visit, China and Vietnam made joint statements announcing agreements on short-term market access and trade cooperation for agriculture products, China’s financial and technological support to improve Vietnam’s transport infrastructure in the middle term, and commitments to the long-term goal of building bilateral and regional stability by managing frictions and “building a China-Vietnam community with a shared future.”
Key takeaways: Stable political relations to boost economic and trade cooperation amid geopolitical tensions
- While signaling China as its foreign policy priority, Vietnam seeks to maintain a strategic balance in geopolitical interests: Amid rising geopolitical competition, Tô Lâm is largely expected to continue his predecessor Nguyễn Phú Trọng’s strategy of maintaining a balance among major powers, especially with the US, China, Russia, India, and Japan. Famously termed “bamboo diplomacy,” Vietnam’s multilateral and autonomous approach to geopolitical and geo-economic strategy has enabled impressive diplomatic wins and fruitful economic growth. As part of this strategic balance, Lâm’s next stop is said to be the US, where he will attend the UN General Assembly and meet with US President Joe Biden.
- China and Vietnam are deepening engagement, including political ties: Lâm emphasized that the CPV and the Vietnamese government regard China as the strategic choice and top priority in Vietnam’s foreign policy. Chinese leaders reciprocated, noting that China has always regarded Vietnam as a priority in its neighborhood diplomacy. Despite occasional clashes over boundaries in the South China Sea, both sides reiterated that their common interests far outweigh frictions, and they are committed to working together to strategically manage differences.
- Last December, the two countries jointly committed to elevating the bilateral ties to a “China-Vietnam community with a shared future that carries strategic significance,” strengthening their “comprehensive strategic cooperative partnership” since 2008. Under that framework, China vowed to remain Vietnam’s most important ally for exchanging experiences in party building and national governance, which will be carried out by strengthened cooperation through party schools and close consultations between the senior leaders of both parties.
- Expanding economic and trade cooperation amid geopolitical derisking: Amid trends of Western partners derisking supply chains from China, Vietnam has played an important role as the extended production chain of Chinese companies to circumvent geopolitical trade pressures, enabling China to maintain and grow its international trade footprint in an adverse climate. To this end, China has invested greatly in Vietnam to build local production capacity, in turn benefiting Vietnam’s growth and development in bilateral and regional supply chains and trade. Already, China has been Vietnam’s largest trading partner and a major source of foreign investment for two decades, and Vietnam is China’s largest trading partner within ASEAN.
- Prior to the visit, China and Vietnam have already entered into several bilateral and multilateral agreements and frameworks, including the Belt and Road Initiative (BRI), the ASEAN-China Free Trade Agreement (ACFTA), and the Regional Comprehensive Economic Partnership (RCEP). In leveraging these agreements, Vietnam has been able to exploit rapid growth to serve as an “intermediate market.”
- During the visit, three key market access protocols were signed, enabling Vietnam’s fresh coconut, frozen durian, and crocodile exports to enter the Chinese market. This is a milestone in Vietnam’s agricultural trade with China and presents significant opportunities for these industries.
- Trade between the two countries is expected to continue to grow in the coming years, especially in the areas of overall agricultural products, textiles and apparel, and electronics.
- Vietnam has also benefitted as an “intermediate market” and international supply hub for the US and Western markets amid derisking trends, and so has thrown open its doors as the world’s new manufacturing hub in a “China-Plus-One” strategy. Providing a friendshoring option for global trade and supply chains, Vietnam has readily deployed its advantages of being a less controversial trade partner with the West and its comparative advantages in cost. With a younger and hungrier—but just as educated—labor force, Vietnam has effortlessly emerged as one of the largest beneficiaries of the manufacturing exodus from China since the pandemic. Vietnam aims to further optimize its production capacity and logistics system to increase supply efficiency and stability and cement its role in the global supply chain landscape.
- Deepening cooperation in power and railway sectors: Vietnam’s existing electric power supply and insufficient logistics and distribution networks will restrain further expansion of the country’s economy. Lâm sought China’s financial support, power transition and supply (particularly vital for textile and electronics production), and technology to improve Vietnam’s transport infrastructure. Both sides agreed to deepen cooperation on railway and highway connectivity, including two deals on railways signed during the visit. China sees the cooperation as a win-win in line with China’s Belt and Road Initiative to help Chinese companies “Go Global.”
- Beyond economics and trade, comprehensive cooperation lineup: Xi and Lâm witnessed the signing of 14 bilateral cooperation documents. Most are connected to investment and economic cooperation, but also include healthcare, tourism, media and news organizations, as well as education, cultural and people-to-people cooperation.
Businesses should explore and seize growing Sino-Vietnamese opportunities while proactively mitigating risks
Both international businesses operating in the Chinese market and Chinese companies seeking to establish or ramp up their footprint in Vietnam should keep their fingers on the political pulse. Opportunities from the growing Sino-Vietnamese political and trade environment should be identified and pursued. Proactive engagement should be sought with both governments to grow working relationships.
While both leaders have pledged mutual political trust for the strategic handling of differences, conflicts and crises are inevitable. Ongoing government engagement will also help companies safeguard their business operations by identifying and proactively mitigating potential risks.
For additional information, reach out to Richard.Andrew@edelmanEGA.com, Cynthia.Xing@edelmanega.com, or Ha.Bui@edelmanEGA.com.
