US expects to upgrade Vietnam ties, risks China anger

A woman looks through a magnifying glass to check errors of a printer circuit board at Manutronics Factory in Bac Ninh province, Vietnam May 30, 2018. REUTERS

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The US aims to boost its diplomatic relations with erstwhile rival Vietnam to the highest degree when President Joe Biden visits Hanoi next week, a decision that may irritate China and has unknown commercial ramifications.

Fearing repercussions from its much larger neighbor, Vietnam first raised reservations about the improvement. As a result, the Biden administration has increased its efforts to convince the Southeast Asian nation, including several visits by high-ranking officials of the US government in recent months.

The extraordinary drive has prompted Washington to hope that it would be promoted to the top tier of Vietnam’s diplomatic ranking, with China and Russia, from two notches below where it is presently.

Biden said it publicly in July and officials in both countries have since informally expressed optimism about the two-step upgrade, although no official statements have been released from either government.

Perhaps seeking to assuage Beijing, Vietnam is discussing top-level visits to Hanoi after or even shortly before Biden’s arrival on Sept 10, with officials saying China’s President Xi Jinping and Prime Minister Li Qiang could meet Vietnamese leaders in coming days or weeks.

Risks that a double upgrade with Washington may not go down well in Beijing remain high, but Vietnam’s communist leaders may have calculated the best timing for the move is now as relations with China are “likely to get worse in the future,” said Le Hong Hiep, a senior fellow at Singapore’s Iseas–Yusof Ishak Institute.

Yet it is unclear what Vietnam, which is at odds with China over boundaries in the South China Sea, stands to gain in the short term from the upgrade.

A boost of U.S. military supplies to Hanoi has long been discussed but no immediate deal is expected as these talks take time, Hiep said.

Meanwhile, Vietnam is talking with several other countries to upgrade and expand its mostly Russian-made arsenal, and has recently engaged in multiple high-level defence meetings with top Russian officials.

Supporting Vietnam’s ambitions to become a hub for the semiconductor industry is also part of Washington’s inducements, but public funds so far available under the CHIPS Act are very limited.

The U.S. may offer more, said Vu Tu Thanh, head of the Vietnam office of the US-ASEAN Business Council.

Energy is another area where collaboration may improve as Vietnam seeks to enter the LNG and offshore wind markets, however administrative and financial bottlenecks are dampening the mood.

The improved relations are anticipated to help US companies’ aspirations in Vietnam. According to sources familiar with the arrangements, Boeing (BA.N) and AES (AES.N) may make announcements during Biden’s visit. There was no immediate response from the firms.

The United States is already Vietnam’s top export market, and customs processes in the United States might be simplified to enhance commerce. Thanh representing the US-ASEAN Business Council.

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