Gingerly, Deals Start Taking Shape Between Rivals China and Vietnam

Historic rivals China and Vietnam are working on substantive agreements that could cover trade, investment and maritime resource sharing despite a bitter sovereignty dispute that had snarled relations less than a year ago.

The Communist neighbors are inching toward new trade and investment ties that analysts say would help shore up overall relations. Some believe the two might later approach stickier topics such as joint use of disputed waters or humane treatment of each other’s fishermen. The two countries still contest sovereignty over tracts of the vast, resource-rich South China Sea east of Vietnam and southwest of Hong Kong.

Prospects of some kind of agreement came into focus during Vietnamese President Tran Dai Quang’s visit to China, which ends Monday. He suggested the two sides work on complementing each other’s trade and investment advantages with a view toward improving overall relations, state media from Hanoi said.

“President Quang is in China, and China promised a lot,” said Yun Sun, senior associate with the East Asia Program under Washington-based think tank the Stimson Center. “From an economic point of view, it is certainly practical and beneficial for Vietnam to have some sort of deal, but then again I think this still relatively early to tell.”

In a meeting with Quang Thursday, Chinese President Xi Jinping called for more cross-border economic cooperation zones and joint infrastructure building, according to  China’s official Xinhua News Agency reported. China pledged to “mitigate” its trade deficit with Vietnam and increase direct investment, Sun said.

“Talking probably does help lower tensions and improve the odds of things happening,” said Alaistair Chan, an economist covering China for Moody’s Analytics.

The Vietnamese president suggested China finalize rules on opening the Chinese market for farm products, dairy and seafood, media outlet vietnamnet.vn said. He also called on China to make more “preferential loans” and urged a working group to develop renewable energy investment projects that play on China’s strengths and demand in Vietnam, the Vietnamese news report said.

On Friday companies from both countries signed agreements on milk distribution, tourism and rice processing.

China is the largest trade partner of Vietnam, with imports and exports worth about $72 billion last year. Vietnam also calls China one of the top 10 investors in the country.

But both countries are likely to hedge on letting outsiders invest in infrastructure, a possible source of direct investment, Chan said. “If they can get there purely on trade and stay away from investment, a touchy subject in both countries, I think that’s probably where they can get their quickest gain,” he said.

China and Vietnam stepped up dialogue after July 2016, when a world arbitration court ruled that Beijing lacked a legal basis to claim more than 90 percent of the sea, a boon to rival claimants in Southeast Asia: Vietnam, Brunei, Malaysia and the Philippines. China responded to the ruling by seeking one-on-one dialogue with each country. Vietnam was one of the most hostile toward China before the court ruling.

Beijing and Hanoi dispute sovereignty over much of the 3.5 million-square-kilometer sea, including two chains of tiny islets. Beijing’s go-ahead for a Chinese oil rig in contested waters set off a clash in 2014. The two countries also still face distrust fanned by centuries of political rivalry as well as a border war in 1979.

Both countries stake their fast-growing economies on export manufacturing. Vietnamese companies resent China for using their larger production scales to sell goods in bulk at relatively low prices.

Relations got a lift in September when the Chinese premier and Vietnamese prime minister agreed to manage maritime differences. Vietnamese Communist Party General Secretary Nguyen Phu Trong visited China in January to help smooth relations.

Another boost came as China emerged last year as the top single-country source of tourism for Vietnam. About 2.2 million Chinese visited Vietnam from January to October. Chinese tourists have reshaped the economies of Hong Kong and Taiwan over the past decade.

Agreements on managing disputed tracts of the South China Sea may come later if the two sides keep getting along, experts say.

Vietnam and China have agreed to an “informal” median line in the tract of sea where their claims overlap, said Carl Thayer, Southeast Asia-specialized emeritus professor of politics at The University of New South Wales in Australia. They might eventually work on expanding joint exploration for oil under the seabed and a way to ensure “humane” treatment of fishermen, he said.

“It’s to stop the ramming, boarding, seizing fish catches and radio equipment and in the old days taking them hostages for money,” Thayer said. Under a human treatment agreement, he said, “If you find them, you report them to the other side and return them rather than bash them up and take everything.”

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