A flood of Indian business in fast-growing Vietnam has solidified commercial ties to help Hanoi upgrade an alliance with a powerful Asian neighbor and offset dependence on its historic rival, the more massive China.
Indian investment in Vietnam has reached $2 billion and bilateral trade hit $10 billion over the year ending in March on its way to $15 billion by 2020, said Radha Krishnan, vice chairman of the Indian Business Chamber of Vietnam.
“As of now that is very easily achievable,” Krishnan said. “The last three … years exports from Vietnam to India have picked up momentum.”
Vietnam has many trade partners
Last year the two countries agreed to upgrade a “strategic partnership,” giving Vietnam more Indian market access, and they will drop import tariffs in 2022 as part of a trade deal with a bloc of Southeast Asian countries.
Those totals hardly match those of Vietnam’s long-time investment sources such as Taiwan, South Korea and China. But their growth offers Vietnam a line to the world’s second-largest country, helping to reduce dependence on China, which is the world’s second-largest economy and Vietnam’s biggest trading partner.
China-Vietnam set a trade target of $100 billion in 2016, but the pair disputes a swathe of the South China Sea. Their dispute sparked clashes in 1974, 1988 and 2014.
“The Vietnamese government, they don’t want to get an unbalanced investment portfolio where any particular country or region is dominant, because then it just unbalances everything else — foreign policy, domestic politics and everything,” said Frederick Burke, partner with the international law firm Baker McKenzie in Ho Chi Minh City.
“As far as people who think about strategic issues are concerned, they would like the Indians to be probably more present in the market, because they’re probably behind mainland China in particular,” he said. “Everybody wants to balance the two out, be friends with both. That’s the ideal situation.”
Robust trade but also continuing disputes with China
Vietnam depends on China for cheap mass market goods, as well as raw materials for export manufacturing. The two Communist countries fought a border war in the 1970s shortly after what was then South Vietnam lost the Paracel Islands to China. That archipelago is part of the South China Sea.
In 2014, the placement of a Chinese oil rig in the South China Sea east of Vietnam touched off a boat-ramming incident and deadly anti-China riots on land. In June, a Chinese military official cut short his Vietnam visit as the host drilled for oil offshore.
Over the past two decades, Indian farming, garment and pharmaceutical investment have reached Vietnam because of its eager partners, Krishnan said. Low-cost but advanced Indian technology has helped Vietnam farm in dry weather, produce sugar and process cashews, he said. Tata Power of India runs a $1.8 billion thermal power plant in Vietnam.
For the past three years, the overseas subsidiary of India’s government-run ONGC has worked with PetroVietnam Exploration Production Corporation to search for oil and gas in the South China Sea.
About 80,000 Indians visit Vietnam every year, often as tourists looking for business opportunities, and 20,000 go the other way, sometimes as travelers to Buddhist landmarks, Krishnan said.
India has its own reasons for strengthening trade with Vietnam
India, for its part, is keen to resist China’s expansion in Asia. The two Asian powers are easing just this week a more than two-month-old military standoff in Bhutan. China claims the area in question, and Bhutan called on India to help when the Chinese came to work on a highway project.
Countries that build trade, investment and economic ties do not always become political allies, but in the India-Vietnam case, that fate is “natural,” said Alexander Huang, strategic studies professor at Tamkang University in Taiwan. China, he added, is unlikely to flinch at India because Vietnam is chasing stronger ties with other powerful countries, as well.
“You don’t need to be a grand strategist to think of diversifying your market,” Huang said. “Of course it will have some kind of impact, but so far I do not see one to the degree that will fundamentally change the Chinese perception over Vietnam, because the United States is improving relationships with Vietnam, Japan is improving relationships with Vietnam.”
A need to resist continued Chinese expansion
Beijing’s “belligerence” and escalation of territorial disputes in the seas to the Bhutan border have “served to bring a coalition of China-wary states closer,” said Mohan Malik,professor at the Asia-Pacific Center for Security Studies in Honolulu.
Elsewhere in Asia, Indonesia, Myanmar and the Philippines have also tried to balance foreign policies between China and the West, often through trade and investment.
China is expected to keep a special eye out for India’s maritime ties with Vietnam. The Indian oil company could work again in the waters off Vietnam, Krishnan said. Officials in Hanoi, he said, would try to protect that investment and others.
“I don’t think it’s going to be a big problem per se,” said Krishnan. “We are very, very positive that both governments will be able to handle that very, very positively. I don’t think investments made in Vietnam by a foreign country or company will be at risk.”