The Peninsula Foundation

Tag: Indonesia

  • Vietnam: Bright Economic Outlook post-COVID

    Vietnam: Bright Economic Outlook post-COVID

    COVID-19 is truly a ‘Black Swan’ event and its impact is being felt across the globe. There is widespread worry about the future of economic growth in the post-pandemic period and the World Bank has observed that the pandemic caused the deepest global recession since Second World War. [i] There are at least three reasons which triggered and added to the current crisis. First, it has involved the US and China in a trade war since July 2018, when US President Donald Trump imposed wide-ranging tariffs on China for its alleged unfair trade practices. In August 2019, Trump ordered U.S. companies to “immediately start looking for an alternative to China, including bringing your companies home and making your products in the USA.”[ii] China responded in a similar manner with counter tariffs on US goods. Since then numerous negotiations between them have been held, the last in June 2020 at Hawaii, did not yield any breakthrough. This revengeful tariff war has now blown into a full-fledged trade war and President Trump aggravated with the renewed threat of a “complete decoupling from China.”

    There is widespread worry about the future of economic growth in the post-pandemic period and the World Bank has observed that the pandemic caused the deepest global recession since Second World War.

    Second, amid the trade war, the Corona-19 pandemic made matters worse for the two protagonists. The US accused China of withholding information about the Wuhan virus which was detected in December 2019 and Beijing did not make public the information till January 2020 after which it spread across the globe from Europe to the US. The pandemic has caused massive disruptions in supply chains and some countries have decided to shift businesses out of China. For instance, Prime Minister Shinzo Abe government announced US $2.2 billion stimulus package to help companies shift production out of China back to Japan or elsewhere.[iii]

    Third, the new security law in Hong Kong has triggered an exodus by several companies to move out of China. The Law “targets acts of secession, subversion, terrorism and collusion with foreign forces, with life in prison for those committing the most serious offences”[iv] has scared common people. Many technology companies, startups, entrepreneurs are now confronted with uncertainty and are exploring alternative destinations.[v]

    many companies are being forced to shut down their operation in China and rethink-reevaluate-reinvest in new destinations to remain buoyant for the time being and slowly make their networks more resilient across sectors for the future.

    Furthermore, the pandemic exposed the weaknesses and susceptibilities of many organizations, business houses and industries particularly those that are intimately connected and dependent on China to fulfil their need for raw materials or finished products. Consequently, many companies are being forced to shut down their operation in China and rethink-reevaluate-reinvest in new destinations to remain buoyant for the time being, and slowly make their networks more resilient across sectors for the future. According to a leading business research and advisory company, “tariffs imposed by the U.S. and Chinese governments during the past years have increased supply chain costs by up to 10% for over 40% of organizations” and “popular alternative locations are Vietnam, India, and Mexico.” [vi]

    Vietnam and Thailand have a very good scorecard in their fight against COVID-19 and are rearing to attract investments and kick start the economy.

    Even before COVID-19 pandemic crisis, in 2019, five Asian countries i.e. Malaysia, India, Thailand, Indonesia and Vietnam (MITI-V) or “Mighty Five” had been identified as “up-and-coming players” with high potential for being world’s next manufacturing hubs.[vii] Among these, Vietnam and Thailand have a very good scorecard in their fight against COVID-19 and are rearing to attract investments and kick start the economy.

    According to the World Economic Forum, Vietnam’s economic rise is marked by trade liberalization, domestic reforms through deregulation, lowering the cost of doing business and investments made in human resource development.[viii] During the first six months of the current year, FDI commitments was at over US$15 billion which is a positive outlook for the country. In fact, Vietnam has attracted FDI from 136 countries and territories with nearly 32,000 projects with a combined value of US$378 billion. Among these Japan is the second largest investor with over US$60 billion. Last month, Vietnam’s Ministry of Planning and Investment, Embassy of Japanese at Hanoi, Japan External Trade Organization (JETRO), and Japan Bank for International Cooperation (JBIC) held a virtual conference to explore FDI investments “especially in the context of Japanese government providing a US$2.3 billion aid package for Japanese firms to diversify their supply chains”.[ix]

    Vietnam has many common export products from China such as broadcasting equipment, and could emerge as the “top exporter of broadcasting equipment to developed countries” but is constrained by “smaller GDP and workforce”; but its   progresses in infrastructure could potentially make it a more appealing option.[x]

    Vietnam has attracted FDI from 136 countries and territories with nearly 32,000 projects with a combined value of US$378 billion. Among these Japan is the second largest investor with over US$60 billion.

    Besides, there are other contenders such as Thailand and India to attract FDI and these two countries offer attractive FDI policies and manufacturing infrastructure. In mid-2019, as many as 200 American companies were planning to move their manufacturing base from China and were looking at India.[xi] Similar trends have been reported from South Korea [xii] and Japan [xiii] who could migrate to “production-conducive economies like India, Vietnam and Thailand”.[xiv]

    According to one estimate, FDI “across the globe may decline by 40% this year due to the Covid-19 crisis”[xv], but by all counts and accounts, Vietnam is a resounding success story.  It is a stable economy, possesses necessary infrastructure and facilities, and above all it enjoys “multilateral and bilateral agreements with foreign countries”[xvi], which makes it a popular destination in the post-COVID economic revival outlook.

    Notes

    [i] “Global Economic Prospects”, https://www.worldbank.org/en/publication/global-economic-prospects (accessed 16 July 2020).
    [ii] “Trump says he’s ordering American companies to immediately start looking for an alternative to China”, https://www.cnbc.com/2019/08/23/trump-says-hes-ordering-american-companies-to-immediately-start-looking-for-an-alternative-to-china.html (accessed 30 July 2020).
    [iii] “Coronavirus Impact: Japan to offer $2.2 billion to firms shifting production out of China”, https://www.businesstoday.in/current/world/coronavirus-impact-japan-to-offer-22-billion-to-firms-shifting-production-out-of-china/story/400721.html (accessed 30 July 2020).
    [iv] “Hongkongers contemplate a second exodus”, https://www.scmp.com/week-asia/politics/article/3093517/home-and-away-after-national-security-law-hongkongers (accessed 30 July 2020).
    [v] “Tech Firms Begin to Abandon Hong Kong over Security Law”, https://webcache.googleusercontent.com/search?q=cache:tmQW3Yjx5vcJ:https://www.bloomberg.com/news/articles/2020-07-20/tech-firms-begin-to-abandon-hong-kong-because-of-security-law+&cd=13&hl=en&ct=clnk&gl=in (accessed 30 July 2020).
    [vi] “Gartner Survey Reveals 33% of Supply Chain Leaders Moved Business Out of China or Plan to by 2023”, https://www.gartner.com/en/newsroom/press-releases/2020-06-24-gartner-survey-reveals-33-percent-of-supply-chain-leaders-moved-business-out-of-china-or-plan-to-by-2023 (accessed 30 July 2020).
    [vii] “5 China Sourcing Alternatives In Asia”, https://www.intouch-quality.com/blog/5-alternatives-to-sourcing-from-china (accessed 30 July 2020).
    [viii] “Vietnam races ahead of China in economic growth: opportunities and challenges for Vietnam in the post-COVID- 19 period”, https://timesofindia.indiatimes.com/blogs/ChanakyaCode/vietnam-races-ahead-of-china-in-economic-growth-opportunities-and-challenges-for-vietnam-in-the-post-covid-19-period/ (accessed 30 July 2020).
    [ix] Ibid.
    [x] “COVID-19: Developing countries and shrouded opportunities”, https://www.orfonline.org/expert-speak/covid-19-developing-countries-and-shrouded-opportunities/ (accessed 30 July 2020).
    [xi] “About 200 US firms aim to move manufacturing base from China to India post-general election: USISPF”, https://www.businesstoday.in/current/economy-politics/about-200-us-firms-aim-to-move-manufacturing-base-from-china-to-india-post-general-election-usispf/story/341011.html ( 30 July 2020).
    [xii] “Korean companies keen to move out of China to India”, http://timesofindia.indiatimes.com/articleshow/75130387.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst (30 July 2020).
    [xiii] “Global firms look to shift from China to India”, https://www.livemint.com/industry/manufacturing/global-firms-look-to-shift-from-china-to-india-11587494725838.html  (30 July 2020).
    [xiv] “India isn’t ready yet for foreign companies that want to quit China”, https://theprint.in/opinion/india-isnt-ready-yet-for-foreign-companies-that-want-to-quit-china/415040/ (accessed 30 July 2020).
    [xv] “1,000 Japanese firms looking for investment opportunities in Vietnam”, http://hanoitimes.vn/1000-japaneses-firms-looking-for-investment-opportunities-in-vietnam-313133.html (accessed 30 July 2020).
    [xvi] “Vietnam races ahead of China in economic growth: opportunities and challenges for Vietnam in the post-COVID- 19 period”, https://timesofindia.indiatimes.com/blogs/ChanakyaCode/vietnam-races-ahead-of-china-in-economic-growth-opportunities-and-challenges-for-vietnam-in-the-post-covid-19-period/ (accessed 30 July 2020).

     

    Image: Ho Chi Minh city and Saigon River – Credit: Adobe Stock

  • High expectations during Vietnam’s Chairmanship of the ASEAN

    High expectations during Vietnam’s Chairmanship of the ASEAN

    Vietnam assumed ‘2020 Chairmanship of the ASEAN’ in November 2019 from Thailand in accordance with Article 31 of the ASEAN Charter under which the Chairmanship rotates annually. Hanoi announced the theme for its Chairmanship as ‘Cohesive and Responsive’, in which ‘Cohesive reflects the need to enhance ASEAN unity and solidarity, economic integration, ASEAN awareness and identity, and work toward a “people-centered” community’ and                                 ‘Responsive underlines the importance of promoting ASEAN pro-activeness, creativity and capacity in response to opportunities and challenges brought about by rapid changes in regional and global landscape’.

    Soon after taking over the 2020 Chairmanship, Vietnam was confronted with a ‘black swan’ event i.e. COVID-19. It  delivered admirably by taking bold measures to control the spread of the virus in the country and announced that the ASEAN Coordinating Council (ACC) will compile a report on the COVID-19 to be submitted to ASEAN leaders at the 36th ASEAN Summit scheduled in Vietnam in April.

    Vietnam’s Deputy Foreign Minister Nguyen Quoc Dung, who is the Secretary-General of the 2020 ASEAN National Committee, has identified five key priorities for his country’s Chairmanship Year and it is not surprising to see reference to Hanoi’s commitment to ‘regional peace and stability amid strategic complexities’. Boundary and associated disputes including illegal occupation, reclamation and weaponization of islands and features in South China Sea are central to ASEAN, and as a corollary a major issue for Vietnam’s 2020 Chairmanship. There is now evidence of a push back against Beijing’s intimidation. This is evident from the forceful statements and credible operational initiatives in South China Sea by the claimant states against China which has deployed law enforcement and paramilitary vessels.

    In this context there are expectations from Vietnam to vigorously pursue and make substantive contributions towards keeping the South China Sea less turbulent and more peaceful, and address issues that threaten regional peace and security. It would also be Hanoi’s endeavor to prevent any confrontation and further escalation in disputes in the South China Sea. However, this may not be the case as a number of incidents in the South China Sea over resources i.e. fishing and offshore energy exploration have begun rather very early in Vietnam’s ‘2020 Chairmanship of the ASEAN’.

    First is about Indonesia and China. The former does not claim any island or features in the Spratly Islands and therefore does not have any dispute in South China Sea; but presence of Chinese coast guard vessel escorting Chinese fishermen to fish in Natuna, part of  Indonesian waters, which China claims to be the traditional fishing ground, prompted political and military response from Jakarta. There was also a standoff between China and Vietnam in the Vanguard Bank involving 50 Vietnamese and 40 Chinese vessels over the operations of the drilling rig Hakuryu 5 operated by Russia’s Rosneft in Vietnam’s oil and gas Block 06-01.

    Another three-way standoff over oil and gas operations is playing out between China and Malaysia in which the state-owned Petronas is exploring on the extended continental shelf of a ‘Malaysian oil and gas block in the area for which Hanoi and Kuala Lumpur had submitted a joint claim’. China has resorted to intimidation similar to the Vanguard Bank between China and Vietnam.

    At another level, United States military response in support of Taiwan after Chinese military airplanes flew across the Taiwan Straits and the Bashi Channel is noteworthy. Likewise, US’ support has been forthcoming for Vietnam against China and could trigger enhanced defence and security cooperation between the two sides as also create new opportunities for Hanoi to inform Beijing about its confidence to deal with China on the South China Sea issue at its own terms.

    However, the Philippines would be a different challenge for Vietnam after President Rodrigo Duterte announced annulment of the Visiting Forces Agreement (VFA) notwithstanding the fact that the US has been the most important ally of the Philippines in countering China’s expansive claims in the disputed Philippines Sea. It is useful to mention that Philippines is critical  for US’ Indo-Pacific  strategy of a free and open oceans.

    Second is the about the Code of Conduct (CoC), an upgraded document of the earlier Declaration on the Conduct of Parties in the SCS (DOC), which is under negotiation between China and ASEAN member states and is expected to be adopted in 2021.Vietnam must concentrate on the CoC. The onus will be on Vietnam to not only build consensus among the  ASEAN , Hanoi will have to work hard  to put in place a workable COC which can then be taken forward by Brunei Darussalam who would assume the ‘2021 Chairmanship of the ASEAN’.

    Third is about the contestation between the US and China over freedom of navigation operation (FONOP). During the last three years, the US forces have routinely conducted FONOP which Washington claims to be in accordance with international law and that its military will fly, sail, and operate wherever international law permits. Chinese reaction and response to the FONOP has been at the political, diplomatic and strategic levels. It has exercised coercion at sea through dangerous maneuvers and more recently a PLA Navy destroyer fired a military grade laser at a US P-8 surveillance aircraft.

    ASEAN Chairmanship is a challenging position and attracts high expectations from the member countries. The position entails building upon the work done by the previous Chair as also pursue new regional issues that are always as challenging as the earlier ones. Besides, there are anticipations by regional and other global players to not only follow up the ongoing challenges but address new questions that confront the ASEAN. More often than not, the ASEAN countries have delivered and received appreciation from the international community.

    By all counts Vietnam’s chairmanship of the ASEAN can be expected to be both challenging and rewarding. Hanoi is expected to live up to the expectations on the responsibilities enshrined in the ASEAN charter and deliver to the peoples of the ASEAN as also build upon the themes and priorities set by previous Chairmanship. Vietnam will also be under pressure to adopt a tougher line against China on the South China Sea issue in view of the recent spats between China and other claimant states. But Vietnamese leaders are known for their maturity and diplomatic skills and would play a pragmatic role to manage tensions in the region.

    Image Credit: Vietnam Economic Times