Oil Report

RPT-China and Vietnam face strains as war memory fades

(Repeats story sent on Feb. 15, no change to text)

LANG SON, Vietnam, Feb 15 (Reuters) - The tall black tablets at the Lang Son cemetery list hundreds of dead Vietnamese soldiers. Next to some names are the words “chong Phap” or “chong My” -- “fighting France” or “fighting America” -- indicating how they died.

Most read “Bao ve to quoc”, or “protecting the fatherland”, an oblique reference to a month-long war that began when China invaded Vietnam on Feb. 17, 1979 to punish Hanoi for toppling the Beijing-backed Khmer Rouge in Cambodia two months earlier.

Thirty years on, the Vietnamese-Chinese border war in which at least 60,000 soldiers were killed is a memory both governments are happy to suppress. But in these tough economic times, Vietnam and China could face new strains to add to their long and often acrimonious history.

Since normalisation in 1991, China and Vietnam have made impressive progress in forging better ties, said Brantly Womack, a China-Vietnam expert at the University of Virginia.

Two-way trade last year grew to $21 billion, for instance.

“China and Vietnam had no more reason to be friendly than Russia and Poland, and Russia and Poland ... are still each others’ worst enemy,” he said.

“With Vietnam and China, they don’t exactly love each other, but they’ve certainly figured out how to get along. It’s been mutually beneficial.”

The fact the engravings in Lang Son do not spell out that the soldiers died “fighting China” illustrates Hanoi’s cautious approach toward Beijing.

For its part, the stability-obsessed Chinese leadership has made a concerted effort in recent years to build constructive ties. But the coming months will be challenging.

Both export-fed economies, dependent on high-speed growth, are facing their sternest test since economic reforms were launched decades ago and the global financial uncertainty raises the potential for heightened tension.

Even in good times, the efforts of Vietnamese and Chinese policymakers to be nice has limits. Both governments claim ownership of the Spratly and Paracel islands in the South China Sea, which are thought to sit on valuable oil and gas deposits.

Hanoi and Beijing have agreed not to upset the status quo, but both are firm in their claims of sovereignty.

In addition, both ruling Communist parties are constrained by the spectre of nationalist unrest if they appear soft on the issue. In 2007, hundreds of Vietnamese youth protested at the Chinese embassy in Hanoi after China reportedly set up a county government responsible for the disputed archipelagos.


Beyond protests and rhetoric, the territorial dispute is a tangible political risk.

Last July, China pressured Exxon Mobil Corp XOM.N to pull out of an oil exploration deal with Vietnam that it saw as a breach of Chinese sovereignty. In May, BP Plc BP.L halted plans to conduct exploration work off the southern Vietnamese coast, citing territorial tensions.

“The biggest problem is the islands,” said Duong Danh Dy, a former Vietnamese diplomat who did three tours in China from the 1960s to the 1990s.

“If the United States’ global position falls, if Japan’s economy weakens further, I fear that China’s position on the South China Sea could harden,” he said. “If things continue as they are now, then bilateral relations will be fine.”

Another worry this year, particularly for Hanoi, is trade.

Vietnam went from a $70 million trade surplus with China in 1997 to a deficit of $9.1 billion in 2007, according to Vietnamese statistics. Two-way trade reached $15.9 billion in 2007 before leaping to $21 billion last year.

“There is a big problem because what Vietnam’s been doing in the last couple of years is running approximately a surplus with the developed countries that equals the deficit it’s been running with China,” said Womack.

“And it’s not going to run that surplus anymore.”

Furthermore, as China’s export markets evaporate, desperate manufacturers will be looking for markets and Vietnam may be an attractive option compared with many of China’s other neighbours.

Lang Son trade official Nguyen Quoc Hai said the Vietnamese government wanted to increase exports rather than try to block Chinese goods from flooding in.

But at the Vietnamese border town of Tan Thanh, three Chinese traders in a market overflowing with Chinese-made rice cookers, DVD players and clothes said it had become harder to get items through the checkpoint.

Still, empty Vietnamese trucks queue to cross over and pick up Chinese goods.

“Border trade is definitely increasing,” one trader said. (Additional reporting by Nguyen Nhat Lam in Hanoi and Ben Blanchard in Beijing; Editing by Dean Yates)