Bloomberg News

Vietnam Says China Must Avoid Trade Weapon in Maritime Spat

December 03, 2012

Oil Riches Beckon in Disputed Waters

An oil platform is shown in the South China Sea. Photographer: Ding Jianzhou/Imaginechina via Bloomberg

Vietnam said China should avoid using trade as a weapon in maritime disagreements after diplomatic tensions led to a slump in exports from Japan when Chinese consumers boycotted the goods of its Asian neighbor.

“Economic force should not be applied in the case of settlement of territorial disputes,” which should be addressed through international law, Deputy Foreign Minister Pham Quang Vinh said in a Nov. 28 interview in Hanoi. He said he had “observed” Japan’s conflict with China. Japan reported last month that its exports to China tumbled 12 percent.

China’s emergence as the largest export destination for markets from Japan to South Korea offers it a potential lever as frictions escalate over such claims as the Diaoyu, or Senkaku, islands in the East China Sea and the Spratlys in the South China Sea, which are estimated to hold energy reserves. Vietnamese officials plan to meet Dec. 12 with Southeast Asian counterparts to discuss ways of addressing conflicts with China.

Vinh said his nation was open to exploiting jointly oil and gas in areas that Vietnam claims and that lie outside its exclusive economic zone. He said it “cannot accept” any move by China National Offshore Oil Corp., China’s biggest offshore oil and gas producer, to tap resources in areas with rival claims. An exclusive economic zone refers to an area of sovereignty stretching 200 nautical miles from a country’s coastal baseline, according to the United Nations Convention on the Law of the Sea.

Passport Flap

Asked about a new Chinese passport that includes a map asserting sovereignty over regions under contention, Vinh said that Vietnam has issued separate visas for Chinese citizens with such documents, rather than stamp them directly, averting the risk of implying recognition of China’s claims.

“That’s not a long-term solution,” Vinh, who has served at the ministry for 32 years and oversees Southeast Asian affairs, said in the interview. “The long-term solution is to not recognize that nine-dotted line” in the passport, he said, referring to the boundary China uses to mark its territorial claims in the South China Sea.

China’s neighbors have rejected its map of the South China Sea, one of the world’s busiest sea corridors. To the north, a move by Japan to tighten its hold on the Senkaku Islands region earlier this year sparked a Chinese consumer backlash that saw the biggest slide in Toyota Motor Corp.’s (7203) production in the country in at least a decade. Honda Motor Co. (7267) and Nissan Motor Co. (7201) cut their full-year profit forecasts by a fifth.

‘Acutely Aware’

“The Vietnamese are acutely aware of the potential for China to adversely affect Vietnam’s economy,” said Jonathan London, assistant professor at the City University of Hong Kong’s Department of Asian and International Studies. Vietnam and the Philippines are “busily forming a smaller group of like-minded countries in Southeast Asia -- whether or not that can be paired with the U.S. Pacific pivot and Japan’s increasing wariness of Chinese expansion remains to be seen.”

China was Vietnam’s largest economic partner in 2011, with bilateral trade totaling $36 billion, excluding figures for Hong Kong, according to preliminary data from Vietnam’s General Statistics Office -- an increase from $27 billion a year earlier.

Vietnam’s economy is set to grow at its slowest pace in 13 years in 2012 after policy makers tightened credit to stem inflation. Gross domestic product may rise 5.5 percent in 2013, little changed from this year, Prime Minister Nguyen Tan Dung indicated in a Nov. 28 interview.

India Unconcerned

Not all China’s neighbors share Vietnam’s concern at China using commerce as a foreign-policy tool. Indian Foreign Minister Salman Khurshid said Chinese use of economic power to push its goals in Asia was acceptable as long as it didn’t break laws.

“Don’t we all use our economic muscle?” Khurshid said in an interview in his office in New Delhi on Nov. 30. “What is economic muscle for if not to use it to create an advantage for your people? So long as it’s not illegitimate, so long as it doesn’t violate principles of international law.”

Exploration for oil and gas resources in the disputed waters have led to clashes. Last year, Chinese ships cut the cables of a survey vessel doing work for Vietnam. Earlier this year, a conflict over fishing rights near a reef known as Scarborough Shoal in the Philippines and Huangyan Island in China turned into a monthlong standoff as both countries dispatched ships to the region.

Energy Reserves

China accounted for 71 percent of global energy consumption growth in 2011, according to BP Plc (BP/)’s 2012 Statistical Review of World Energy.

Brent crude oil prices surged from about $24 a barrel at the turn of the century to a record high of $147.50 a barrel in 2008, as rapid economic growth in China helped fuel energy demand. Brent oil for January settlement advanced 29 cents to $111.55 on the London-based ICE Futures Europe exchange as of 2:09 p.m. Singapore time.

The South China Sea may hold 213 billion barrels of oil, or 80 percent of Saudi Arabia’s reserves, according to Chinese studies cited in 2008 by the U.S. Energy Information Administration. China, the world’s second-largest economy, claims “indisputable sovereignty” over most of the sea, including blocks off Vietnam that Exxon Mobil Corp. (XOM:US) and Russia’s Gazprom OAO (GAZP) are exploring.

China’s government last week reaffirmed its commitment to freedom of navigation in the South China Sea after Philippine President Benigno Aquino called for it to clarify a report that police would start interdicting ships in disputed waters.

American Presence

“China attaches importance to freedom of navigation in the South China Sea and at the moment there’s no problem in this regard,” Foreign Ministry spokesman Hong Lei said on Nov. 30, adding that issues should be resolved through “friendly” consultations. The official Xinhua news agency reported on Nov. 27 that authorities in Hainan Island province empowered police to seize and expel ships that illegally enter its waters.

China’s emergence as an economic and military power has prompted the U.S. to increase its presence in the Asia-Pacific region, working with countries that express anxiety about the prospect of Chinese dominance. A delegation of Vietnamese officials visited the U.S. aircraft carrier George Washington as it passed through international waters near the Southeast Asian nation in October, Vietnam News reported Oct. 22.

Secretary of State Hillary Clinton last week backed efforts by Southeast Asian countries to push for a code of conduct with China in the waters.

“You can’t, in the 21st century, permit anyone’s claims to territory that creates instability, tensions and potentially conflict to be unanswered if you’re going to try to maintain peace and security,” she said at a forum in Washington Nov. 29, referring to China.

Vietnamese Port

Vietnam will make Cam Ranh Bay port, a former military hub for U.S. forces during the war with Vietnam, available to vessels from all countries, Deputy Minister Vinh said. So far, only non-combat ships can be docked there, a U.S. defense official told Bloomberg News in June. Defense Secretary Leon Panetta stopped at Cam Ranh Bay in June, becoming the highest- ranking American official to visit it since the war.

“We will build Cam Ranh port into a technical and logistics services port,” Vinh said. “It will serve certainly first the Vietnamese. But the policy of the government of Vietnam is” to make the facilities available to “all other countries also, if they so need the services and logistics,” he said.

The deputy foreign minister said “The management of territorial disputes -- and not to have those disputes escalate into tensions and conflicts in the region -- will be very important, not just for the countries concerned, but for the whole world.”

To contact Bloomberg News staff for this story: Nick Heath in Hanoi at nheath2@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net


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