By Jason Simpkins

In the past decade, the economy of Vietnam has made fantastic strides. Its GDP growth has exceeded 7% in each of the past four years and the government has penciled in growth of 8.5% this year. Deregulation and privatization programs, buoyant exports (helped along by the commodities boom), and rapidly increasing foreign direct investment, have underpinned the nation's vast economic expansion. As a result Vietnam's growth rate has exceeded that of Thailand, Malaysia, Taiwan, South Korea, and even India.

Spurred on by Vietnam's admission to the World Trade Organization, foreign investment jumped by 49% in 2006, with major international companies moving in:

• Intel, which committed $605 million to the building of a factory in the country back in February 2006, is ready to spend $1 billion on a semiconductor test and assembly plant.
• Korea's Posco plans to invest $1.13 billion in new steel plants, and
• Nike is responsible for more than 130,000 Vietnamese jobs.

In fact, FDI commitments rose to $10.2 billion in 2006, well above its 2005 level of $6.2 billion. Disbursement of FDI projects, including contributions of the domestic partner, reached $4.1 billion in 2006, an increase of 24%. In the first four months of 2007, FDI commitments amounted to $3.5 billion, a 55% increase over the same period last year. More than $1.4 billion was disbursed the current period, accounting for a 27% year over year increase.

Portfolio inflows witnessed a sharp increase in 2006 and 2007, attracted by the advancing stock market. As a result of strong economic inflows, foreign exchange reserves have built up rapidly, increasing from $8.6 billion at end of 2005 to $11.5 billion by end of 2006. Reserves are estimated to have risen by an additional $3 billion in the first quarter of 2007.

At the end of 2005, Vietnam's stock market consisted of only 41 listed firms, with a market capitalization of less than a billion dollars or 1.2 percent of the country's GDP. By the end of April 2007, this number had climbed to 193, of which 107 firms were listed on the Ho Chi Minh City Securities Trading Center (HOSTC) and 86 firms were listed in Hanoi (HASTC). A big jump occurred in December 2006 when nearly 100 firms joined the two securities trading centers. While its economy is booming, however, the country has no shortage of challenges to face as it strives to become a legitimate world power.

Human Rights Concerns Hinder American Involvement

Despite its newfound economic success, the country's growth remains hampered by a disappointing human rights record. As it stands now, the Vietnamese government does not tolerate any challenge to its one-party communist rule. Opposition parties, independent media, labor unions, and unsanctioned religious organizations are strictly prohibited. According to the U.S. Department of State, Vietnam is a "country of particular concern," due to its continued and severe violations.

While it insists that those who break the law are the only ones in danger of being jailed, at least eight pro-democracy activists have been arrested and/or sentenced in recent months, including two outspoken human rights lawyers and a dissident Catholic priest who was sentenced to eight years behind bars.

As Deputy Asia Director at Human Rights Watch, Sophie Richardson said in response to the arrests, "Vietnam has now taken its place on the world economic stage, but its human rights record lags far behind. The government's ongoing criminalization of peaceful political dissent and violations of basic human rights threaten to undermine its economic achievements."

Still, the country is determined to earn the respect of the international community. Last month, Nguyen Minh Triet became the first Vietnamese President to visit Washington since the Vietnam War. Leading a delegation of more than a hundred Vietnamese businessman, Triet made an appeal for more U.S. business investment in his flourishing economy.

"We really want the United States to increase its investment in terms of high technology in Vietnam," he said before his visit, "and we want the United States to create favorable conditions for Vietnamese goods in the United States market."

And well they should: Since the U.S. and Vietnam began a bilateral trade agreement in 2001, trade has been booming. It reached nearly $10 billion last year and the way foreign investment has been pouring in, the $10 billion mark will soon be a small dot in the darkest corner of the rearview mirror.

More progress was made last month when a Trade and Investment Framework Agreement, often a precursor to free trade negotiations, was signed, but Triet was also confronted about his government's dubious domestic policies.

"I explained my strong belief that societies are enriched when people are allowed to express themselves freely or worship freely," President Bush said in the Oval Office after a meeting with the Triet.

Triet corroborated the remark by saying the two leaders had a "direct and open exchange of views" on the issue, but that they agreed to disagree. Otherwise he reiterated his desire for the countries to put aside their differences and talk business. "Our approach is that we would increase our dialogue in order to have a better understanding of each other," Triet said through an interpreter. "And we are also determined not to let those differences afflict our overall, larger interest."

Triet has released two of the highly publicized political prisoners, but still has a long way to go before acquiring anymore U.S. confidence. And that confidence becomes increasingly crucial as China, Vietnam's northern neighbor, picks up steam.

The Struggle for Balance in the Far East

Triet was careful to balance his trip to the U.S. with a visit to China the month previous. "The two countries have a common target to build socialism," he said in an interview. "Therefore we want to enhance cooperation in many areas with China. As you know, China is a nation that goes further than Vietnam, so Vietnam wants to learn from China's lessons in development."

However, China and the United States have been finding themselves at odds on an increasingly frequent and increasingly fierce basis. Tempers have flared over human rights violations similar to those alleged against Vietnam, as well as unfair trade practices, the "lessons" Nguyen Minh Triet seems eager to learn.

China is already the target of U.S. trade sanctions and chief economist at investment banking giant Morgan Stanley, Stephen Roach, has recently suggested that more sanctions could come this year. Roach has been summoned to Capitol Hill three times to discuss trade relations with China. A fact to which he has remarked, "This is very rare. It shows me that the American Congress is very serious about taking actions against China," he said.

"The biggest issue facing the world economy that I can see is the trade protectionism that is building up between the United States and China," Roach told China's official news agency Xinhua.

In the latest round of tensions to be sparked between China and the United States, the two countries are exchanging blows over food and drug imports. China has just suspended meat imports from seven U.S. companies including Sanderson Farms, Intervision Foods, Triumph Foods, and Tyson Foods, the world's largest meat processor.

This seems to be a direct response to recent bans on Chinese imports affected in the United States. A number of products either from China or containing Chinese ingredients were blocked or recalled including pet food, toothpaste, and seafood. China has raked congressional nerves with a rash of product safety/health concerns and an ever-increasing trade deficit accelerated by undervalued Chinese currency.

Congressional leaders and some economic experts contend that China's currency, the Yuan, is drastically undervalued, and is being exploited by the Chinese government to an unfair trade advantage. China has amassed an estimated $1.2 trillion in foreign currency reserves, including $420 billion in U.S. Treasury bonds. Announcing a record-setting global trade surplus of $26.9 billion for the month of June re-ignited these allegations and further increased the likelihood of trade sanctions being imposed.

This kind of tension, along with the very real possibility that it will continue to mount, is going to have a tremendous influence on the politics and economy of Vietnam. If relations between the United States and China continue to suffer and conflict ensues Vietnam could find itself between a rock and a hard place. In one corner the world's only remaining superpower and political and economic champion, and in the other an up-and-comer with a population of 1.3 billion and a red-hot economy.

In the future, it may be important for the U.S. to have an ally such as Vietnam in the East. Even if that ally is coveted more for its economic power than its military might. At the very least it would greatly benefit the U.S. to not have another enemy. A country able to keep China from dominating the continent, and help bring balance to the region will be absolutely crucial in the future considering the vast economic expansion China is currently undergoing.

Cause For Concern

Vietnam's relationship with China has been an ongoing cycle of contention and cooperation. It has long struggled to emerge from China's vast shadow, and has often been forced to appease rather than slay the dragon of the north. While close borders and a history of military and political conflict will continue to make it hard for the two countries to thoroughly cement their relationship, things seem to be on the upswing right now, as Vietnam looks for foreign investment.

When Nguyen Minh Triet met with China's President Hu Jintao in May, they addressed previously unresolved border issues and took further steps to ensure future economic ties. Hu expressed appreciation for Vietnam's support of his one-China policy and China's reunification, and Triet responded by acknowledging relations with China as a priority for his nation.

The two leaders also discussed plans for "two corridors and one economic belt," along their shared border, a length of approximately 800 miles. The corridors in question would be Kunming in China's Yunnan Province to the Southwest, and Vietnam's Hai Phong.

Bilateral trade between the nations surpassed $10 billion last year, a milestone not expected to have been reached until 2010. While the U.S. may be on its way to similar figures, China is still the frontrunner, and as America razzes Triet over his hard-line domestic policies, he and Hu Jintao have found a lot of other things to talk about.

A shared ideology and lack of a social conscience, in collusion with the economic ties being strengthened between the two nations, make China and Vietnam a very scary pair. So long as Vietnam is content to live in China's cultural and financial shadow, the United States is going to find it hard to compete for favor. It needs to strike while the iron is hot and make serious economic inroads to the country if it hopes to curtail China's power in the region. Maybe even if that means making an unlikely bedfellow of Nguyen Minh Triet.

Tags: Vietnam