- Shankar Ananth
A state on the road to the free market.
When watching the movie "Barbie," probably none of you could have guessed that it would cause a geopolitical scandal in one place in the world.
That place turned out to be Vietnam, where the movie was pulled from movie theatres after authorities accused the filmmakers of showing a map that allegedly included Chinese territorial claims along the "nine-dash" line. Although the “Barbie ban” is a fairly trivial matter, and let's agree quite a stretch, the very location of Vietnam and its balancing act between China and the United States is not a trivial matter at all.
Vietnam, has for most of its modern history, been known for the wrong reasons. Be it the turbulent French colonial rule, the tragic Vietnam war, or the bloody Cambodian-Vietnam war.
But today’s Vietnam is arguably is a very different place economically, culturally and politically, and commands a varied view than one held thus far. Vietnam is increasingly being viewed as an Asian growth engine, an exotic tourist destination and an important geostrategic player, all in one. At a time when all of Europe, and countries like Japan or South Korea are struggling demographically, Vietnam's population has just passed the 100 million mark, which would make it the largest country in Europe by population and place it among the top 15 largest countries in the world in this category. At a time when the populations of countries around the world are shrinking and aging, crossing this threshold is extremely important.
But Vietnam is much more than its large population. A growing economy, strategic location, and the aforementioned demographics make this Southeast Asian country a party that could tip the scales in the larger power play. Again
History – Early to modern
Vietnam’s destiny has been deeply influenced by its assertive neighbour up north for a long time. China’s conquest of Vietnam, especially during the Han dynasty, counterintuitively helped shape Vietnam’s national identity. From 111 BC to 939 AD. Vietnam was ruled by the Chinese. They were drawn here by the fertility of the land, which largely consists of the Mekong and Red River deltas, rich in precious metals, pearls and other valuable raw materials. Alongside economic gains was the intent to Sinicize the Viet culture. Local customs were suppressed, Chinese rituals were imported and enforced, and Daoist and Confucian teachings pushed.
As is often the case, rebellions broke out, with the first one in 40 CE. A wave of nationalism ensued. But centuries of Chinese rule wasn’t going to be quelled by one rebellion. Vietnam finally broke out from Chinese rule in 939 AD, in what could be described as the first period of independence. In the early 11th century, Vietnam unified under the Ly dynasty, making considerable economic, political and cultural strides. The empire became known as Dai Viet, replacing the Chinese name, Annam.
But subsequent wars with neighbouring empires, including the Champa, the Khmer, and more importantly the marauding Mongols coming in from China, left a severe dent on Dai Vet’s resources, paving way for China’s Ming dynasty to invade in 1407 again, leading to repeated Sinicizing efforts.
A few rebellions later, the country was regained – its second period of independence – under the Later Le dynasty. The rulers pursued a policy of territorial expansion, and eventually Vietnam reached its present day size by 1757.
Yet, in counterpoint to waning China, Europe's might was growing. European entrance into Vietnam is usually associated with the arrival of the French. But French incursion into Vietnam in 1857 was not a one-off incident. In fact, it was the result of a long effort by Europeans to first establish religious, cultural, and economic relations with the East, and only later to gradually subjugate these territories on the basis of civilisational, and technological superiority.
Napoleon III’s France, with its military might and a trade-based agenda, finally riled up enough willpower to increase the French share of Asian territories in the ongoing colonial escalation. By 1887, the French had annexed Laos and parts of Cambodia as well, and decided to call this new region the ‘Indochinese Union’.
Akin to Britain’s colonial rule of India, the French rule benefitted mostly people back home. The French ensured mild improvements to keep the population from any uprisings, developing a thin, elite layer of Vietnamese society to keep the masses in check. In short, the colonialism did what it was supposed to – make the masters rich at the expense of the local people. But this also led to a rise in nationalist sentiments, coupled with the rise of one of the most significant figures in Vietnamese, and world history.
Ho Chi Minh and Independence
Nguyen Ai Quoc, much better known by his pseudonym Ho Chi Minh, appeared on the national scene as a revolutionary in 1925, founding the Revolutionary Youth League of Vietnam, a precursor to the Indochinese Communist Party. He had spent substantial time in France, Russia and China as a part of the international communist movement, and used that experience to make his movement the most successful of all the clandestine movements at that time in Vietnam.
Independence beckoned the distraught nation by the end of the second world war in 1945. Ho’s forces had consolidated Northern Vietnamese coalition, known as the Viet Minh, while the French were struggling to maintain influence in the south, with the aid of British occupation forces. By 1946, there were effectively 2 Vietnams – the Communist North and the non-communist South.
While negotiations trudged on, Viet Minh’s intentions, effectively the total independence for Vietnam – remained a barrier. The French attacked in November 1946, and the first Indochina war started. The North, aided by the new Chinese communist government after 1949, appeared more successful of the two sides. A ceasefire was reached at an international conference in Geneva in 1954.
Vietnam War and the U.S.
The second Indochina War, or the infamous Vietnam war, starting in 1955, pitted Northern, communist Vietnam once more against the Southern non-communist Vietnam. One of the bloodiest, most fiercely fought battles of the 20th century, the Vietnam war spanned 20 years, culminating with the fall of Saigon, or today’s Ho Chi Minh city, South Vietnam’s capital. The significance of the war, however, remains the US involvement, and the view of this war in the broader content of the cold war.
The US initially supported Saigon with military equipment, financial aid and strategic advice, with the objective of preventing further spread of communism. But that changed when the US realized that it was not enough to halt the North’s advances. In 1965, President Lyndon Johnson ordered bombing of North Vietnam, and four weeks later, sent troops to the South. By early 1968, over half a million American troops were in Vietnam, fighting alongside South Vietnamese soldiers.
The war continued under the next US President Nixon, amidst mounting public opposition. The Vietnam war was perhaps the first time in modern history when a global power was pressured by its own people to end the war.
North Vietnam’s guerrilla tactics, a protracted and seemingly endless war, along with a shaky moral ground resulted in US defeat in April 1975. North Vietnam’s forces successfully entered Saigon in triumph, reuniting Vietnam. 46 years later, under similar circumstances of American retreat, Afghan authorities in Kabul collapsed, giving way to the rule of the Taliban.
Vietnam and its relevance
The Socialist Republic of Vietnam, proclaimed in 1975, was a victory for the communist side of the cold war. But it didn’t mean an instantly better life for Vietnamese citizens. In fact, till 1990, it was one of the poorest countries in the world.
But why did the Americans, the Soviets, or earlier, for years, the Chinese, fought to maintain influence in Vietnam?
Vietnam's swan-like shape is one of the most unique in the world. Narrow by as much as 50 km, but more than 1,600 km long, it is somewhat reminiscent of Chile. Vietnam's 3,400 km of coastline, stretching along one of the world's most important sea basins - the South China Sea - accounts for the extraordinary importance of Vietnam's location. Add to this the delta of one of the world's largest rivers, the Mekong, which spills into southern Vietnam, and the Red River in the north, and you get a country with an extremely favorable geography - historically, and currently.
In other words, Vietnam's geography has always favoured settlement in the region and provided an important motive for outside interference.
Great location, natural demographic dividend, economic growth - all these factors intertwine. So if managed well, and given enough peacetime without the interference of outside powers, Vietnam is somehow destined to grow. Although the last several decades or so show that it is very difficult for all three to come out at the same time.
But now that corporate giants are beginning to look around for alternatives due to rising wages and global skepticism about China, the search has begun for countries with a large, cheap-to-train labor force, suitable conditions, and lower wages. Two names emerged—India and Vietnam.
Similar to India, Vietnam has fallen into a fortunate population dividend. About 21% of Vietnam’s population are aged between 10-24 years old, a demographic dividend expected to be available to Vietnam till 2039. As a result, Vietnam has gradually started taking centre stage as western and eastern manufacturing firms start realizing benefits of this dividend and shift their supply chains, partially or wholly, to the emerging South East Asian nation.
Vietnam’s economy
Vietnam normalized its relations with the US in 1994, turning the page on a murderous chapter of history. From an era where the communist leadership in Vietnam would scoff at the capitalist western countries, to a time when Vietnam is pushing the US to recognize it as a ‘market economy’, the narrative has definitely changed direction.
There are two words that best describe this economic turnaround: Doi Moi’.
Doi Moi is the communist party of Vietnam’s claim to economic fame. As Vietnam went from a per capita income of $422 in 1986, to a more respectable $4500 in 2024. And it was Doi Moi, which freely translated means "renovation," that contributed the most. It was a set of free-market reforms that took place in 1986 with the objective of economic growth. It is impossible not to draw parallels between this and Deng Xiaoping’s free-market reforms that happened in China in 1979.
Even though the reforms formally begun in 1986, Vietnam had already been drifting towards a free market starting in 1960s, making it a bottom-up development. In 1979, state-owned enterprises were allowed to keep the surplus after meeting state quotas, allowing legal sales of these excesses. Gradual reforms followed in the years to come, with the state finally passing the Enterprise Law in 1999. As a result, Vietnam went from less than 50,000 small and medium scale enterprises to more than 150,000 such enterprises in 2002. While in 1986 private companies contributed virtually nothing to the economy, in 2025 they are expected to be responsible for generating more than half of GDP. Already in 2020, the private sector employed more than 80% of the population. In short, Communism ‘Vietnam style’
Geostrategic play of Vietnam
All three of these factors - geography, economy, and demographics - are putting Vietnam back on the radar screen of the world's biggest powers, particularly China and the United States. The authorities in Vietnam are coming to the conclusion that they cannot afford to abandon relations with one of these countries at the expense of the other. To achieve its status as a highly developed country, Vietnam needs good relations, trade and infrastructure projects with its powerful neighbour to the north, but to avoid being completely dominated, it needs the power of the United States, which is no less a technological superpower. While the aforementioned process of foreign companies leaving China for other countries in the region puts a premium on Vietnam. Joe Biden's recent visit to the country in September signaled the country's growing importance in the eyes of the world's greatest superpower and elevated bilateral relations to the level of a "comprehensive strategic partnership”.
Biden's visit was quickly reciprocated by Beijing. Xi Jinping visited Hanoi in December, and the two sides agreed to deepen cooperation and railway connectivity. Specifically, the upgrade of the Kunming-Haiphong link, which is part of the Pan-Asian network.
As Australia's Lowy Institute notes: "Known for its “bamboo diplomacy” – a flexible yet deeply rooted approach – Vietnam’s strategy underscores the nuanced complexities of Southeast Asian geopolitics. Amid the global rivalry for control of critical supply chains, Vietnam’s role becomes increasingly pivotal.”
While neither China nor the United States are the largest investors in Vietnam - the top three are held by Singapore, South Korea, and Japan - a certain balance of dependence is evident in export and import figures. China is the direction from which Hanoi imports by far the most goods, accounting for nearly 40% of the value of imports. The United States is a distant second with 3%. When it comes to exports, however, the situation is reversed. The United States is by far the largest destination, with nearly 30%, while China buys half as much, nearly 15%.
This peculiar struggle for influence in Vietnam is unlikely to diminish, especially since the country has the world's second largest reserves of rare earths after China. Estimated at 22 million megatons, its reserves are "only" half the size of China's and ten times those of the United States! According to Reuters, manufacturers of neodymium magnets, for example, which are used in the automotive industry, are already opening factories in Vietnam.
Hanoi thus faces an age-old dilemma. Close cooperation with a modernizing China opens up great development opportunities, but failure to maintain a proper "buffer zone" with the Middle Kingdom can lead to dangerous dependence on Beijing. The counterweight to China's position must be the United States and its allies in the region - including Japan or South Korea. The multilateral formats in which Vietnam is affiliated are also meaningful. The most important of these is ASEAN, which Vietnam joined in 1995.
This is all the more true as modern China and Vietnam have major points of contention. These include territorial conflicts, which led to the 1979 war, most importantly, maritime disputes. The most important of these are the Paracel Islands, the Spartly Islands, and the boundaries of exclusive economic zones, which determine which country has the right to exploit concurrent maritime areas.
Thus the South China Sea remains one of the most sensitive issues in Sino-Vietnamese relations today.
In all this puzzle, it is important to remember that Vietnam is still a one-party communist state since the time of Ho Chi Minh took power, with the ruling party being the Communist Party of Vietnam. So it is almost a twin system to China's, where the party centrally controls the direction of the state, but since the 1980s and Doi Moi it has opened up to capitalism.
Future direction
The IMF estimates Vietnam's economy at $480 billion, which shows that it is still a largely poor and underdeveloped country. Remember, this is an amount spread over 100 million people at a time when even Austria, with a population of 9 million, has an economy of 70 billion larger. Per capita, it is barely $4,500, less than the per capita wealth of Belarus, Mongolia, or Libya.
But an era of Sino-American rivalry, a demographic dividend, and a perennially favourable geographic location that places Vietnam at the centre of the now-forming centre of gravity of the global economy means that the country has a bright future.
However, economic growth is not granted for free. Circumstances favour Vietnam, but for the country to grow prosperous and increase its importance on the international stage, it will require good decisions by policy-makers in Hanoi and skillful maneuvering between an enlightening but dangerously assertive China and a distant but eager to keep the region under control United States.
Still, not everything is in the hands of the Vietnamese. In the event of a hot war between the United States and the People's Republic of China, Vietnamese territory will become inalienably important, and the authorities in Hanoi may have to choose sides. And again it would not be the first time that Vietnamese soil has been the scene of superpower rivalry.
Sources:
1. https://gfmag.com/news/vietnam-population-hits-100-million/
2. https://www.britannica.com/topic/history-of-Vietnam
3. https://thediplomat.com/2017/05/can-vietnam-maintain-its-economic-success/
4. https://vietnam.unfpa.org/en/news/information-for-media-viet-nams-population-reach-100-million-2023#
5. https://www.dw.com/en/vietnam-pushes-us-to-grant-it-market-economy-status/a-68177059
6. https://thediplomat.com/2023/01/the-myth-of-doi-moi-in-vietnam/
7. https://www.ft.com/content/40296506-5574-4870-9e97-68c7c15ab550
8. https://www.theguardian.com/us-news/2023/sep/12/china-concerns-drive-historic-upgrade-in-us-vietnam-relations
9. https://carnegieendowment.org/2020/09/30/rough-waters-ahead-for-vietnam-china-relations-pub-82826
