Vietnamese firms fear tensions with China could hurt business

Like thousands of other factory owners in Vietnam, Nguyen Van Phuc relies on China for the expertise and raw materials needed to keep his production line humming. But spiking tensions between Hanoi and Beijing over maritime territorial claims are threatening that relationship and his bottom line.

Chinese technicians who were scheduled to upgrade his equipment are too scared to visit after anti-China violence. His Chinese suppliers no longer accept cash on delivery, fearing an even sharper deterioration in relations would leave them without cash, so Phuc must now pay more from a third-party supplier.

"One hundred percent of Vietnamese companies just want to have peace to do their business," he said at his electric cable company in Hanoi.

After recent conflict of patrol ships sent by both sides to the area, deadly anti-China riots broke out in Vietnamese industrial parks last month.

Vietnam's authorities are in a difficult position: They must deliver rising living standards to the country's 90 million people. Good relations with China - Vietnam's largest trading partner, a major source of development funding and an important investor in the textile and power industries - are vital to that.

Some analysts are predicting an economic slowdown as a result of the tensions, even as they recognize that Vietnam's dependence on China means it can't afford to risk a complete breakdown in ties.

Nguyen Duc Thanh, the director of Vietnam's Economic and Policy Research Center, said the current tensions could result in a 1 percentage point drop in GDP growth this year due to delays in infrastructure projects, particularly power plants that are being developed with Chinese expertise.

"China is building a lot of them. I don't think they will totally stop, but they will be delayed. And time is money," he said.

Other China-linked factors that could drag down growth this year include trade being hurt by tougher customs clearance at the land border, fears of greater instability deterring foreign investment, and a drop in Chinese tourists. Visitor arrivals from China totaled 2 million last year, about a quarter of Vietnam's total foreign visitors.

For many companies in Vietnam, there is little alternative but to trade with China, which supplies its factories with products as diverse as components to make smartphones to the fiber that its cheap labor force weaves into sweatshirts and T-shirts for international retailers.

One legacy of the current upheaval may be that companies will diversify their suppliers, said Peter Sorenson, the managing director of a Vietnam-based investment banking firm.

"This could psychologically reinforce the case for a lot of business to find alternative import sources," he said.

(China Daily 06/04/2014 page11)