Living next to the giant: The political economy of Vietnam’s relations with China under Doi Moi Le Hong Hiep A thesis in fulfilment of the requirements for the degree of Doctor of Philosophy School of Humanities and Social Sciences The University of New South Wales, Canberra December 2014 Table of Contents Acknowledgements ..................................................................................................................... iv List of Tables ............................................................................................................................... vi List of Figures ............................................................................................................................ vii List of Abbreviations ............................................................................................................... viii Chapter 1 : Introduction ............................................................................................................. 1 Research background ........................................................................................................... 1 Literature review .................................................................................................................. 3 Research questions and central hypothesis ........................................................................ 12 Analytical framework, methodology and data ................................................................... 14 Thesis structure .................................................................................................................. 16 Chapter 2 : The Historical Context of Vietnam - China Relations ....................................... 19 Introduction ....................................................................................................................... 19 The hard “Tyranny of Geography” .................................................................................... 20 The soft “Tyranny of Geography” ..................................................................................... 25 Chinese cultural influence on Vietnam ......................................................................... 25 Traditional economic relations .................................................................................... 30 Vietnam’s traditional China strategy and the structure of bilateral relations .................... 37 Conclusion ......................................................................................................................... 42 Chapter 3 : Vietnam’s Doi Moi and its Quest for Normalized Relations with China .......... 44 Introduction ....................................................................................................................... 44 The domestic - foreign policy nexus in Vietnam’s political context ................................. 45 Doi Moi and Vietnam’s foreign policy reform .................................................................. 50 Vietnam's quest for normalization with China .................................................................. 55 Conclusion ......................................................................................................................... 63 Chapter 4 : Overview of Vietnam’s Economic Development and Relations with China under Doi Moi ............................................................................................................................. 65 Introduction ....................................................................................................................... 65 Vietnam’s economic performance under Doi Moi ............................................................ 66 Evolution of Vietnam– China Relations, 1991-2011 ......................................................... 72 Solving territorial disputes ........................................................................................... 72 i Improving political relations ........................................................................................ 74 Strengthening economic ties ......................................................................................... 79 Conclusion ......................................................................................................................... 81 Chapter 5 : The Political Economy Dimensions of Vietnam-China Economic Relations, 1991 – 2013.................................................................................................................................. 82 Introduction ....................................................................................................................... 82 Chinese aid and preferential export buyer’s credits for Vietnam ...................................... 83 Project contracting ............................................................................................................. 89 Bilateral trade .................................................................................................................... 93 Bilateral investment relations .......................................................................................... 103 Conclusion ....................................................................................................................... 108 Chapter 6 : The Economic Determinants of Vietnam’s South China Sea Disputes with China ......................................................................................................................................... 109 Introduction ..................................................................................................................... 109 The South China Sea disputes as a constant irritant in Vietnam- China relations ........... 111 Vietnam’s South China Sea disputes with China: Geo-strategic vs. Economic drivers .. 116 Vietnam’s economic development and implications for South China Sea disputes ........ 119 Oil and gas industry ................................................................................................... 119 Fisheries ..................................................................................................................... 125 The pacifying effects of economic interdependence? ...................................................... 128 Conclusion ....................................................................................................................... 131 Chapter 7 : Vietnam’s Hedging Strategy against China since Normalization ................... 133 Introduction ..................................................................................................................... 133 Hedging strategy: The theoretical framework ................................................................. 134 Hedging as an option in Vietnam’s China strategy ......................................................... 138 Historical experience .................................................................................................. 138 Domestic and bilateral conditions .............................................................................. 139 Changes in Vietnam’s external relations and international strategic environment ... 140 Operationalizing the hedging strategy ............................................................................. 141 Evolving policy foundations ....................................................................................... 141 Economic pragmatism ................................................................................................ 144 Direct engagement ...................................................................................................... 145 Hard balancing ........................................................................................................... 147 ii Soft balancing ............................................................................................................. 152 Conclusion ....................................................................................................................... 156 Chapter 8 : The Prospects of Democratization in Vietnam and China and Implications for Bilateral Relations .................................................................................................................... 159 Introduction ..................................................................................................................... 159 Modernization theory: key tenets and debates ................................................................. 160 Socio-economic developments vs. authoritarian persistence in Vietnam and China ...... 164 Democratization prospects and their implications for bilateral relations ........................ 171 Scenario 1: Authoritarian Vietnam vs. Authoritarian China ..................................... 172 Scenario 2: Democratic China vs. Authoritarian Vietnam ........................................ 174 Scenario 3: Democratic Vietnam vs. Authoritarian China ........................................ 175 Scenario 4: Democratic China vs. Democratic Vietnam ............................................ 177 Conclusion ....................................................................................................................... 179 Chapter 9 : Conclusion ............................................................................................................ 181 The changing structure of Vietnam - China relations .....................................................