As maritime disputes simmer, Vietnam counts cost of anti-China riots

Hundreds of Asian factories were attacked in May after popular anger erupted over Chinese oil exploration in disputed waters. Vietnam depends on foreign investment to generate growth and has promised to avoid a repeat.

After anti-Chinese rioters attacked his auto-parts factory in May, Lee Wang-chung and his family had to leave town in a hurry. His factory was one of hundreds in Vietnam engulfed in protests triggered by popular fury at China's positioning of a $1 billion oil rig in a disputed part of the South China Sea. 

A week later, Mr. Lee was back at the factory, repairing its broken windows. He says the local government is supportive, as are his Vietnamese staff. For one thing, he's not even a Chinese citizen: He's Taiwanese.

But to the 20,000-odd rioters who rampaged through an industrial park looking for Chinese script or other symbols, that didn't matter. Most of the 460 affected factories belonged to Taiwanese, Singaporeans, and South Koreans, whose companies have collectively poured billions of dollars into Vietnam's rapid industrialization. 

The question hanging over Vietnam is what happens next time there's a provocation with China, its giant rival. While thousands of Chinese and other Asians fled Vietnam during the protests, investors and analysts say most have since returned after the government promised to ensure their safety. Police have arrested 85 people linked to the protests.

Having pledged to tamp down anti-Chinese violence, Vietnam may now opt for international diplomacy. Earlier this month, 61 members of the ruling Communist Party issued a public call for the government to take legal action against China over its oil rig deployment.  

In the event of another high-seas face-off, Vietnam may appeal to a United Nations tribunal as the Philippines did March 30 over a separate bilateral maritime spat. 

“Another similar China rig incident could well convince Hanoi that it needs to launch its own international tribunal case seeking arbitration over China’s claims,” says Murray Hiebert, senior fellow at the Center for Strategic and International Studies in Washington.

As a deterrent to China, Vietnam is asking the US to lift a longstanding ban on sales of lethal weapons. Japan and Russia have already pledged naval support to Vietnam.

Reliant on foreign capital

At the same time, Vietnam is stepping up policing of industrial parks with foreign-invested factories such as Lee’s, mindful that it depends on foreign capital to grow its $155 billion, export-dependent economy. 

“The government when it feels threatened is able to step in, and one thing they don’t want is insecurity for foreign investment, because they rely heavily on [foreign investment] in this country,” says Ralf Matthaes, owner of In-Focus, a business consultancy in Ho Chi Minh City. 

China has become Vietnam’s seventh largest investor with $2.3 billion in commitments in 2013, up from $345 million in 2012. 

A mainland Chinese manager in a Taiwanese-owned shoe factory near Ho Chi Minh City says most Vietnamese people are friendly. But the mood snapped in May when rioters torched two buildings and looted another at his factory; managers hid in another building until police rescued them. The manager, who declined to be named, returned in August.

“Most people are kind. When you need something you can get it,” the manager says of his two years in Vietnam. “We are interdependent. If one side gets hit, both get hit.” 

The factory has been partly rebuilt, the manager says, and resumed producing shoes for international brands. 

Testy relations

Vietnamese show signs of accepting ethnic Chinese investors from outside the country. (Vietnam has its own ethnic Chinese minority.) Still, Lee says he avoids speaking Chinese when Vietnamese are listening.

“Most of the Vietnamese who I know don’t like China but everyone likes the money China throws at you,” says Michel Tosto, managing director with Viet Capital Securities in Ho Chi Minh City. “Vietnam is trying to play the middle ground.”

How well Vietnamese get along with managers from China may come down to case-by-case factors such as whether the Chinese speak Vietnamese, says Hoang Thu Huyen, country manager with Dezan Shira & Associates in Hanoi. “It depends on both sides, the kind of relationship and background of people." 

Some Vietnamese workers still resent centuries of periodic invasion attempts from China. The two sides fought a bloody border war in 1979.

“[There are] lots of stories about bad tricks and behavior of Chinese people in Vietnam,” says one local worker, who declined to give his name. “I prefer management by other nationalities.”

Since May, factory managers and their contacts in the government have reminded Vietnamese employees that their Taiwanese or other Asian supervisors aren’t from China. 

To stop any further unrest, police have been sent to patrol foreign-owned factories in two industrial zones hit hardest by protesters. In export processing zones, Communist cadre are also scouting for any early signs of new unrest, Mr. Mattheas says.