Vietnam tensions: What’s happening in the South China Sea?

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Oct. 30 2019, Updated 10:45 a.m. ET

Sino-Vietnamese relations

China happened to be Vietnam’s largest trade partner in 2013, with its total turnover reaching $50.21 billion—up 22% growth over the previous year, according to statistics from Vietnam Customs. In 2013, imports from China accounted for 28% of Vietnam’s total import value, while exports to China accounted for only 10% of total export value. So Vietnam’s trade deficit with China for 2013 stood at around $23.7 billion, an increase of 44.5% compared to 2012.

 

Moreover, the bilateral trade turnover between China and Vietnam is expected to reach $60 billion by 2015.

Considering this backdrop, the recent tensions over the South China Sea only add to the trade deficit burden that China has already put on Vietnam’s economy.

Tensions

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The tensions began on May 1, when the state-owned China National Offshore Oil Corporation deployed an oil rig on a patch of disputed territory 150 miles from Vietnam’s coast. While China claims that the rig has been placed within its own territory in the Paracel Islands, Vietnam claims that the Haiyang Shiyou-981 oil rig has been placed in its resource-rich exclusive economic zone.

Soon after, China sent ships to Vietnam to rescue Chinese workers after protests and riots against China’s plan to set up an oil rig in disputed waters near Vietnam’s shore. The 80-vessel Chinese flotilla on the disputed waters has certainly ignited anti-Chinese protests in Vietnam. The rising tensions have, consequently, raised doubts in the minds of investors who wanted to invest in the economy.

Rising tensions in the area already reflect in the volatility of the performance of exchange-traded funds (or ETFs) like the iShares FTSE/Xinhua China 25 Index Fund (FXI), which is the largest ETF in the Asian-stock category and which tracks an index of the 25 largest and most liquid Chinese companies, as well as the VanEck Vectors Vietnam ETF (VNM), which has exposure to publicly traded companies in Vietnam that generate at least 50% of their revenues from Vietnam. Emerging market ETFs like the iShares MSCI Emerging Markets ETF (EEM) are also popular in the emerging markets category.

The next part of this series elaborates on why growth in Southeast Asia may see a dip, considering the rising geopolitical tensions.

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