Vietnam Defence and Security Report Q1 2013

The Vietnam Defence and Security Report for Q1 2013 examines the country's strategic position in SouthEast Asia and the wider world. It provides an overview of the contemporary geopolitical challengesfacing the country, and the challenges it may face in the future.

The report examines the trends occurring in the country's current and future defence procurement, and theorder of battle across its armed forces. The intention is to provide a clear and concise discussion of theseissues. The report's general conclusion is that Vietnam faces two main security challenges as it heads into2013: the first is the risk of instability stemming from the economic crisis facing the country; the secondis the risk of conflict with China over territorial disputes in the South China Sea.

Vietnam's economic problems are discussed in the report. As well as posing a domestic securitychallenge, as growth slows and unemployment rises, Hanoi may struggle to fund some of the ambitiousdefence procurement programmes that it has initiated. Procurement activity certainly appears to havetailed off in recent months, perhaps as a consequence of the uncertain economic outlook. Instead, Hanoihas been concentrating on forging new defence industry partnerships, with Italy, Sweden and the UKamong the countries it has been holding discussions with. The prospect of the US ending its armsembargo on Vietnam could also open up an important new avenue of military equipment, although it isquestionable whether Hanoi will be able to afford US equipment while its economy continues to struggle.

The provision of used US equipment is not unrealistic, however.

Tensions between China and ASEAN, and between China and Vietnam specifically, also remainedserious throughout 2012. The prospect of a solution to the problem being found under the auspices ofASEAN are now remote, with members of the group variously adopting pro- or anti-China positions.

Eventually the four South East Asian countries that claim disputed territories in the South China Sea -Brunei, Malaysia, the Philippines and Vietnam - resolved to hold talks in Manila in December, in aninitiative that may prove more fruitful than discussions that involved ASEAN members with no directstake in the South China Sea sovereignty disputes. Energy exploration in disputed areas remains apotential flashpoint issue between China and Vietnam, with PetroVietnam alleging in early Decemberthat Chinese boats had cut cables being laid by one of its survey ships in an area that Hanoi considers tobe its territorial waters. Hanoi also warned China in Q4 against resorting to economic warfare during thecourse of its disputes.

Meanwhile, Hanoi continues to pursue an ambivalent approach to relations in China. On the one hand itsleaders have pursued diplomatic initiatives and publicly stressed the importance of good relations withBeijing. On the other hand, Vietnamese society remains deeply suspicious of China's intentions, and thegovernment has not shied away from taking actions that risk provoking Beijing.

Over the last quarter BMI has revised the following forecasts/views:

The situation in the South China Sea is fully updated to cover the most recent developments.These include Vietnamese accusations in early December that Chinese boats have cut cablesbeing laid by Vietnamese survey ships, in what could be a repeat of an 2011 incident thatseriously damaged relations between Beijing and Hanoi. This followed on from Hanoi's decisionto pass a new Maritime Law codifying its claim to the Paracel and Spratly islands, a move whichangered the Chinese. They retaliated by upgrading the political status of a Chinese town in theParacels, and also by outlining oil exploration plans in what many neutral observers wouldregard as Vietnam's EEZ.

The crisis within ASEAN is also discussed, following the acrimonious ASEAN ForeignMinisters Meeting held in Phnom Penh in July, at which the 10 Association members appeareddivided into pro- and anti-China camps. This state of affairs persisted at a subsequent East AsiaSummit, also in Phnom Penh, at which the Cambodian prime minister that ASEAN had reacheda consensus on South China Sea issues, only for the President of the Philippines to deny thatsuch a consensus existed. Vietnam generally shares Manila's outlook on these issues.Meanwhile, ASEAN attempts to draw up a new Code of Conduct governing behaviour in theSouth China Sea appear to have stalled.

Amid economic uncertainty Vietnam has focused on acquiring new naval platforms fromdomestic shipbuilders, and is seeking foreign partnerships to help develop its indigenous defenceindustry. However, the country's defence budget remains low by regional standards, and there isa risk that Vietnam could fall further behind in terms of defence modernisation if the governmentdoes not implement reforms to stabilise the economy, and then follows this up by investing inthe defence sector.