Germany in the Indo-Pacific (II)

In its competition with China Germany banks on close cooperation with that country's traditional rival Vietnam.

BERLIN/HANOI | | vietnam

BERLIN/HANOI (Own report) - In the competition for influence in the "Indo-Pacific," Germany is intensifying cooperation with Vietnam, China's traditional Asian rival. Forty-five years after the establishment of diplomatic relations between Bonn and Hanoi on September 23, 1975, the German government seeks to enhance the "strategic partnership," Germany has maintained with Vietnam since 2011, in particular the expansion of economic relations. From German companies' perspective, this is beneficial, because, for two decades, Vietnam has become a lucrative low-wage alternative to China in some branches, especially in textile and, increasingly in electronics - albeit with certain limitations. By supporting Hanoi in its South China Sea conflict with Beijing, Berlin aims at strengthening a Southeast Asian counterweight to the People's Republic - just like Washington, which, in addition, is involving Vietnam to a growing extent in joint military exercises.

Strategic Partnership

For nearly two decades, Germany has been seeking to enhance cooperation with Vietnam. Twice in just 18 months - in Mai 2003 and October 2004 - Chancellor Gerhard Schröder visited that Southeast Asian country to intensify political, but above all, economic relations. In October 2011, Schröder's successor, Angela Merkel, arrived in Hanoi to launch a "strategic partnership" with Vietnam, aimed particularly at boosting trade and investments. Economic relations have indeed intensified since. Whereas in 2011 Vietnam had been midrange on the scale of Germany's trade with the ten ASEAN countries,[1] it has closed the gap to the top group. Today it ranks second (€14.0 billion), after Malaysia (trade volume with Germany €14.3 billion in 2019) and ahead of the commercial hub, Singapore (€13.1 billion). However, despite the rapid increase of investments from €435 million (2011) to €966 million (2018), German companies have invested significantly less in Vietnam than in other ASEAN countries, such as Thailand (€4.3 billion), Malaysia (€6.4 billon) or Singapore (€13.3 billion).

A New Low-Wage Location

The reason for the - even though still moderate - increase in German investments in Vietnam is the fact that wages in China have continuously risen over the past decade. The relocation of production into countries with even lower wages has thus become more attractive for western companies - such as the partial relocation of the shoe and textile industry. In 2007, for example, Adidas still produced 50 percent of all its shoes in China, in 2012 it dropped to 30 percent and in 2017 to 19 percent. At the same time, the share of Adidas shoes that were produced in Vietnam rose to 44 percent in 2017, from 31 percent in 2012.[2] Alongside the shoe and textile industries, Hanoi has also succeeded in gradually bringing factories into the country for more complex products, particularly electronics, to be able to advance to high-tech production - similar to what China has already accomplished. With an eye to development, Berlin had been stubbornly pushing for the EU to conclude a free trade agreement with Hanoi, already ten years ago. Following tedious negotiations, the successful agreement went into effect on August 1, 2020.

High-Tech, Research, "Expandable"

Under pressure of the US economic war against China, some companies, which had already been planning relocation from China to lower-wage Vietnam, are accelerating their moves to avoid punitive tariffs. In fact, this relocation - also being promoted by the German government in its "Indo-Pacific Guidelines" [3] ("diversification of supply chains") - nevertheless has its various limits. China is technologically much further developed and disposes of broadly differentiated, extremely flexible high-tech companies, that, in conjunction with the still low wages, constitutes an environment that is unique in the world, one that Vietnam cannot come close to matching.[4] Furthermore, in spite of Berlin's systematic support of scientific cooperation, Vietnam's potential for research and development, according to business circles, is still "expandable;" while China's, on the other hand, is already world leader in some fields. This has resulted in numerous German companies - particularly those in high-tech sectors - holding onto their sites in China. (german-foreign-policy.com reported.[5]) A mass exodus of foreign enterprises from the People's Republic of China, as the media has been alleging,[6] is nowhere to the seen.

War Games against China

Berlin is not only pursuing economic interests in Vietnam, but central political interests as well. Vietnam traditionally sees itself as the Southeast Asian adversary of China and in 1979 fought a ground war with its northern neighbor for several weeks. Again in 1988, a Sino-Vietnamese naval battle was fought in the South China Sea near the Spratly Islands. The conflict over various local islands, sandbars and reefs still persist. According to the Asia Maritime Transparency Initiative at the Center for Strategic and International Studies (CSIS) in Washington, Hanoi has established around 50 outposts in the South China Sea - nearly twice as many as Beijing (27). Some have a military purpose.[7] In this conflict, the United States has taken Hanoi's side against Beijing - and, to intensify pressure on China, has been recently successively reinforcing its military presence in the South China Sea. For years, the US has been seeking to carry out joint maneuvers with Vietnam. Most recently, the Vietnamese Navy participated in the US Rim of the Pacific (RIMPAC) maneuver 2018 and in 2019, in an exercise with the USA and the ASEAN countries.[8] Vietnam, as well as the Bundeswehr had planned to participate in RIMPAC 2020, which, due to the pandemic, had to be canceled.

Counterweight to Beijing

The German government is also supportive of Vietnam in its conflict with China in the South China Sea - however until now using its political-diplomatic means. Berlin is thereby increasingly offering itself as an alternative to the United States. The overwhelming majority of the ASEAN countries are avoiding taking sides in the conflict between the USA and China. Economically, they are long since dependent on cooperation with the People's Republic. Simultaneously, they seek, by all means, to avoid an open conflict with the United States. For them, a regional war would be a catastrophy. Just recently Malaysia's Foreign Minister Hishammuddin Hussein, called on the ASEAN states to remain "united as a block, when confronted by the major powers," to assert themselves.[9] Whereas Washington is escalating the conflict against their will, Berlin is offering the ASEAN members support for their alliance. Therefore, according to the "Indo-Pacific Guidelines" the objective is to "expand cooperation with ASEAN institutions and continue supporting the ASEAN administrative office," "expand the development-policy cooperation with ASEAN," "strengthen the EU's role as an ASEAN partner," and "promptly" upgrade relations to a "strategic partnership."[10] The aim is the long-range transformation of ASEAN into a regional counterweight to China - with close ties to the EU.

 

[1] ASEAN member states include Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

[2] Adidas Sees Ongoing Sourcing Shift from China to Vietnam. businessoffashion.com 09.05.2020.

[3] Leitlinien zum Indo-Pazifik. Berlin, August 2020. See also Deutschland im Indo-Pazifik (I).

[4] Niharika Mandhana: Manufacturers Want to Quit China for Vietnam. They're Finding It Impossible. wsj.com 21.08.2019.

[5] See also Business Rather than Decoupling.

[6] Christoph Hein: Wem gehört die Welt nach Corona? Frankfurter Allgemeine Zeitung 02.05.2020.

[7] Occupation and island building. amti.csis.org.

[8] Jesse Johnson: First U.S.-ASEAN joint maritime drills kick off as Washington beefs up presence in South China Sea. japantimes.co.jp 02.09.2019.

[9] Bhavan Jaipragas: South China Sea: avoid siding with US or China, Malaysia urges Asean. scmp.com 05.08.2020.

[10] Leitlinien zum Indo-Pazifik. Berlin, August 2020. See also Deutschland im Indo-Pazifik (I).