China and Vietnam strengthen diplomatic ties in response to elevated US-Vietnam relations

President Xi Jinping visits Hanoi to discuss Belt and Road Initiatives and diversify semiconductor and communications supply chains in response to the elevation of US-Vietnam relations to a Comprehensive Strategic Partnership in September.

Vietnam, like Taiwan, is becoming a critical supply hub for both US and Chinese manufacturers, as both states seek to diversify their supply chains, particularly in technology and communications. Vietnam’s increasing importance in supply chains was reflected by the visit of President Xi Jinping to Hanoi 12-13 December – where he met with Vietnamese Prime Minister Pham Minh Chinh.

It was Xi’s first visit to Vietnam in six years and follows President Biden’s visit two-day trip to Hanoi on 10 September, during which US-Vietnam relations were elevated to the Comprehensive Strategic Partnership level – which ranks the US as equivalent to China, Russia, and in recent months, Japan – in Vietnam’s hierarchy of diplomatic relations.

China represents Vietnam’s largest trading partner, but mistrust remains

In response to these strengthened US-Vietnam ties, President Xi made only his third visit to Hanoi since becoming president 10 years ago with the aim of enhancing China-Vietnam relations.

The two countries have a long history of conflict, and Hanoi and Beijing are currently at odds regarding territorial control in the South China Sea. China claims sovereignty over islands and various zones in the sea, such as the Paracel and Spratly Islands, which is hotly disputed by Vietnam, the Philippines, Taiwan, Malaysia, and Brunei.

However, China has long been Vietnam’s largest global trading partner. According to data from China’s General Department of Customs total two-way trade between the two nations was $175.57 billion in 2022 – imports into Vietnam accounting for $117.87 billion, and exports to China reaching $57.7 billion. This compares to the US – Vietnam’s second-largest trading partner – which stood at $123.86 billion total two-way trade in 2022 ($14.47 billion imports from the US, and $109.39 billion in exports from Vietnam).

Agreements over the South China Sea, rail networks, and the digital economy

During the meetings between Beijing and Hanoi, the two states agreed 37 deals covering defense and security, transport connections, the digital economy, IT and telecoms, intellectual property, rail infrastructure, and other areas.

Specifically aimed at reducing some of the tensions in the South China Sea, the two leaders signed Memorandum of Understandings (MOUs) to:

• Perform joint patrols in the Gulf of Tonkin.
• Start joint search and rescue operations at sea.
• Establish hotlines for fishing emergencies.  

Beijing and Hanoi also agreed MOUs to cooperate under China’s Belt and Road Initiative, an Action Plan for 2023-2026 to implement MOUs on trade promotion between Vietnam’s Ministry of Industry and Trade and China’s Yunnan and Guangxi provinces, a MOU on railways cooperation and on funding for cross-border railways.

Cross-border rail links for the sharing of rare earth elements

Several MOUs were agreed regarding digital and communications technologies, which may include cooperation on digital infrastructure such as 5G and undersea optical fiber cables —although full details were not disclosed:

• Investment in the digital economy between Vietnam’s Ministry of Information and Communications and China’s Ministry of Commerce.
• Cooperation in information technology, telecommunications, and digital transformation between Vietnam’s Ministry of Information and Communications and China’s Industry and Information Technology.
• Cooperation on digital communications between Vietnam’s Ministry of Information and Communications and China’s National Radio and Television Administration (NRTA).
• Cooperation in the digital economy and digital database between Vietnam’s Ministry of Information and Communications and China's National Bureau of Statistics.

Notably, following the meeting President Xi emphasized the need to launch cross-border trains between the two countries, the construction of ports, and the building of a “photovoltaic industry cluster” by Chinese companies in Vietnam.

In particular, senior officials in both countries expressed the need for a rail link between Kunming city in the south of China and the northern Vietnamese port of Haiphong, which would cross regions in Vietnam rich in rare earth elements and would accelerate the import of components from China for assembly in Vietnam’s southern supply chain hub, which is where some Chinese manufacturers are already moving their operations.  

The US-Vietnam Comprehensive Strategic Partnership

In comparison, President Biden’s visit to Hanoi in September 2023 included an agreement to convene a US–Vietnam Innovation and Investment Summit with US and Vietnamese industry leaders to discuss priorities for expanding technology cooperation and Vietnamese investments in the US, which included five ambitious initiatives:

• A new Semiconductor Partnership to Support Resilient Semiconductor Supply Chains for US Industry, Consumers, and Workers, which recognizes Vietnam’s potential to play a critical role in building resilient semiconductor supply chains and further promote manufacturing and industry development under the US CHIPS Act.   
• A newly-signed Memorandum of Cooperation on Semiconductor Supply Chains, Workforce and Ecosystem Development to expand the capacity of the semiconductor ecosystem that supports US industry in Vietnam. 
• Under the International Technology Security and Innovation Fund (“ITSI” Fund), the US will partner with Vietnam to further develop Vietnam’s current semiconductor ecosystem, regulatory framework, and workforce and infrastructure needs. 
• The US and Vietnam will launch a Developing Electronics & Leading Technology Advancement Partnerships (DELTA) Network to promote talent cultivation, policy coordination, and efficiencies in the manufacture of electronic components.
• Vietnam-US Science and Technology Agreement for Research to expand a bilateral joint research program through the Vietnam-US Science and Technology Agreement for Research (VUSTAR), which will identify priorities for collaboration in areas such as AI, health and medical science, climate science, biotechnology, and conservation.

Pamir considers that President Xi’s visit to Hanoi was a direct response to the US-Vietnam summit, which saw US-Vietnam relations elevated to a Comprehensive Strategic Partnership – only China, Russia, and Japan (which agreed the same with Hanoi on 27 November) enjoy the same status with Vietnam.

From Vietnam’s perspective, it is having to walk a diplomatic and economic tightrope between the US and China. But, while Vietnam maintains a deep mistrust of China, the latter still represents Hanoi’s largest trading partner. Many observers consider the meeting and agreements between Hanoi and Beijing as largely symbolic.

However, for US companies operating in Vietnam and the surrounding region, it is essential to assess partner supply chains, particularly in semiconductor and communications components, in light of these new agreements.