The Perfect Enemy | Germany hedges against China by building ties with Vietnam
December 1, 2022

Germany hedges against China by building ties with Vietnam

Germany hedges against China by building ties with Vietnam  DW (English)

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German Chancellor Olaf Scholz wrapped up his two-day visit to Vietnam on Monday with an assuring message for the country’s rapidly growing economy.

Scholz said Germany wants to considerably boost trade and investment, while helping Vietnam become a beneficiary as Western firms look to diversify away from China.

Vietnam is one of Southeast Asia’s fastest growing economies, with its GDP forecast to increase by 7.5% this year and 6.7% in 2023, according to the World Bank.

The German chancellor, accompanied by a 12-member business delegation, met with Vietnamese Prime Minister Pham Minh Chinh and Nguyen Phu Trong, the chief of its long-ruling Communist Party.

The visit that began on Sunday makes Scholz the first European leader to visit Vietnam since the COVID-19 pandemic began. He traveled onwards to Singapore before arriving in Indonesia to take part in the G20 summit.

Germany biggest European trade partner

Germany is Vietnam’s largest trading partner among EU states, slightly ahead of the Netherlands. Bilateral trade was worth €7.5 billion ($7.8 million) last year, and trade in the first seven months of the year was around €7 billion, up 18.5% year-on-year, according to Vietnamese government data. An EU free-trade agreement with Vietnam came into force in 2020.

“As the largest trading partner in the EU, Germany plays a significant role in Vietnam’s further economic future. This role is likely to increase in the future, as both sides are strongly interested in further deepening relations,” said Daniel Mueller, regional manager for ASEAN at the German Asia-Pacific Business Association (OAV).

Scholz seeks closer economic ties in Vietnam

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Cooperation deals on energy and vocational training were signed during Scholz’s visit to Hanoi, and analysts reckon that Germany will play an even more important role in Vietnam’s energy and education sectors.

This will likely be accompanied by a considerable transfer of technology and knowledge, essential for Vietnam’s development, Mueller told DW.

During a press conference, Scholz suggested that Germany could also help with developing Hanoi’s metro system, which has stalled for several years.

More than 90% of German companies already operating in Vietnam want to continue their investment in the country, and two-thirds reckon business opportunities will improve over the next 12 months, according to a study published in June by the German Chambers of Commerce Abroad.

Prime Minister Chinh reportedly asked Scholz to press Germany’s Bundestag to complete the ratification of the EU-Vietnam Investment Protection Agreement.

He also appealed for the EU to remove its “yellow card” on the Vietnam’s seafood sector, which has considerably cut exports to the EU over allegations of illegal and unregulated fishing.

“In view of the current attempts by German companies to increase their involvement in Vietnam and, conversely, the attempts by Vietnamese companies to become more active in Germany, this growth trend in trade relations is likely to continue,” said Mueller.

Germany not ‘decoupling’ from China

Scholz attracted much criticism, including from his own coalition partners, for visiting Beijing last week to meet with Chinese president Xi Jinping, the first European leader to do so since the COVID-19 pandemic began.

Many commentators have said Germany risks being overly reliant on China for business ties, similar to how it had been dependent on Russia for energy supplies.

Scholz stressed that his four-day visit to Southeast Asia shows that Berlin accepts the need to diversify trade links, even if he is no fan of “decoupling” from China.

“We are against any decoupling of China in the world economy because we are deeply convinced that globalization has brought a lot of progress,” Scholz said on Monday. “But we have to be clear that globalization also means not to just look to one country.”

Olaf Scholz and Xi Jinping stand in front of flags
Olaf Scholz is the first European leader to meet in person with Xi Jinping since 2020Image: Kay Nietfeld/dpa/picture alliance

A large measure of Vietnam’s economic progress over the past five years has come on the back of Western decoupling from China, amid growing superpower tensions as firms look to avoid tariffs and sanctions on Beijing.

“If Germany wants to capitalize on other markets, such as the US, and wants to access regional supply chains, Vietnam is an attractive place to diversify investment,” said Trinh Nguyen, a senior economist covering Emerging Asia at French corporate and investment bank Natixis.

“Scholz’s visit is rather timely as Germany needs to also diversify not only supply chains, but also expand market access to rapidly growing economies,” she told DW.

Assisting Vietnam on South China Sea

Aside from economic issues, Scholz agreed a new security cooperation agreement with Vietnam, which for decades has been engaged in disputes with Beijing over territory they both claim in the South China Sea.

“Unlike economic collaboration, the German-Vietnamese defense and security cooperation will remain mostly symbolic,” said Alfred Gerstl, an expert on Indo-Pacific international relations at the University of Vienna.

However, he expects more port visits to Vietnam by Germany’s navy. The first German frigate docked in Vietnam in January this year. Berlin’s Indo-Pacific strategy, which was released in 2020, promotes a “rules-based order and freedom of navigation” in the South China Sea, which several European navies have engaged in in recent years.

“In this regard, there is a strong overlap of interests between the two strategic partners,” Gerstl told DW. “German experts could also provide training for the Vietnamese army in the field of peacekeeping or cybersecurity.”

German vice chancellor: ‘We’ve made up our mind about China’

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What are sore spots in diplomatic relations?

Scholz’s is the first visit to Vietnam by a German chancellor for more than a decade. The trip also reaffirmed bilateral diplomatic relations that had soured after 2017 when Vietnamese security agents in Berlin allegedly kidnapped a Communist Party functionary wanted for corruption.

In 2017, the German government expelled two Vietnamese diplomats and branded the kidnapping a “scandalous violation” of its sovereignty, while political relations remained frosty during the final years of former Chancellor Angela Merkel’s tenure. It is not clear if that event was discussed during Scholz’s visit.

Scholz didn’t overlook other sensitive issues, pressing Vietnam’s leaders on their human rights record. Vietnam is one of the most repressive states in Southeast Asia, with an estimated 207 political activists currently in jail and 350 at risk, according to the 88 Project, an NGO that collates such data.

Formerly one of the largest importers of Russian-made military equipment, Vietnam has consistently abstained on UN General Assembly votes that condemn Moscow’s invasion of Ukraine, but Scholz also pressed Hanoi to make its position clear.

“It is a question of the Russian war of aggression being a breach of international law with a dangerous precedent. Small countries can no longer be safe from the behavior of their larger, more powerful neighbors,” Scholz said following his meeting with Chinh.

Edited by: Wesley Rahn