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Hanoi’s Old Guard in Command

Economic reform could stall even as growing ties with the West endure.

The Communist Party of Vietnam reappointed Nguyen Phu Trong to the top post of General Secretary on Wednesday. That means Prime Minister Nguyen Tan Dung, known as an economic reformer and China hawk, will likely retire later this year. Mr. Dung had campaigned for promotion on the basis of his many achievements, and he might have brought a more populist style of leadership. His defeat suggests that the Party’s old guard remains firmly in control.

As premier since 2006, Mr. Dung attracted high levels of foreign investment and oversaw a tripling of GDP per capita to $2,100. He led Vietnam into the U.S.-led Trans-Pacific Partnership (TPP) trade accord and signed a free-trade pact with the European Union, Vietnam’s second-largest trade partner behind China. The economy is growing at 6.6%, a five-year high.

Mr. Dung also channeled public anger over Chinese aggression in the South China Sea. “We do not trade sovereignty and territorial integrity for a quixotic peace and a dependent friendship,” he declared after Beijing planted an oil rig in Vietnamese waters in 2014 and sparked deadly anti-Chinese riots.

But Mr. Dung has made enemies among his party comrades. His economic record, they charge, is marred by cronyism, rising public debt and the expensive collapses of state shipping firms Vinashin and Vinalines. He was also publicly ambitious in a system that prefers consensus and faceless leadership.

Mr. Trong is unlikely to reverse the reform progress of the past five years. He backed Mr. Dung’s key initiatives to diversify Vietnam’s economy and agreed to the legalization of independent labor unions to qualify for TPP.

On foreign policy, Mr. Trong is more conciliatory toward China, and he stayed quiet during the 2014 oil-rig spat. Yet two years earlier he enacted the Law of the Sea of Vietnam despite long-standing Chinese opposition. In July he became the first General Secretary to visit the U.S. and told this newspaper that America’s “pivot” to Asia helps regional stability.

Hedging is Hanoi’s fundamental strategy, and that won’t change. Vietnam is fiercely nationalist but can’t escape its giant neighbor to the north. Chinese aggression at sea threatens freedom of navigation and natural resources and also the credibility of the regime. It was no accident that during the November visit of Chinese leader Xi Jinping, Vietnam also welcomed Japan’s defense minister and invited a Japanese warship to the strategic port of Cam Ranh Bay.

During this week’s congress Hanoi announced plans to host an Indian satellite control center on its territory. Meanwhile, Beijing again moved an oil rig into disputed waters and flew planes through Vietnamese-administered airspace. Such moves help explain why only 19% of Vietnamese view China favorably, compared with 78% for the U.S.

Mr. Trong’s economic agenda may be a hedge, too. Though he isn’t expected to dump the TPP, Hanoi’s old guard could hamper implementation of measures concerning organized labor and fair play between state and private firms. Cadres this week promised private firms “equal access” to credit, land and other resources, but that would require significant structural change. Many officials want to protect state firms, even as they use 50% of public investment and 60% of bank loans to produce merely one-third of GDP.

Mr. Trong’s victory this week is unlikely to threaten Hanoi’s growing trade and security ties with the West, but it could stall progress toward opening the country’s state-dominated economy. Failing to privatize industry and curb patronage risks stalling growth and squandering the advantages of a young workforce. That would make it harder to maintain regime popularity and defend against Chinese bullying.

http://www.wsj.com/articles/hanois-old-guard-in-command-1453940128