China and India in tussle over Vietnamese oilfield

The exploration of oilfields off Vietnam's coast by India's state energy firm has provoked a stern response by China, opening yet another front in the contest over maritime boundaries in the South China Sea.

India's ONGC is working with PetroVietnam on exploring a block close to the disputed Vietnam-China maritime border. At the time the contract was won, back in 2006, China protested that the area was within its waters. Now, ONGC's return to the area after a pause for technical reasons has resulted in a number of outspoken warnings by China.

The state-run Global Times, a Chinese newspaper, published an editorial accusing India of a “serious political provocation” which could “push China to the limit”. The foreign ministry in Beijing has also said that India's actions were “illegal and invalid”. New Delhi has brushed off the warnings, saying that its actions are in line with international law and that the block is within Vietnamese waters.

The spat is another escalation in tensions between China and its neighbours in the South China Sea, of which it claims a significant area. Vietnam has been a particular focus of Beijing's ire, with a summer marked by tit-for-tat naval drills and mutual recriminations.

They appeared to make up in early September, with an agreement to compromise through friendly consultations, but the rapprochement seems to have fallen apart just as quickly. On 13th September, Hanoi also announced that it would start conducting joint patrols with Indonesia along their mutual border, in a bid to shore up stability in the area.

On 23rd September, the Philippines announced that their efforts to forge a common position among South China Sea states had been successful, with delegates from the Association of Southeast Asian Nations agreeing that the UN Convention on the Law of the Sea should be used to settle regional territorial disputes.

Growing concern at China's claims and gunboat diplomacy is creating an opportunity for India in the region, as the ONGC episode shows. New Delhi is becoming increasingly confident in its dealings with China, and has the potential to begin acting as a counterweight to Beijing for smaller states in the area.

Sources: AFP, Wall Street Journal, Times of India, Global Times

For more news and expert analysis about Vietnam, please see Vietnam Focus.

Vietnam: Inflation, again

The government's continued fight against inflation could be damaged by the latest devaluation. Inflation rose to 12.17 per cent last month, the highest rate since the government brought it under some control after the peak of 2008, when it reached over 24 per cent.

Inflation stood at over 10 per cent for much of 2010, well above the government target of 7 per cent of the year. While the devaluation may reduce Vietnam's reliance on imports, the burgeoning trade deficit could continue to expand. In January alone it reached $1 billion: imports of $7 billion and exports of $6 billion. The government is target¬ing a trade deficit of $14.2 billion for 2011, up from $12.4 billion in 2010.

Vietnam remains very reliant on imports, especially for consumer goods. In 2008, according to United Nations trade data, it imported $5 billion in steel, $1.5 billion in fertilisers, $2.4 billion in telecom equipment (mostly from China), $11 billion in petrol, and $2.7 billion in gold. However, exports continue to be mostly resource based, such as coffee ($2.1 billion), rice ($2.8 billion), and seafood ($3.8 billion), with oil accounting for $10.4 billion.

Continued government support for exports does not inspire much confidence, especially after the general failure of currency devaluations over the last 14 months either to increase exports or to reduce imports.

Dariusz Kowalczyk, Credit Agricole CIB's senior economist, questioned the government's focus: "It seems the authorities are trying to support exports and to support growth rather than to fight inflation. That's very surprising because inflation is a major problem." Well, one of several.

For more news and expert analysis about Vietnam, please see Vietnam Focus.

© 2011 Menas Associates