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WASHINGTON – Vietnam is well-positioned to draw U.S. investors seeking to de-risk supply chains now in China, but closer economic integration between Hanoi and Washington appears unlikely to lead to political realignment, according to experts.

Addressing local media in Hanoi during a recent visit, U.S. Treasury Secretary Janet Yellen hailed Vietnam as “a key partner” in the effort to reduce dependence on China by expanding manufacturing in the U.S. and with trusted partners.

“Vietnam welcomes the U.S. ‘friendshoring,’ which is beneficial to both countries and contributes to Vietnam’s growth,” Le Dang Doanh, an economist in Hanoi who served as an adviser to the late Prime Minister Vo Van Kiet, told VOA Vietnamese in a phone interview.

Friendshoring is the practice of focusing supply chain networks in countries regarded as political and economic allies.

Carl Thayer, emeritus professor with the University of New South Wales in Australia, said closer economic integration between Vietnam and the U.S. will not lead to Hanoi realigning with Washington against Beijing, he wrote to VOA in an email.

“Vietnam and the United States already have a substantial economic relationship. The further development of this relationship will be based on mutual benefit,” he said. “China is more concerned about Vietnam’s potential security and defense relations with the United States than it is with their bilateral economic relations.”

Beijing, however, is “extremely sensitive to any U.S.-Vietnam economic relationship that undermines China’s interests,” he said, stressing “neither Beijing or Hanoi view economic relations as a zero-sum game.”

Doanh said he has seen a shift of foreign direct investment (FDI) flows from China to Vietnam, especially since trade tensions began increasing between the U.S. and China during the Trump administration. A bilateral trade agreement that came into effect in 2001 facilitated Vietnamese exporting to the U.S., he said.

Vietnam “has no ambition” of attracting U.S. businesses to completely relocate from China given that “they are already well-entrenched there after many years of investment with billions of dollars,” Doanh said.

“Vietnam just expects them to shift parts of their production, which makes it more convenient to export to the U.S.,” he said. “Vietnam continues to attract FDI to match its advantages like cheap, young and productive labor.”

Hanoi, fearing possible retaliation from China, may want to keep Washington at a remove.

“Given the intensifying China-U.S. competition and proximity between China and Vietnam, Hanoi may feel reluctant to formally upgrade its comprehensive partnership with Washington,” said Bich Tran, adjunct fellow at Washington’s Center for Strategic and International Studies, told Reuters in March.

VOA Vietnamese contacted the Vietnamese Ministry of Planning and Investment to seek comments on what Vietnam will do to attract more investment from the U.S. but has yet to receive a response.

Bui Kien Thanh, an economist in Ho Chi Minh City, said Vietnam’s geographic location would give it a competitive edge in any regional competition for U.S. friendshoring.

“As a neighbor of China, Vietnam is a convenient destination for companies seeking to relocate from China,” Thanh told VOA Vietnamese over the phone.

“What’s more, Vietnam is located at the heart of the most populous and the most economically dynamic region of the world, between Northeast and South Asia,” he said.

Estimates of how much of the world’s trade passes through the South China Sea near Vietnam range from about 20% to 30%.

The U.S. currently ranks second to China in terms of value of bilateral trade with Vietnam, which topped almost $139 billion in 2022. And the U.S. is the largest export market for Vietnamese-made textiles, footwear and electronics.

Thanh said Hanoi “is well-disposed to Washington” and “very welcoming to U.S. businesses.” The two countries marked 10 years since the establishment of a Comprehensive Partnership this year.

In her Hanoi speech on July 21, Yellen cited green energy and semiconductor manufacturing as potential sectors for Vietnam to join the global supply chain. In 2021, Amkor, the Arizona-based provider of semiconductor packaging and test services, announced plans to build a smart factory in the northern Bac Ninh Province. Intel has its largest assembly and testing facility in Ho Chi Minh City, Vietnam’s largest city.

Thanh said that Vietnam “cannot develop its own semiconductor industry without U.S. help,” adding, “If Intel can open its largest facility in Vietnam, other American chip makers can make it too.”
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The U.S. Federal Reserve raised a key interest rate by a quarter of a percentage point on Wednesday, citing still-elevated inflation as a rationale for what is now the highest U.S. central bank policy rate since 2007.

The hike, the Fed’s 11th in its last 12 meetings, set the federal funds rate – the benchmark rate on overnight loans that banks charge each other – in the 5.25%-5.50% range. That level was last seen just prior to the 2007 housing market crash, and it has not been consistently exceeded on an effective basis for about 22 years.

“The [Federal Open Market] Committee will continue to assess additional information and its implications for monetary policy,” the Fed said in language that was little changed from its June statement and left the central bank’s policy options open as it searches for a stopping point to the current tightening cycle.

As it stated in June, the Fed said it would watch incoming data and study the impact of its rate hikes on the economy “in determining the extent of additional policy firming that may be appropriate” to reach its 2% inflation target.

Though inflation data since the Fed’s June 13-14 meeting has been weaker than expected, policymakers have been reluctant to alter their hawkish stance until there is more progress in reducing price pressures.

Fed Chair Jerome Powell said any future policy decisions would be made on a meeting-by-meeting basis, and that in the current environment officials could provide only limited guidance about what’s next for monetary policy.

But he didn’t rule out action if it was deemed necessary.

“It is certainly possible that we would raise the funds rate again at the September meeting if the data warranted, and I would also say it’s possible that we would choose to hold steady at that meeting” if that was the right policy call, Powell said in a press conference after the release of the policy statement.

But Powell cautioned against expecting any near-term easing in rates. “We’ll be comfortable cutting rates when we’re comfortable cutting rates, and that won’t be this year,” Powell said.

Yields on both the two- and 10-year Treasury notes moved down modestly from levels right before the release of the Fed’s policy statement, while U.S. stocks ended mixed. Futures markets showed bets on the path of Fed rate increases over the remainder of the year were little changed, seeing small odds of a rise in September.

“The forward guidance remains unchanged as the committee leaves the door open to further rate hikes if inflation does not continue to trend lower,” said Kathy Bostjancic, chief economist at Nationwide. “Our view is the Fed is likely done with rate hikes for this cycle since continued easing of inflation will passively lead to tighter policy as the Fed holds the nominal fed funds rate steady into 2024.”

‘Moderate’ growth

Key measures of inflation remain more than double the Fed’s target, and the economy by many measures, including a low 3.6% unemployment rate, continues to outperform expectations given the rapid increase in interest rates.

Job gains remain “robust,” the Fed said, while it described the economy as growing at a “moderate” pace, a slight upgrade from the “modest” pace seen as of the June meeting. The U.S. government on Thursday is expected to report the economy grew at a 1.8% annual pace in the second quarter, according to economists polled by Reuters.

Powell said he’s still holding out hope the economy can achieve a “soft landing,” a scenario in which inflation falls, unemployment remains relatively low and a recession is avoided.

“My base case is we’ll be able to achieve inflation moving back down to our target without the kind of really significant downturn that results in high levels of job losses,” he said, while noting that outlook is “a long way from assured.” He also noted that Fed staff economists are no longer predicting a recession as they have at recent meetings.

With about eight weeks until the next Fed meeting, a longer than usual interlude, continued moderation in the pace of price increases could make this the last rate hike in a process that began with a cautious quarter-percentage-point increase in March 2022 before accelerating into the most rapid monetary tightening since the 1980s.

In the most recent economic projections from Fed policymakers, 12 of 18 officials expected at least one more quarter-percentage-point increase would be needed by the end of this year.
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This week as Beijing suddenly announced that China’s foreign minister Qin Gang had been removed after just seven months in the job, his predecessor and now replacement, seasoned diplomat Wang Yi, was on a tour of some of Africa’s key economies.

Wang participated in BRICS summit-related meetings in South Africa, infrastructure talks in Kenya, and pledges on debt relief in Ethiopia, meetings that analysts said illustrate China’s way of showing its commitment to the continent.

“Talk about hitting the ground running: news broke when Wang Yi was on tour as the director of the foreign affairs commission of the party’s central committee,” Lauren Johnston, senior China-Africa researcher at the South African Institute of International Affairs said of the revelation that Qin — who hadn’t been seen for a month — had been removed.

“His tour, now as foreign minister, includes South Africa, Nigeria, Kenya and Turkey — all big players in the Global South,” she told VOA.

Paul Nantulya, research associate for the Africa Center for Strategic Studies in Washington, told VOA that Wang’s trip to the region comes as China seeks to re-engage more with Africa in the wake of the COVID-19 pandemic.

However he noted: “It is rather unusual to have two high-level multicountry visits within a space of six months, because remember Qin Gang was in Africa at the beginning of the year for the inaugural Chinese foreign affairs visit.”

Cliff Mboya, a research fellow at the Afro-Sino Center for International Relations, suggested it might not be coincidence that Wang was in the region when Qin’s exit was announced, noting Wang could be “coming to re-establish relations and continue from where Qin Gang left.”

Requests and Promises

The analysts noted Kenya, South Africa and Nigeria, where Qin is also scheduled to travel, are the economic powerhouses of East, Southern and West Africa. Ethiopia, a surprise addition to Wang’s itinerary, is the seat of the African Union.

According to a statement from the Chinese Foreign Ministry, while in Addis Ababa Wang told Prime Minister Abiy Ahmed: “China encourages powerful and reputable enterprises to invest in Ethiopia and is willing to play a positive role in easing Ethiopia’s debt pressure.”

The country is billions of dollars in debt. Security there is also a concern as the strategic Horn of Africa nation emerges from a brutal civil war.

Next, in Kenya, Wang met with President William Ruto — who was elected last year and had talked tough on China during his campaign.

Nantulya noted that China is Kenya’s largest trading partner and a key security partner, and that Beijing has been “very anxious about the change of government” there and was obviously looking to cement ties.

According to a readout from the Chinese side, Ruto used the meeting with Wang to push for more infrastructure investment, despite analysts noting China has pulled back a bit recently from its major Belt and Road Initiative projects.

Kenya said it is willing to “deepen cooperation in the fields of railways, highways, water conservancy, aviation and renewable energy,” the Chinese Foreign Ministry said.

On his third stop, in South Africa, Wang attended security meetings related to the upcoming summit of the BRICS group of economies, which also includes Brazil, Russia and India. Wang spoke with his South African counterpart, Naledi Pandor, and President Cyril Ramaphosa.

According to the Chinese Foreign Ministry, Wang noted that “the friendship between China and South Africa has a long history, and the two countries have forged a profound friendship of comrades and brothers.”

Steven Kuo, a senior lecturer at the University of Cape Town and author of the book “Chinese Peace in Africa: From Peacekeeper to Peacemaker,” pointed out that Chinese rhetoric around “South-South cooperation” and anti-imperialism “does strike a chord with African countries. Increasingly African countries, including South Africa, see the West as hypocritical, so there are some ideological commonalities.”

Wang also promised South Africa that China would “expand cooperation in key minerals, digital economy, clean energy, environmental protection industries, marine resource development, poverty reduction and other fields.”

Looking Ahead

Wang’s trip comes as global powers vie for influence in Africa — which is youthful, growing and resource-rich.

This week has been a busy time for Africa diplomatically, with the U.S. Treasury undersecretary in Kenya and Somalia, Ukraine’s Foreign Minister Dymtro Kuleba trying to get support on a trip to Equatorial Guinea, and Russian President Vladimir Putin hosting leaders at a Russia-Africa summit in St. Petersburg from Thursday.

The next two stops on Wang’s schedule are a fourth African state, the continent’s largest economy, Nigeria, and Turkey.

Like Kenya, Nantulya noted, Nigeria has a new government, which might be one of the reasons it was chosen, as well as the fact that Beijing is increasing engagement in West Africa. Earlier this month China’s navy visited the country amid speculation it is seeking a military base somewhere on the Atlantic coast.

In August, President Xi Jinping is expected to attend the BRICS Summit in Johannesburg, along with all the other leaders of the bloc, except for Russian President Putin, who is unable to attend due to an International Criminal Court warrant out for his arrest.
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