Stability tests abound for Vietnam

What will Vietnam’s defining moment be in 2019? For the country’s growing but repressed pro-democracy movement, it will likely be the introduction on January 1 of a new cyber-security law that will give the ruling Communist Party vastly greater powers to censor the internet.

For the business community, it could be the implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a massive free trade deal of which Vietnam is one of the 11 signatories, down from its original 12 after the United States pulled out in early 2017.

Expected to come into effect in Vietnam on January 14, the CPTPP will remove almost 95% of tariffs on goods exported to the other signatory nations, including big rich markets in Australia, Canada and Japan and which combined account for over one-tenth of global gross domestic product (GDP).

Just as important will be the possible introduction of a free trade agreement with the European Union, one of Vietnam’s main export markets. A deal to nix all trade tariffs is expected to come into effect next year but could yet face delays if certain European states question Vietnam’s human rights record, a potential stumbling block for the agreement.

What is certain is that Vietnam’s year ahead will turn on percentages. The Communist Party-dominated government achieved many of its socio-economic targets in 2018 – and there’s good reason to think they will hit them again in 2019. It’s central planners aim for GDP growth to range between 6.6% and 6.8%, slightly higher than the level hit in 2018.

Inflation is targeted at below 4%, as is unemployment, while poverty is scheduled to be reduced by 1% to 1.5%. The bigger challenge, however, will be to cap foreign debt at below 53% of GDP while also reining in state welfare schemes and civil servant salaries.

Analysts believe all of these marks are achievable with prudent management. But politics is becoming more difficult for the Communist Party than simply meeting its own targets, not least because the consequences of a healthy economy – increased urbanization, a growing middle class and strong popular calls for private property rights – are producing new demands from a self-supporting public.

2018 saw some of the biggest public protests in the country in years. In June, tens of thousands demonstrated nationwide primarily against a proposed law on special economic zones (SEZs) which many thought would allow Chinese businesses to take control of three planned SEZ’s through 99-year leases.

Suggestions that Hanoi is allowing China, the bete noire of much of the  dissident community, to violate Vietnamese sovereignty is a politically charged issue that will continue to hound and possibly unsettle the Communist Party in 2019.

The scale and messaging of the June protests was large and sensitive enough that the Party decided to delay debating the SEZ law, though it will have to make a decision in 2019. If the government tries to push through the law once again, then there will inevitably be more protests. On what scale and whether the Party will be as responsive to public discontent in 2019 will likely decide the fate of the law.

For some, the protests against the SEZ law was the main political event of 2018. But arguably more pertinent was the Communist Party’s decision later in the year to make Party General Secretary Nguyen Phu Trong state president following the death of the incumbent Tran Dai Quang.

A Vietnamese politician has not held both positions simultaneously since the 1960s. In fact, its political system is predicated on different officials holding the top four political offices.

The change organizationally brought Vietnam closer in structure to China’s Communist Party, which merged the positions in the 1990s, and superficially put Trong’s stature on a par with China’s paramount ruler Xi Jinping.

The move raised several questions. Is Trong trying to amass even more personal power for himself? Was the move an indiscriminate erosion of Vietnam’s accepted principle of separation of powers that endured for decades? Or is his dual role just a temporary alteration, motivated by expediency rather than a thirst for more concentrated power?

What happens in 2019 will provide some answers, though anyone who sits outside the Communist Party’s airtight committees may not be able to easily parse them. Equally difficult to decipher will be the Party’s internal quarrels over the next generation of leaders.

2018 marked the halfway mark between the Party’s quinquennial congresses, and a Central Committee plenum held in October opened the process of vetting candidates for the next Party Congress to be held in 2021. The vetting process will dominate the numerous Central Committee plenums that will take place in 2019.

Analysts will be on the lookout for the likely candidates who will take over the Party’s main positions in 2021. Trong, 74, was given protocol-breaking special permission to stay on as Party chief at the 2016 Party Congress despite his advanced age. He will almost certainly step down in 2021.

Who replaces him, or who he wants to succeed him, will arguably be the most important political decision for the Party for the next decade.

Apart from his own quest for personal power, Trong is very much a mono-thematic politician focused on the Party’s survival. Purging it of corrupt, incompetent and “morally” suspect officials has been Trong’s sine qua non since his victory at the 2016 Party Congress.

He saw off a challenger in then prime minister Nguyen Tan Dung, who was considered something of an individualist and populist, and a potential risk to the Party’s continued political dominance.

An anti-corruption campaign that started in 2016 picked up pace in 2017 with the arrest of various Party heavyweights. Dinh La Thang, the former party chief of Ho Chi Minh City, was the first former Politburo member to be imprisoned due to his role in corruption at PetroVietnam, the state oil company.

But the anti-graft campaign became more methodical in 2018. Rather than targeting senior officials, investigators went after corrupt police officers, military leaders and provincial politicians. Unless intra-Party jostling takes an unlikely turn towards the fratricidal, which could see unpopular officials marked as corrupt, the campaign will likely remain methodical and not morph into a purge in 2019.

Pollsters are a rare breed in Vietnam, but from the surveys of public attitude that are available (and partially trustworthy) the anti-corruption campaign is popular among the Vietnamese.

An annual Provincial Governance and Public Administration Performance Index found that concerns about corruption, the most pressing issue for years, waned in 2017 while rising wealth inequality became the most important.

This is a new problem for the Communist Party, despite its legitimacy being based on ensuring fast economic growth rates for almost a decade. There is no indication that growth rates will contract in 2019 and could expand despite global economic headwinds. Investment is growing, as is confidence in Vietnam’s markets.

Vietnam is one of the few Asian nations that has benefited from the US-China trade war, and should continue to reap rewards of supply chain relocation if the tiff continues and intensifies in 2019.

Moreover, whereas some of its neighbors are struggling to transition their economies from being mostly low-skilled and export-driven, Vietnam is leaping forward towards greater technology-based, higher-skilled sectors.

In 2018, one of the biggest economic events was the privatization of Sabeco, a state-owned firm and Vietnam’s top-brewer. A Thai firm bought a majority stake in the company, raising US$4.84 billion for the government’s coffers.

The expansion of Vingroup, a dominant conglomerate and one of Vietnam’s highest valued firms, will be an important barometer of economic activity in 2019. In October, the company created the country’s first fully-fledged domestic carmaker in its subsidiary, Vinfast.

Two months later, it launched Vsmart, its own smartphone brand. Already the largest producer of smartphones for Samsung, the South Korean mobile phone giant, Vietnam plans for Vsmart to become competitive in global markets in 2019. Vingroup also plans to expand into other tech sectors.

How the Party balances its foreign ambitions and relations will also be an area to watch. For years, Vietnam has tried to balance its diplomacy with as many friendly nations as possible. But this will be a hard line to hold as geopolitical tensions – namely between the US and China and the US and Russia – pressure smaller countries to take sides.

Russia, with which Vietnam will mark the 25th anniversary of the Treaty on the Fundamentals of Friendly Relation in 2019, is still a key provider of military hardware, as it has been since the Cold War. Fractious US-Russian relations are putting Vietnam in a difficult position, particularly as the US seeks to expand military ties with Vietnam.

America’s worsening relations with China provide a bigger diplomatic problem for Hanoi. Although Vietnam remains the main regional challenger to China’s expansionism in the South China Sea, China is still one of its main trading partners and key sources of new investment.

While Washington increasingly sees Vietnam as a key ally in rebuffing Beijing’s global aggrandizement, Hanoi would rather keep both major powers happy and at an arms-length.

Donald Trump has twice visited Vietnam since becoming president in January 2017, maintaining the good relations forged by his predecessor, Barack Obama. There are rumors that Vietnam wants to plan a high-level state visit to Washington in 2019 to further advance relations.

One possible reason why Trong wanted the state presidency is that since the incumbent represents Vietnam abroad as head of state he will be in a better position to set Vietnam’s foreign policy during state visits. But selling Vietnam Inc – not only economically but also geopolitically – will be one of the Communist Party’s most important tasks in 2019.