US embassy cable - 05HANOI2164

UNCLAS SECTION 01 OF 02 HANOI 002164 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USTR ELENA BRYAN 
 
E.O. 12958: N/A 
TAGS: PREL, ETRD, PBTS, CH, VM, CVR, WTO 
SUBJECT:  VIETNAM AND CHINA WORKING TO BOOST RELATIONS 
 
1. (SBU) Summary:  While U.S.-Vietnam relations have been 
improving and expanding, fueled by the June visit of the 
Prime Minister to Washington, Sino-Vietnamese relations have 
not been standing still.  In keeping with its long-standing 
"balancing" strategy, Vietnam sent State President Tran Duc 
Luong to China for a State Visit in mid-July.  The purpose 
of the visit was to make progress on some nuts-and-bolts 
issues that currently clog Sino-Vietnamese relations, in 
particular the lack of Chinese investment in Vietnam, the 
Vietnamese trade deficit with China, the slow speed of 
border demarcation, fishing rights and joint naval patrols 
in the Gulf of Tonkin, and exploration and exploitation of 
natural resources in the South China Sea.  The official line 
is that the Luong visit was a spectacular success and a 
typical example of two friendly Socialist partners deepening 
an already close bilateral relationship.  The unofficial 
line is that, despite the Vietnamese coup of securing major 
Chinese concessions in concluding bilateral negotiations 
regarding Vietnam's entry into the World Trade Organization 
(WTO), the visit was "ruined" by single-minded Chinese 
harping on the UNSC expansion issue, which President Luong 
was not prepared to address.  Both sides are looking forward 
to the visit of China's President and Communist Party 
General Secretary Hu Jintao in November as the real 
bilateral high-level event of the year.  End Summary. 
 
PRESIDENT LUONG'S JULY VISIT: NOT BAD ON THE SURFACE, BUT. 
--------------------------------------------- ------------- 
 
2. (SBU) Following Prime Minister Phan Van Khai's historic 
June visit to the United States, the Vietnamese were eager 
for President Tran Duc Luong's visit to China be a success 
that would restore "balance" to the relationship among 
Vietnam, China and the United States, according to our 
Vietnamese think tank interlocutors.  The GVN hoped for a 
visit that would be long on ceremony and which would address 
the future of Sino-Vietnamese relations, including a 
possible addition to or rewording of the "sixteen character 
framework" that defines current bilateral relations. (The 
sixteen characters can be translated as: "good neighbors, 
comprehensive cooperation, long-term stability, looking 
forward to the future.")  The Vietnamese were by all 
accounts disappointed, except for state-owned propaganda 
outlets.  Luong had productive meetings on practical issues 
such as border demarcation, increasing Chinese investment in 
Vietnam and concluding Vietnam's bilateral WTO negotiations 
with China, but his high-level discussions with Chinese 
leaders were completely dominated by the UNSC reform issue. 
Shortly after returning from the visit, Vice Foreign 
Minister Vu Dzung told the Ambassador that "all the Chinese 
wanted to talk about was the G-4 proposal.  It ruined the 
visit." 
 
3. (SBU) Later, MFA officials tried to spin the visit as a 
great success.  "Recently, visits like this tend to focus 
more on groundwork and concrete measures to improve trade 
and sign specific projects rather than just formal policy 
discussions," one China desk officer told Poloff.  The visit 
made "great progress" on commercial issues, with "over USD 
two billion in contracts signed."  An officer at the Chinese 
Embassy in Hanoi had an alternative interpretation, telling 
Poloff that "USD two billion in promises does not mean USD 
two billion in contracts."  Shaking his head, he continued, 
"those were mostly contracts signed by raw materials 
importing companies that do that much business with Vietnam 
anyway.  The agreements were ceremonial, no big thing." 
 
WTO AGREEMENT AND TRADE WITH CHINA 
---------------------------------- 
 
4. (SBU) President Luong did score one major coup on his 
trip:  concluding bilateral negotiations on Vietnam's WTO 
entry.  China made significant, and unexpected, concessions 
in the last round that allowed Luong to announce that the 
two sides had concluded negotiations, a major priority for 
the GVN.  Most were caught unawares by the rapid conclusion 
of China-Vietnam WTO talks.  "Even we were surprised by 
that," the official at the Chinese Embassy in Hanoi said. 
According to an unvetted source in Hanoi, the Chinese were 
reportedly unhappy that their negotiators had to cave for 
the sake of a political deal.  In official discussions, the 
MFA was quick to suggest that the deal would reduce 
Vietnam's trade deficit with China (the deficit was about 
USD 2.3 billion in 2004, according to Dr. Do Tien Sam of the 
China Studies Center, a Hanoi think tank), but speaking 
privately, some of the MFA's China trade experts disagreed. 
The WTO agreement "would hardly have any real impact on the 
bilateral trade balance, even though the two sides want it 
to be so and agreed to create favorable conditions for 
Vietnamese goods to enter China's markets," one MFA expert 
admitted.  "In theory, this is a good step.  In practice, 
reducing the trade deficit is not at all easy," he 
continued. 
 
NUTS AND BOLTS: BORDER ISSUES 
----------------------------- 
 
5. (SBU) The MFA, the China Studies Center and the Chinese 
Embassy in Hanoi all agree that, in addition to the trade 
deficit, "border and territory" issues are serious bilateral 
irritants.  "The speed of demarcation of the border is a 
problem," Dr. Sam told Poloff.  Chinese Embassy officials 
confirmed to Poloff that President Luong signed an agreement 
with the Chinese Government to accelerate the border 
demarcation process, with a view to completing it by 2008. 
The officials were cautiously optimistic about achieving 
this goal.  They also noted that President Luong had signed 
an "important" promise with the Chinese Government to begin 
the demarcation of the region south of the mouth of the 
Tonkin Gulf. 
 
NEXT STEP: HU JINTAO'S VISIT IN NOVEMBER 
---------------------------------------- 
 
6. (SBU) The China Desk at MFA and the Chinese Embassy agree 
that the November visit of Chinese President and Communist 
Party General Secretary Hu Jintao will be a much more 
important event than President Luong's trip in July.  "This 
will be President Hu's first trip to Vietnam since he 
consolidated power," the MFA official said.  Hu's visit will 
also be "hands-on" and will cover "specific economic 
measures," rather than just confirming bilateral guidelines 
and frameworks, the MFA expert continued.  These "specific 
measures" will be "unprecedented breakthroughs" if all goes 
well, Chinese Embassy contacts said.  In particular, China 
is placing importance on an agreement to conduct joint naval 
patrols along the Tonkin Gulf demarcation line, and to sign 
an agreement paving the way for joint oil and gas 
exploration and exploitation in the South China Sea. 
 
7. (SBU) China has never conducted joint naval patrols with 
any other country, the Chinese political officer said. 
Vietnam, however, has experience with Thailand in this area, 
so Beijing has looked to Hanoi for guidance on how to 
proceed.  "That does not happen often," the Chinese Embassy 
officer said.  "Vietnam gets to play the big brother for 
once."  Vietnam is currently drafting the draft protocols 
for joint patrols, he added. 
 
8. (SBU) Signing an agreement on joint petroleum exploration 
and development would be a very important step, our PRC 
Embassy contact continued.  However, the Chinese are 
prepared for disappointment on that issue.  "The Vietnamese 
did not want to cooperate with the China-Philippines joint 
exploration project, but they felt like they had no choice," 
he explained.  "This time, maybe they have more choice." 
Our other China contacts had no comment on the issue of 
joint development of petroleum resources in the South China 
Sea, except to confirm that Vietnam had been reluctant to 
join the China-Philippines deal. 
 
9. (SBU) Comment: China and Vietnam are working hard to 
address the major remaining issues between them, with 
differing amounts of success.  The land border demarcation 
may actually be completed before the 2008 deadline, which 
would eliminate a source of low-level stress caused by 
farmers and local officials clashing in poorly-marked border 
areas, a common occurrence now.  Joint patrols of the Tonkin 
Gulf could soothe another long-time friction point by 
reducing the number of violent incidents between Vietnamese 
and Chinese fishermen.  The issues of the Vietnamese trade 
deficit and the difference of opinion over the ownership and 
use of the resources in the South China Sea, however, are 
not going to be solved in the short term. 
 
MARINE