When StrategicRISK held its Vietnam Risk Management Roundtable in Ho Chi Minh City this week, social unrest and international conflict risk was high on the agenda 

Risk professionals from multinationals, SOEs and the Pan-Asia Risk and Insurance Management Association had plenty to discuss, with challenging economic conditions, supply-chain disruptions, regulatory changes and natural catastrophes all major challenges to corporates operating in Vietnam.

Add to that the recent placement of a Chinese oil-rig in the disputed waters of the South China Sea, which led to collisions between ships from Vietnam and China as Vietnam tried to block what it sees as Chinese encroachment into its waters. This sparked anti-Chinese riots on the Vietnamese mainland.

The violence first erupted at industrial parks in southern Vietnam, where several foreign-owned factories were set on fire. At least two Chinese workers were killed and scores injured. In an effort to maintain order, the Vietnamese government increased police presence on the streets of Hanoi and Ho Chi Minh City, with the security services making some protestor arrests.

Territorial position

The most interesting aspect of this development is that by initially allowing such protests, the Vietnamese government aligned itself with public sentiment, perhaps to avoid being seen as a puppet government. The strategic intelligence, risk and security management firm KCS Group suggested that the Vietnamese government probably banked on China backing down due to the slowing of the Chinese economy weighing against its need to assert its territorial position.

It didn’t quite work as planned. As founder and chief executive of KCS Stuart Poole-Robb puts it, China’s need for Vietnam’s trade is far outweighed by Vietnam’s dependence on China. And China’s move was well timed; its new gas supply deal with Russia means the effects of sanctions against Russia from Europe and the US will be greatly reduced. Russia is highly unlikely to do anything to damage that deal, especially as it needs China’s money in order to offset the risks and losses associated with its plans over Ukraine.

Financial help has now been promised to businesses hit by the riots, with tax relief, rent waivers and early lines of credit put on the table by the Vietnamese government. However, a question mark still hangs over the country’s future as a haven for investment. Investors banking on support from the US might need to have a rethink, as America’s support for Vietnam is lukewarm at best. Furthermore, the Vietnamese government and public distrust the US as much as they do China.

Vietnamese Prime Minister Nguyen Tan Dung is now reported to be considering a number of strategies against China, with the preferred option being the use of legal channels. But if Dung’s government is to remain in office, it can’t afford to appear soft in the face of China’s provocative actions.

Energy-rich waters

It’s worth noting that Vietnam is not alone in questioning China’s sovereignty in the South China Sea. Malaysia, Brunei and Taiwan also have claims to parts of the potentially energy-rich waters. As does the Philippines, which submitted a case to an arbitration tribunal in The Hague earlier this year, the first time Beijing has been subjected to international legal scrutiny over the waters. China has refused to participate in this case and warned Manila that its submission could seriously damage economic and political ties between the two countries.

Investors and companies considering doing business in Vietnam need to keep an eye on growing anti-foreign sentiment in Vietnam. While primarily directed against China, it does mean firms should be wary of showing any connections with China in their dealings with the Vietnamese. This could even mean withdrawing representatives with Chinese backgrounds.

As with so many areas of conflict and competition in our region, there are many forces now at play in Vietnam that risk professionals would be wise to keep in mind as they steer their companies through increasingly choppy waters.