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Vietnam Defence and Security Report Q3 2010
Business Monitor International, July 2010, Pages: 70
Business Monitor International's Vietnam Defence and Security Report provides industry professionals and strategists, corporate analysts, defence and security associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Vietnam's defence and security industry.
Deputy Minister of Defence Lieutenant General Nguyen Chi Vinh said in December 2009 that, as part of its modernisation drive, Vietnam’s military is considering many possible purchasing sources. In December, Vietnam ordered from Russia six diesel-electric Kilo-class Project 636 submarines (at US$2bn in total) and 12 Su-30 fighter jets. This is in addition to an earlier contract for another 12 Su-30MK2 fighter aircraft, signed in January 2009. Also, Vietnam’s Ministry of Defence signed a contract this year with Viking Air of Canada to purchase six DHC-6 Twin Otter Series 400 aircraft for Vietnam’s navy. Further, Vietnam’s Defence Minister Phung Quang Thanh announced on December 17 2009, while visiting France, that Vietnam wishes to purchase helicopters and army transport aircraft from France, as part of its modernisation drive for the military.
The government announced in December 2009 that it plans the ‘rapid development’ of its domestic, stateowned defence industries to supply the armed forces with the most modern military equipment. No further details have been revealed. Although the ‘rapid development’ effort is part of Vietnam’s aim to become a fully industrialised nation by 2020, the announcement is unlikely to affect procurement policy for many years.
Vietnam is experiencing a slowing economy. The 5.8% y-o-y GDP growth rate in Q110, as estimated by the General Statistics Office, is down from the stimulus-driven strong growth rates of H209. Exports are sluggish (-1.6% y-o-y in Q110) and domestic demand is likely to suffer from higher lending rates and double-digit inflation. The service sector, which grew 6.6% y-o-y in Q110, continues to be the main contributor to growth. We forecast a real GDP growth rate of 4.4% y-o-y for 2010, which is considerably lower than the government's 6.5% growth target.
Politically, we expect public resentment towards China to remain a concern for the government leading up to the Communist Party of Vietnam's National Congress in January 2011. With China increasingly using its expanding naval muscle to assert its claims in the South China Sea, the government has sought the means to counter Beijing without causing an escalation in tensions, which could potentially lead to an armed confrontation. Vietnam is trying to ‘internationalise’ the issue of the disputed islands in the South China Sea, while it holds the chairmanship of ASEAN in 2010. However, this is unlikely to quell nationalistic sentiment. Further, we believe the potential for Vietnam to mould a unified ASEAN stance against the Chinese claims for sovereignty over large parts of the South China Sea is limited, given that Brunei, Malaysia and the Philippines are the only other member countries with claims on the disputed islands. Moreover, China’s increasing importance as an economic partner means that many ASEAN nations are unwilling to confront Beijing politically on the issue.
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