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Vietnam Defence and Security Report Q4 2010
Business Monitor International, Oct 2010, Pages: 76
The 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.
Vietnam's great political question over the coming decade is to what extent one-party rule under the Communist Party of Vietnam (CPV) will face growing calls for democratisation, as was the case in other major Southeast Asian countries. While our core scenario envisages the CPV transforming itself into a technocratic administration, it faces major economic challenges which, if mismanaged, could lead to widespread unrest. On the foreign policy front, we expect an increasingly powerful China to continue to drive Vietnam further into the camp of Asian nations with close relations with the US.
Indeed, on August 17, Vietnam and the US held defence talks for the first time. Vietnam’s Deputy Defence Minister Nguyen Chi Vinh met with US Deputy Assistant Secretary of Defence for South and Southeast Asia, Robert Scher. Mr Scher later said that they discussed marine security, international peacekeeping, search & rescue operations, humanitarian & disaster relief operations, and language training. As well, they talked about unexploded ordnance and herbicides left over from the Vietnam War, as well as servicemen listed as missing-in-action. Both said that, although the dispute with China regarding the South China Sea was not the main subject of the dialogue, the dispute had to be peacefully negotiated to sustain regional stability. US Secretary of Defence Robert Gates will attend the ASEAN– Plus Defence Ministers’ Meeting in Hanoi in October.
Vietnam, other South East Asian nations and the US are becoming increasingly concerned about China’s growing influence in the South China Sea. US attempts to internationalise the dispute over ownership of the South China Sea are infuriating China. While we do not expect tensions to get out of hand, it is evident that the US is seeking to reassert its influence in South East Asia, receiving support from Vietnam.
Of all Southeast Asian states, Vietnam is the most wary about China's rising power. Vietnam was the last sovereign state that China attacked, in 1979, resulting in a brief border war, and the two countries currently dispute claims to the South China Sea. Consequently, as well as the US, Japan and India – both of which are also concerned about China's growing power – will also foster closer ties with Vietnam. That said, a formal alliance is probably not in the offing, as this would risk hurting their relationships with China.
Vietnam looks set to extend its political influence within ASEAN, in line with its growing economic footprint in the region. We believe the Vietnamese government will continue to leverage on its close relationship with neighbouring countries, such as Cambodia and Laos, as a base for Vietnam's political influence in ASEAN.
Vietnam recorded an impressive real GDP growth of 6.3% y-o-y in Q210, as the economy heads towards the government's growth target of 6.5% for 2010. Economic indicators in July also reinforced the government's aggressive target, after industrial production came in at a better-than-expected 16.0% y-o-y in July. To a certain extent, the encouraging numbers helped to alleviate concerns that weakening external demand from the US and EU would be a drag on the economy. Industrial production accelerated after slowing down for three consecutive months.
However, we expect loan growth to remain weak on a historical basis in H210 due to the threat of higher inflation. Therefore, we do not see business investments continuing to contribute significantly to industrial production growth. Instead, we see private consumption and government-supported infrastructure investment as the main drivers of economic growth in H210.
Regardless of the ongoing disagreements with China, in the longer term, our core political scenario is for the Communist Party of Vietnam (CPV) to shift increasingly towards a technocratic form of government, aimed at maintaining high economic growth levels and an acceptable distribution of wealth across the population. We thus foresee a continuation of economic reforms despite criticism from more traditionally-minded party members. However, intermittent periods of harsh repression against prodemocracy activists and other government critics are a strong indication that political liberalisation is not in the offing.
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