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Strategic Posture Review: Vietnam
By Carlyle A. Thayer, on 15 January 2013
Contemporary Vietnam, officially known at the Socialist Republic of Vietnam (SRV), was formed in 1976 after a four-and-a-half decade armed struggle led by the Vietnam Communist Party (VCP) against French colonialism and U.S. intervention. When the war against France came to an end in 1954, Vietnam was partitioned, and North Vietnam became Southeast Asia’s first communist state, the Democratic Republic of Vietnam. 
 
 During the early years of the Democratic Republic, China was its chief provider of foreign assistance as well as its main model of development. For example, Vietnam carried out land reform in the mid-1950s and then reorganized the countryside into socialist agricultural producers’ cooperatives. 
 
 The Soviet Union displaced China as Vietnam’s main benefactor and model for development in the late-1950s, when Vietnam embarked on central planning. Vietnam’s First Three-Year Plan (1958-1960) and First Five-Year Plan (1961-1965) stressed the development of heavy industry. After the 1960s, a generation of Vietnamese communists was trained in the Soviet Union, and today they represent an influential voice within the VCP that continues to view Russia as an indispensable partner in Vietnam’s development and modernization. When the VCP sought to reunify the country by resuming the armed struggle in South Vietnam from 1960 to 1973, its principal support came from both China and the Soviet Union. At the same time, North Vietnam also sought and received political and material support from the socialist countries in Eastern Europe, other revolutionary states and the Non-Aligned Movement to secure its goal of national reunification. 


2 The experience taught Vietnam the value of proactive international diplomacy as a tool to advance its national interests. It used this lesson to its advantage when the eruption of ideological differences between China and the Soviet Union in the 1960s led to a split in the socialist bloc and the world revolutionary movement. While the development presented difficulties for Vietnam’s leaders, they quickly turned adversity into advantage, launching widespread international diplomatic efforts to make Vietnam itself the focal point in the global struggle against imperialism. Initially, neither Beijing nor Moscow wanted to be seen as lacking in their support for a small, impoverished country fighting for its independence against the mighty United States, which had intervened to support South Vietnam in the war. As a result, Vietnamese diplomats were able to use the Sino-Soviet rivalry to their advantage in order to secure needed military equipment and other supplies. Vietnamese leaders today employ a similar strategy in managing their relations with China and the United States. Vietnam’s strategic environment changed in the late-1960s and early 1970s when then-U.S. President Richard Nixon sought rapprochement with China. Nixon’s February 1972 visit to Beijing proved a turning point, after which China and the U.S. began to cooperate to oppose the Soviet Union. At the same time, China also began to reduce its military assistance to Vietnam. China’s changed policy led to an estrangement in Sino-Vietnamese relations just as the Vietnam War came to an end. These developments reinforced the belief of many within the VCP that great powers can only be trusted to look after their own interests. They concluded that Vietnam must remain ever-vigilant to defend its sovereignty and national interests. After reunification in 1975, Vietnam attempted to reorganize the southern economy along socialist lines. Hanoi resumed central planning with a series of five-year plans initiated in 1976. The Soviet Union remained Vietnam’s main provider of foreign assistance and doubled its aid with each successive five-year plan. The improvement in Vietnam’s relations with the Soviet Union stood in contrast to the downward spiral in Sino-Vietnamese relations, which reached a nadir over China’s support for the Khmer Rouge in neighboring Cambodia. In 1977, the Khmer Rouge mounted cross-border raids into southwest Vietnam. Though Vietnam retaliated with a massive incursion into Cambodia, the raids by the China-backed Khmer Rouge continued. The following year marked a turning point. When Vietnam joined the Sovietdominated Council of Mutual Economic Assistance midway through 1978, China responded by cutting its aid program and withdrawing all its advisers. In reaction, Vietnam turned even more fully to the Soviet Union. In November 1978, Moscow and Hanoi signed a 25-year Treaty of Friendship and Cooperation. Henceforth Vietnam considered the Soviet Union the cornerstone of its defense and national security policies. In December of that year, Vietnam invaded and occupied Cambodia. China retaliated in early 1979 with a major military offensive into Vietnam’s northern border provinces aimed at “teaching Vietnam a lesson.” Vietnam in turn responded by granting the Soviet Union basing rights in Cam Ranh Bay. The Cambodia conflict soon evolved into a proxy war between China, which supported the Khmer Rouge, and the Soviet Union, which backed Vietnam.

3 As a result of its invasion of Cambodia, Vietnam was subject to an international aid and trade embargo. Both Japan and Australia, for example, suspended their development assistance programs in protest. Southeast Asian states, grouped in the Association of Southeast Asian Nations (ASEAN), took the diplomatic lead in the United Nations and in other international forums to prevent the client state Vietnam had established in Cambodia, the People’s Republic of Kampuchea, from gaining diplomatic recognition. The Cambodian conflict was eventually brought to an end by three major developments. First, Vietnam realized that the costs of its intervention in Cambodia were weighing too heavily on its own development. As the Vietnamese economy fell into crisis with the breakdown of its Soviet-style system of central planning, Vietnam adopted a major program of reform in December 1986 known as “doi moi” or “renovation.” Jettisoning central planning, Vietnam began to cautiously experiment with market forces while also soliciting foreign direct investment. Second, the emergence of Mikhail Gorbachev as general secretary of the Communist Party of the Soviet Union in 1985 set in motion far-reaching changes in Soviet policy, both domestically and in terms of relations with China and the United States. These developments put further pressure on Vietnam to reform its economy and withdraw its forces from Cambodia, which it ultimately did in September 1989. Third, in the immediate aftermath of the fall of the Iron Curtain in Eastern Europe, the five permanent members of the United Nations Security Council embarked on a shortlived but nonetheless unprecedented period of cooperation, which included reinforced regional efforts to bring about a peace settlement in Cambodia in 1991. The collapse of communism in Eastern Europe and the disintegration of the Soviet Union irrevocably altered Vietnam’s strategic context, setting the stage for Vietnam to come out of isolation and engage more directly with the international community both regionally and globally. Still, despite widespread agreement within the VCP on the necessity of economic reform domestically, the party continued to be divided on ideological grounds regarding the country’s strategic orientation abroad. Party conservatives argued that Vietnam should lean toward China. The United States, they claimed, aimed to overthrow Vietnam’s socialist regime through so-called peaceful evolution. They also believed that Vietnam and China could resolve their South China Sea territorial disputes peacefully. Party progressives meanwhile argued that Vietnam had no other choice but to integrate with the global economy and to conduct foreign relations with all countries irrespective of their political system. In particular, they wanted to engage with the advanced economies, including the United States, in order to gain leverage for Vietnam’s own modernization and development. To this day, this kind of party factionalism continues to inhibit the development of a market economy and constrain Vietnam’s relations with the United States. Politically, Vietnam remains an authoritarian, one-party state. Foreign Policy For 40 years after Ho Chi Minh proclaimed Vietnam’s independence from France in 1945, Vietnam’s communist leaders adopted a worldview consistent with prevailing Marxist-Leninist ideology. According to this view, the course of global politics was determined by the contradictions between the two worlds of socialism and capitalism, or more prosaically, between “friends and enemies” (“dich va ta”). Relations between

4 these two worlds were a struggle of “who will triumph over whom” (“ai thang ai”). Throughout the period 1945-1985, Vietnam viewed itself as the front line in this struggle. As a result, Vietnamese leaders felt that the socialist world owed Vietnam not just political solidarity but also material support. This worldview began to shift in the mid- to late-1980s, however, as Vietnamese policymakers began to place greater emphasis on national interest and pragmatic diplomacy, while also recognizing global economic forces and the impact of science and technology as key determinants of power. Vietnam’s two-world theory gradually gave way to a positive view of global economic integration. Whereas the old view held that opening economic relations with capitalist states would lead to economic dependency and assimilation (“hoa nhap”), the new view stressed integration (“hoi nhap”), which was viewed more positively as offering both opportunities and challenges. This worldview also embraced comprehensive security over Vietnam’s previous, much narrower conception of military security. The shift, which was the by-product of changing strategic circumstances, provoked intense internal party debate that continues to this day, and the ideological framework of the past has not been jettisoned entirely. Its residue can be found in present-day references to the “threat of peaceful evolution” as a primary challenge to Vietnam’s national security. There has, nonetheless, been an evolution in Vietnam’s worldview, and it is evident in three seminal resolutions adopted by the VCP Politburo. The first, No. 32, adopted in July 1986, declared, “It is necessary to move proactively to a new stage of development, and peaceful coexistence with China, ASEAN and the United States, and build Southeast Asia into a region of peace, stability and cooperation.” Along these lines, the political report delivered to the Sixth National Party Congress at the end of 1986 gave priority to expanding and heightening the effectiveness of external economic relations. The second, No. 2, adopted in 1987, mandated the withdrawal of all Vietnamese forces from Cambodia and Laos as well as a massive demobilization of Vietnam’s standing army. But perhaps the most important foreign policy resolution for modern Vietnam was No. 13, adopted in May 1988. This resolution called for a “multidirectional foreign policy,” gave priority to economic development and used the term “national interest” (“loi ich dan toc”) for the first time. The resolution clearly signaled the end of the two-worlds view and codified Vietnam’s embrace of an interdependent world. Vietnam was now poised to shift its foreign policy fully from one of confrontation to one of accommodation with former foes. Vietnam consolidated this multidirectional foreign policy at the Seventh National Party Congress in June 1991. Foreign policy documents called for Vietnam to “diversify and multilateralize economic relations with all countries and economic organizations . . . regardless of different socio-political systems.” Within four years, Vietnam had achieved notable success in meeting its new objectives. In November 1991, Vietnam and China ended their estrangement, and in 1995, Vietnam normalized diplomatic relations with the United States, signed a cooperation agreement with the European Union and became ASEAN’s seventh member. Vietnam’s open-door policy of diversifying and multilateralizing its economic relations was reaffirmed at all subsequent national party congresses. Vietnam’s Ninth

5 Party Congress in 2001, for example, declared that “Vietnam wants to be a friend and a reliable partner to all nations.” The ninth congress also set the goals of overcoming underdevelopment by 2010 and becoming a modern industrialized state by 2020. Vietnam’s most recent party congress, the 11th, in 2011, went even further, calling for Vietnam’s proactive integration into the global economy. As part of its push toward global engagement, Vietnam announced in 2001 that it would give priority to developing relations with “socialist, neighboring and traditional friendly states,” referring to China, Laos and Cambodia, and Russia respectively. Since then, Vietnam has pursued a broader strategy of developing close relations with the permanent members of the U.N. Security Council and the major powers in Northeast Asia, Southeast Asia, South Asia and Europe, concluding strategic partnerships with the Russian Federation, Japan, India, China, South Korea, Spain, the United Kingdom and Germany. Australia, too, has a major defense cooperation program with Vietnam, but prefers the term “comprehensive partnership.” Each of these strategic partnerships is different, but they all reflect the emphasis Vietnam has placed on developing a wide array of comprehensive relations since the early 1990s. Four of them are particularly important and worth dwelling on in some detail. Vietnam’s 2001 strategic partnership with Russia represented Hanoi’s first such agreement. It set out broad-ranging cooperation in major areas including politics and diplomacy, military equipment and technology, development of energy resources ranging from oil and gas reserves to hydro and nuclear power, trade and investment, science and technology, education and training, and culture and tourism. In July 2012, Vietnam and Russia upgraded their bilateral relations to a comprehensive strategic partnership to reflect Vietnam’s recent major arms purchases. Bilateral economic ties remain a weak spot in the overall relationship, however: Two-way trade was worth a modest $2 billion in 2011, while Russia lags behind Vietnam’s other strategic partners in the value of its investments. In 2006, Vietnam signed a strategic partnership agreement with Japan that called for high-level visits and the establishment of a ministerial-level Joint Cooperation Committee. The following year, Japan and Vietnam adopted a 44-point agenda covering seven substantive areas of cooperation: high-level policy dialogue, economic relations, legal and administrative reform, science and technology, people-to-people exchanges, cooperation in multilateral forums and engagement on issues involving climate change, environment, natural resources and technology. Japan is currently the largest contributor of development assistance to Vietnam, its second-largest trading partner, accounting for $21 billion worth of bilateral trade in 2011, and its thirdlargest investor. The strategic partnership agreement that Vietnam finalized with India in 2007 mapped out cooperation in five major areas: politics, defense and security, economic and commercial engagement, science and technology, culture, and multilateral and regional issues. This partnership remains strongest in political, defense and security cooperation in light of the challenges posed to both countries by a rising China, with India serving as Vietnam’s second major supplier of military training and equipment after Russia. As with the Vietnam-Russia partnership, however, the Vietnam-India partnership has yet to realize its full economic potential, as both sides admitted when Vietnam’s president visited India in October 2011. Two-way trade stood at $3.9 billion that year.

6 Finally, Vietnam’s strategic partnership with China, adopted in 2008, capped a nearly two-decade trend of gradually improving bilateral ties following the normalization of relations in 1991. A March 1999 summit between leaders of the two countries’ Communist Parties adopted a 16-character framework calling for “long-term, stable, future-oriented, good-neighborly and all-round cooperative relations.” A joint statement issued the following year established the framework for long-term state-tostate relations that still applies today. During this period, China and Vietnam also reached an agreement demarcating their land border and delimiting the maritime border in the Gulf of Tonkin, where a joint fishery area was established. Then in 2006, Vietnam and China set up a Joint Steering Committee on Bilateral Cooperation at the deputy prime ministerial level to coordinate all aspects of their bilateral relations. The relationship was officially upgraded to a strategic partnership following a June 2008 summit of party leaders in Beijing, and a further upgrade to a strategic cooperative partnership entered into force the next year. Under this framework, China and Vietnam have developed a dense network of party, state, defense and multilateral mechanisms to manage their bilateral relations. These mechanisms continue to function effectively despite the ongoing territorial disputes in the South China Sea. Bilateral trade reached a robust $36.9 billion in November 2012. The Vietnam-China relationship is also characterized by a convergence of interests on a host of issues, both domestic and regional, beyond formal bilateral mechanisms. At the domestic level, both seek to reform their socialist economies without destabilizing one-party rule. At the regional level, both seek to benefit from regional integration, including the China-ASEAN Free Trade Area and the Greater Mekong Sub-Region. More generally, both share an interest in maintaining a peaceful and stable regional environment. Vietnam normalized diplomatic relations with the U.S. in 1995 after the Clinton administration rescinded the Vietnam War-era trade embargo. Bilateral relations subsequently developed gradually, culminating in 2000 with a landmark bilateral trade agreement. In 2011, total two-way trade totaled $21.8 billion, with Vietnam recording a surplus of $13.1 billion. American companies have invested more than $10 billion in Vietnam, placing the U.S. among the country’s top 10 investors. A major change in Vietnam-U.S. relations took place in mid-2003, when the VCP Central Committee’s eighth plenum revised two key ideological concepts -- the “objects of struggle” (“doi tuong”) and “objects of cooperation” (“doi tac”) in foreign relations, referring to the U.S. and China respectively. The eighth plenum resolution argued for a more sophisticated dialectical application of these concepts: “With the objects of struggle, we can find areas for cooperation; with our partners, there exist interests that are contradictory and different from those of ours.” This resolution provided the policy rationale for Vietnam to step up cooperation with the United States, including in the sensitive areas of security and defense cooperation. Following the plenum, Vietnam’s defense minister paid his first visit to Washington, and Vietnam approved the first annual port visits by the U.S. Navy. In addition to bilateral strategic partnerships, Vietnam has also placed emphasis on engaging with regional and global multilateral institutions. Since 1995, Vietnam has emerged as a constructive member of ASEAN and the ASEAN-centric regional security architecture, including the ASEAN Regional Forum, the ASEAN Defense Ministers Meeting Plus process and the East Asia Summit. Vietnam also joined the

7 Asia Pacific Economic Cooperation forum in 1998 and became a member of the World Trade Organization in 2007. In 2008, in perhaps its most successful foreign policy venture, Vietnam was the unanimous choice of the Asia bloc for nonpermanent membership on the U.N. Security Council, receiving overwhelming endorsement by the General Assembly and serving on the Security Council from 2008 to 2009. Le Luong Minh, who served as Vietnam’s ambassador to the U.N. at that time, became secretary-general of ASEAN in January 2013 for a five-year term. Defense Policy
 Vietnam shares land borders with only three countries: China, Laos and Cambodia. It also has an extended coastline facing the South China Sea, with an attendant 200nautical-mile exclusive economic zone (EEZ). Vietnam currently occupies up to 20 islands and other features in the South China Sea, each of which gives Vietnam the right to claim sovereign jurisdiction over the resources in the waters and sea bed surrounding these islands and features. Vietnam’s current defense doctrine was formulated in 1987, when Politburo Resolution No. 2 enunciated a new strategic doctrine known as “people’s war and allpeople’s national defense.” The doctrine was defensive by design and mandated the integration of Vietnam’s several-million-strong reserves, urban-based self-defense forces and rural militia into the regular army or main force. These units, known collectively as the Vietnam People’s Armed Forces, have responsibility for national defense, internal security and contributing to national socio-economic development by managing economic-defense zones in remote areas. The main force, or Vietnam People’s Army (VPA), comprises the land force, navy, air and air defense force and border guards. The new defense doctrine also set priorities for the national defense industry and the development of a compulsory national defense curriculum for all students. In the mid-1990s, Vietnam initiated a modest effort to modernize its naval and air forces in response to sovereignty disputes with China in the South China Sea. This effort has sped up over the past half-decade, with Russia playing a key role as the main source for Vietnam’s arms acquisitions. Since 2008, the Vietnamese navy has taken delivery of two Gepard-class guidedmissile stealth frigates and four Svetlyak-class fast patrol boats armed with anti-ship missiles. Since 2010, the Vietnamese air force has acquired 20 Su-30MK2V combat aircraft armed with both air-to-air and anti-ship missiles. Vietnam has also strengthened its air and coastal defenses with the acquisition of, respectively, two batteries of the highly capable S-300 PMU-1 air defense system and two batteries of the K-300P Bastion coastal defense missiles. More significantly, Vietnam also has placed an order with Russia for six Kilo-class conventional fast attack submarines, the first two of which are to be delivered in August 2013. In August 2011, Vietnam’s defense minister stated that he expects to deploy a modern submarine fleet by 20162017. Vietnam also has on order four Dutch Sigma-class corvettes. These recent arms acquisitions reflect a number of other factors in addition to the need to modernize and upgrade existing stocks of weapons systems and platforms. These include the growing importance of Vietnam’s maritime economy, the modernization of other regional armed forces and the introduction of new military technologies into the region. But no issue is more pressing for Vietnam’s defense posture than the territorial disputes with China in the South China Sea, which took on

8 a new urgency in 2007, when China became more assertive in pressing its claims to “indisputable sovereignty” to the disputed waters. As part of its more aggressive approach, China has harassed Vietnamese fishermen, put pressure on foreign oil companies to pull out of Vietnam and interfered with oilexploration vessels operating in Vietnam’s EEZ. There have been at least three public cable-cutting incidents involving seismic exploration ships contracted to operate in Vietnam’s EEZ. Reflecting the heightened tensions, Vietnam last year commenced reconnaissance patrols by Su-27 and Su-30 aircraft over the South China Sea. In addition to self-help military modernization, Vietnam has also responded to Chinese assertiveness with defense diplomacy in an effort to enlist support from major maritime powers. In 2010, for example, Vietnam used its position as ASEAN chair to lobby the United States and other powers to intervene in the South China Sea dispute at the mid-year meeting of the ASEAN Regional Forum and the inaugural meeting of the ASEAN Defense Ministers Meeting Plus in October of the same year. As a result, Vietnam’s relations with China and the U.S. are characterized by a delicate diplomatic balancing act not unlike its Vietnam War-era management of relations with China and the Soviet Union. Vietnam has raised its strategic dialogues with China and the U.S. to the deputy minister level, while expanding high-level and military-to-military contact with both. With regard to China, in November 2008, Vietnam invited the Chinese navy to resume port visits to Vietnam after a hiatus of 17 years. Chinese naval ships now visit annually. This month, two Chinese navy frigates and a replenishment ship paid a goodwill visit to Ho Chi Minh City after deployment in the Gulf of Aden. The VPA navy made its first port call to China in June 2009 and visited again in June 2011. In August 2011, China and Vietnam held their second Strategic Defense and Security Dialogue, where it was agreed that military exchanges would be increased and a hotline established between their two Defense Ministries. China and Vietnam also expanded the scope of their joint patrols in the Gulf of Tonkin initiated in April 2006. The 13th joint patrol, which was conducted in June 2012, included day and night signaling exercises and an anti-piracy drill. In September 2012, China and Vietnam held their sixth defense and security consultations, where the two sides agreed “to continue high-level visits, strengthen dialogue and consultation, promote cooperation in the fields of personnel training, border exchanges, navy and multilateral security issues.” Over the same period, Vietnam courted the U.S. with a series of similar high-level and military-to-military contacts. In 2009, Vietnamese officials began a series of regular fly-outs to U.S. aircraft carriers transiting the South China Sea. In 2010, the annual U.S. naval port visit to Vietnam was widened to include joint naval activities. Vietnam also agreed to carry out minor passage repairs on U.S. Military Sealift Command vessels, the most recent of which were carried out at the commercial port facilities in Cam Ranh Bay. While largely symbolic, these three developments also served Vietnam’s purpose of signaling to China that the United States is a legitimate and welcome actor in regional maritime security. The Vietnam-U.S. security relationship was further consolidated in September 2011, at the second U.S.-Vietnam Defense Policy Dialogue, when the two sides signed a memorandum of understanding identifying five priority areas of cooperation: regular high-level defense dialogues, maritime security, search and rescue, U.N.

9 peacekeeping and humanitarian assistance and disaster relief. The most recent example of high-level defense dialogue was U.S. Secretary of Defense Leon Panetta’s June 2012 visit to Hanoi in reciprocation for a 2009 visit to Washington from Vietnam’s minister of national defense, Gen. Phung Quang Thanh. Panetta made an unexpected detour to Cam Ranh Bay to meet with the crew of a U.S. Military Sealift Command vessel undergoing repairs. His visit sparked media speculation that the U.S. Navy might return to its former base. Vietnamese officials were quick to insist, however, that the navies of any country could use the commercial repair facilities at Cam Ranh, but that no country would be allowed to establish a military base in Vietnam. The meeting between Panetta and Thanh mainly focused on reviewing progress under their 2011 agreement. Thanh flagged future cooperation in addressing nontraditional security issues such as humanitarian assistance, disaster relief and search and rescue. He requested additional U.S. support in addressing legacies from the Vietnam War, such as Agent Orange and unexploded ordnance disposal. He also requested the lifting of U.S. restrictions on military sales to Vietnam. Panetta in turn suggested that Vietnam grant approval for the setting up of an Office of Defense Cooperation in Hanoi to facilitate future engagement. In addition to sovereignty disputes in the South China Sea, military modernization and balancing security relationships with China and the U.S., major challenges to Vietnam’s national defense include “war using high-tech weaponry . . . terrorism and high-tech and transnational crimes,” according to the political report delivered to the 11th National Congress of the Vietnam Communist Party in January 2011. In order to meet these challenges, the report recommended ensuring that “the armed forces incrementally have access to modern equipment with priority being given to the navy, air force, security, intelligence and mobile police forces.” VPA main forces, which are garrisoned throughout the country and have prime responsibility for countering any attack on Vietnam, conduct annual training exercises, including combined arms at all levels from platoon to corps. According to foreign military observers, when comparing the capabilities of Vietnam’s armed forces against other East Asian states in four key areas (territorial defense, seizing territory, constabulary role, strategic strike) using a four-point scale (poor, fair, good, very good), the VPA ranks good in territorial defense, fair in its ability to seize territory and carry out a constabulary role, and poor in the category of strategic strike. By 2015, Vietnam’s current arms acquisition program is unlikely to improve the VPA’s capabilities in the first three areas, but it is expected to raise the VPA’s strategic strike capability from poor to fair. Strategic Priorities Vietnam today faces daunting economic, political, defense and foreign policy challenges. On the economic front, Vietnam entered the ranks of the World Banks’ lower middle income countries in 2009. Vietnam’s GDP, measured using purchasing power parity, currently ranks 40th globally. Industry accounts for 41 percent of GDP and comprises mainly light manufacturing in food processing, textiles, tobacco and chemicals. Currently Vietnam’s top exports consist of agricultural products (17 percent), crude oil (11 percent), and textiles, garments and footwear (7 percent). Vietnam’s top-four export markets include the U.S., Japan, China and Australia, and its largest sources of

10 imports are China, Taiwan, Japan, Singapore and South Korea. In 2008, PricewaterhouseCoopers forecast that by 2025 Vietnam would become one of the fastest-growing emerging economies. However, Vietnam must carry out major structural reforms in order to ensure macroeconomic stability. This will entail a serious effort to reform the nation’s banking and financial system and restructure its debt-laden state-owned sector. These and other reforms are necessary to resume high growth rates and meet Vietnam’s long-term objective of becoming a modern and industrialized country by 2020. On the political front, Vietnam must also address the issue of massive endemic corruption and the extra-legal influence of private interest groups. This will be a difficult and potentially destabilizing process as these networks have flourished under the patronage of high-level officials. In 2012, serious infighting over this issue between rival VCP factions almost brought down the prime minister. Vietnam’s defense challenges are manifold. First, it must not only find the funds to finance its ambitious weapons procurement program but additional funding to maintain and service these systems as well. A major case in point is whole-of-life funding for the six Kilo-class submarines that Vietnam will acquire over the next five years. In 2012, the official defense budget was estimated at $3.3 billion, or 2.5 percent of GDP. Future defense spending will be closely tied to the growth of its GDP. Second, Vietnam faces major challenges in integrating its new weapons systems into its existing force structure. For instance, regional naval analysts argue that the VPA navy, as currently structured and organized, will be incapable of effectively operating a fleet of six Kilo-class submarines. Further, Vietnam has yet to master the revolution in military affairs and create truly joint naval-air operational groups. Vietnam may have to consider reducing the size of its standing army in order to finance and develop its naval and air forces. Third, Vietnam’s 11th Party Congress gave priority to promoting international defense cooperation, which is included as a section in each of Vietnam’s eight strategic partnership agreements. A key priority for Vietnam is to convert these intentions into practical outcomes that benefit the VPA. Vietnam also has given priority to making a modest military contribution to U.N.-sanctioned peacekeeping. How well it is able to implement these goals will play a part in determining the training and readiness of its armed forces. Vietnam also faces many foreign policy challenges, chief among them the management of relations with China in order to prevent the South China Sea territorial dispute from undermining broader bilateral ties. Currently, the VCP is reviewing and revising the resolution of its eighth plenum (2003) to ensure a more evenhanded approach to relations with China and the United States. Another top foreign policy priority is to promote ASEAN unity and strengthen its capacity to deal with regional security issues. Vietnam will lobby for a more proactive role by ASEAN defense ministers and service chiefs in addressing maritime security, including combined patrols and naval exercises. This could reinforce Vietnam’s other priority of stability in the South China Sea, as Hanoi will continue to push for an effective ASEAN code of conduct to moderate Chinese assertiveness there. Vietnam also has prioritized ASEAN unity in order to strengthen two new regional multilateral bodies, the ASEAN Defense Ministers Meeting Plus and the East Asia Summit, in dealing with the major powers, China in particular. Vietnam has placed

11 priority on expanding the membership of these bodies, as well as the Asia Europe Meeting, by including its current European strategic partners, Germany and the United Kingdom. Meanwhile, Vietnam has made it a priority to expand the list of its eight strategic partners to include Italy, France, Singapore, Indonesia and the United States. It is likely that Vietnam will reach strategic partnership agreements over the next year with all but the United States, with which any further upgrading of relations has stalled because of Vietnam’s poor human rights record. Vietnam must address this issue in order for the Obama administration to relax restrictions on military sales to Vietnam contained in the International Trafficking in Arms Regulations. Vietnam’s final strategic priority is to commence planning in mid-year for the 12th National Party Congress scheduled to be held in 2016. A key consideration will be the selection of the VCP’s new leadership team. Vietnam is fast emerging as an important middle power in Southeast Asia. It possesses substantial diplomatic, economic and defense resources that can make significant contributions to the goal of creating an ASEAN Community by 2015. On the diplomatic front, Vietnam will have its work cut out for it in balancing relations between China and the U.S. and ensuring ASEAN unity and cohesion. Vietnam faces perhaps its most formidable challenge in reforming its economy, resuming high growth and maintaining stability. Finally, Vietnam will face major hurdles in integrating newly acquired modern weapons systems and platforms so they can be deployed effectively. Failure on any front could lead to a devaluing of Vietnam’s strategic role in regional affairs and leave it exposed in dealing with China over territorial disputes in the South China Sea. Carlyle A. Thayer is emeritus professor, the University of New South Wales at the Australian Defence Force Academy, Canberra, and director of Thayer Consultancy.