Academic journal article Contemporary Southeast Asia

The Political Economy of Taiwan's Relations with Vietnam

Academic journal article Contemporary Southeast Asia

The Political Economy of Taiwan's Relations with Vietnam

Article excerpt

Taiwan and Vietnam did not have any links from the mid-1970s to the late 1980s, but since the early 1990s both sides have improved their political and economic relations. Economists contend that Taiwan's expanding investments in Vietnam play a key role behind this change. This article argues that the Taiwan authorities are using the island's economic resources in exchange for political gains from Vietnam. Taiwan's economic diplomacy has been quite successful in developing the island's relations with Vietnam over the past decade, but Taiwan is also facing a serious challenge from Mainland China, because the latter is also strengthening its links with Vietnam. To solve Taiwan's political isolation in the world, both Taiwan and the Mainland will have to go back to the negotiating table.


When the Viet Cong conquered Saigon (Ho Chi Minh City) in April 1975, Vietnam was completely under the control of the communists. Over the next eleven years (1975-86), few scholars and observers had any opportunity to know real conditions in Vietnam because of its closed society. As a result of its expensive military venture in Cambodia and little domestic economic development, Vietnam's economy was on a declining trajectory. Vietnam suffered negative economic growth in the early 1980s, with gross national product (GNP) per capita falling to less than US$200. When China opened its doors to the world in 1980 and subsequently experienced rapid economic growth, Vietnam, the biggest communist country in Southeast Asia, also decided it was time to make a change.

Since Vietnam implemented doi moi (renovation policy) in late 1986, it has enacted a number of laws [1] to encourage foreign investment in the country. [2] During the past decade Vietnam has absorbed relatively large amounts of foreign direct investment (FDI). Major sources of FDI have included Hong Kong, Taiwan, Japan, South Korea, Singapore, France and some other Western European countries. According to official Vietnamese statistics, Taiwan, with accumulated capital of more than US$4.7 billion by the end of 1998 (from 1990 to 1998), has become the largest foreign investor in Vietnam, followed by Singapore and Hong Kong. Because of Vietnam's great potential for business opportunities (for example, relatively cheap labour), [3] most foreign enterprises entered Vietnam purely for economic reasons. Accordingly, Vietnam's economic relations with the capitalist world, especially countries along the Pacific rim, have strengthened considerably since the early 1990s.

Most economists contend that Taiwan's increasing investments in Vietnam is no different from that of other foreign investors. According to one field study, about 86.4 per cent of Taiwanese small firms (with less than 300 employees) and larger firms have invested in Vietnam to take advantage of its low-cost labour. [4] The background to this is that Taiwan's native enterprises, because of the island's worsening investment environment, [5] have gradually moved out since the mid-1980s to seek opportunities elsewhere; this occurred almost at the same time as the initiating of Vietnam's open-door policy. However, this represents only a partial explanation of Taiwan's increasing investments in Vietnam.

Several questions immediately come to mind. Why did Taiwan expand its economic links with Vietnam so quickly in such a short period of time? Why have Taiwan and Vietnam recently upgraded their bilateral relations? While knowing of Taiwan's improving relations with Vietnam, how has Mainland China been dealing with this development? How is Vietnam handling China's political intervention in the growth of the Vietnam-Taiwan relationship? This writer argues that Taiwan's increasing economic links with Vietnam contains both economic and political rationales, because the ruling elite in Taiwan is using the island's economic resources in exchange for political gains from Vietnam (for example, establishing semi-official offices in both countries). …

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