VIETNAM: WEN JIABAO TO DISCUSS TRADE, BORDER DURING

UNCLAS SECTION 01 OF 03 HANOI 002745

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TAGS: PREL ETRD PBTS CH VM ASEAN CVR
SUBJECT: VIETNAM: WEN JIABAO TO DISCUSS TRADE, BORDER DURING
VISIT

Reftels: A. Hanoi 558; B. Hanoi 1680; C. Hanoi 2638


1. (SBU) Summary and Comment: Chinese Prime Minister (PM)
Wen Jiabao will join the parade of Asian and European
leaders to the ASEM 5 summit in Hanoi October 7-9.
Reflecting China's status as Vietnam's ideological soulmate
and "big brother," Wen will be one of only five leaders to
also have a bilateral official visit. Although border and
territorial issues -- such as Vietnam's concern about the
recent China-Philippines South China Sea agreement -- will
be discussion topics, the main focus of the visit will be on
trade and economic matters. Deliverables may include
economic and trade agreements to increase investment and
some tariff and quota changes designed to boost trade
volume. The Vietnamese will ask China for a deadline for
concluding WTO talks, but the PRC Embassy believes that
setting a deadline would be premature. The subject of a Hu
Jintao visit to Vietnam will reportedly not be on the
"official agenda." We believe Vietnam's strong trade and
investment ties and other unofficial relations with Taiwan -
- which are in striking contrast with Vietnam's relatively
modest economic interaction with China -- are at least
partly driving the economic aspects of the visit. End
Summary and Comment.

GVN PLANS FOR WEN'S VISIT
--------------


2. (U) PM Wen's Hanoi trip will mark the second bilateral
head of government meeting this year, following Vietnamese
PM Phan Van Khai's visit to China in May. GVN sources said
the focus of Wen's talks will largely be on economic issues,
with the two sides expected to sign ten agreements and
memoranda of understanding in areas such as technical
economic cooperation, electrical power development, rail
line improvement and animal quarantine procedures. China
and Vietnam are also expected to form a mechanism for
regular meetings between Ministry of Trade and Ministry of
Planning and Investment officials from both sides. In
addition, China and Vietnam will sign an MOU on forming two
cross-border "economic corridors" to facilitate trade and
investment: Kunming-Lao Cai-Hanoi-Haiphong and Nanning-Son
La-Hanoi-Haiphong. Wen will also participate in the
groundbreaking ceremony for the China Cultural Palace in
southern Hanoi.


3. (U) Dr. Do Tien Sam, Director of the Government-run
Institute for Chinese Studies, told Pol/C October 4 that the
largely economic focus of Wen's visit reflected concern in
both countries that the development of bilateral political
relations had outpaced that of economic relations.
Specifically, Sam noted that, although bilateral trade
volume was on the rise, Vietnam still ran a deficit with
China. Furthermore, China ranks only fifteenth among
foreign investors in Vietnam, but most of this investment
was small-scale, not technologically advanced and had only
limited job creation ability, he added. On the subject of
Vietnam's WTO accession, Pham Cao Phong, a China expert at
and Deputy Director General of the MFA-affiliated Institute
for International Affairs, told Pol/C that Vietnam would
seek from China a "WTO-related commitment" on the occasion
of Wen's visit.

SPRATLY PROBLEMS
--------------


4. (SBU) Phong also said that bilateral political and
territorial issues would be important agenda topics. For
example, the signing of an agreement between China and the
Philippines for "joint exploitation" of a contested area of
the Spratlys was an issue of "serious concern." Although
China and Vietnam had agreed recently to consult regarding
decisions and actions that could affect one another in the
South China Sea, China had not done so prior to inking its
agreement with the Philippines, Phong noted. According to
the China Institute's Dr. Sam, Vietnam was now concerned
that China would try to reach similar agreements with
Indonesia, Malaysia and Brunei (the three other claimants to
the Spratlys, not counting Taiwan),and that this would put
Vietnam in awkward position. For its part, the GVN believed
in ASEAN solidarity and was loathe to criticize its ASEAN
partners, but China's attempts to "drive a wedge" among them
was troublesome, Sam said.


5. (U) According to Sam, another bilateral issue on the
agenda is the demarcation of the Vietnam-China land border.
Although the two sides had a border agreement, the
demarcation process was moving ahead slowly because of
"Chinese complications." Among these were Chinese farmers
crossing over the border to cultivate land and Chinese
citizens exhuming and moving the graves of Vietnamese on the
"wrong" side of the frontier. At this point, the GVN hoped
that this problem could be worked out by local authorities
and that it would not affect the larger bilateral
relationship. Responding to Pol/C's question, Sam said that
the subject of a possible Hu Jintao visit to Vietnam was not
on the "official agenda" for Wen's visit. However, now that
Hu has assumed all three senior PRC leadership positions, he
will "surely" visit in the near future, Sam concluded.

PRC OFFICIAL DOWNPLAYS VISIT'S IMPORTANCE
--------------


6. (SBU) According to Li Jingfeng, Attache at the Chinese
Embassy in Hanoi, Wen's visit will be "nothing special." Li
told Poloff September 28 that the official focus of the
visit would be economic relations and cooperation between
the Vietnamese and Chinese Communist Parties. Li said that
the two countries had set a goal to reach USD 10 billion in
bilateral trade by 2010. To advance that goal, both sides
would announce new trade privileges. China would "raise the
quota and lower the tariff" on Vietnamese rice imports, as
well as "some other commodities," and Vietnam would "lower
tariffs on some Chinese manufactured goods." Li said he
thought that, if tariff and quota restrictions were lifted,
the natural trade volume between China and Vietnam would
exceed USD 10 billion "within a short time." As a result,
the two governments were in a position to follow through on
what were usually rhetorical calls for increased economic
links.


7. (U) Li said China was aware that the GVN wanted to
extract a commitment to conclude bilateral WTO accession
talks by a certain date. "We know they want this," Li said,
"but we are not ready to provide it."


8. (SBU) In addition to the trade and commercial aspects of
the visit, Li said the two sides need to discuss the border
demarcation issue. The agreement had been signed, Li noted,
but the actual placement of the markers was going extremely
slowly "due to local disputes of only a few meters." He
added that implementation of the fishing agreement the two
sides had signed covering demarcation of the boundary in the
Tonkin Gulf (ref A) was uncontroversial and so far
"productive." Cooperation in other areas of maritime
security -- such as combating piracy or interdicting illegal
migrants or weapons shipments -- is possible in theory but
has not been addressed in detail bilaterally, Li added.
Both sides have formally committed to supporting such
cooperation, but, without specific implementation plans,
that agreement would remain rhetorical.


9. (SBU) Comment: As many as 35 heads of state and
government will attend the ASEM 5 summit this week in Hanoi,
including heads of state or government from every ASEAN+3
country except Burma. In addition to China, France,
Germany, Belgium and Korea will have official visits before
or after ASEM. For China and Vietnam, the issues and
deliverables on Wen's agenda -- adjusting a number of quotas
and tariffs, signing an agreement on "economic corridors"
and discussing (again) border demarcation -- are all things
that could have been accomplished during any of the hundred
or so ministerial-level exchanges during the year. However,
it appears that the attitude (evident in our conversations
here) that "Wen will be here anyway, so let's make it a
bilat" combined with China's status as the dominant power in
Vietnam's immediate neighborhood to upgrade the visit to
official bilateral status.


10. (SBU) Comment continued: The Taiwan issue did not come
up in our meetings as a possible agenda topic for the Wen
visit, but the issues raised on the Vietnamese side danced
all around it. Economically, the relationship between
Taiwan and Vietnam is the opposite of Vietnam's relationship
with China: trade relations are in very good shape and by
some measures Taiwan is Vietnam's largest investor. Taiwan
has invested huge sums over a long period of time in a
diverse array of industries and geographical areas.
Official journals in Vietnam praise Taiwan's investment in
Vietnam as an example other countries should follow, and
Vietnam officially credits Taiwan investment for raising the
capacity of and living standards for large numbers of
Vietnamese workers. In contrast, China's investment in
Vietnam is extremely low. Actual investment is even lower
than the official numbers, since Vietnam includes Hong Kong
(which itself includes a great deal of Taiwan investment
flowing through Hong Kong subsidiary companies) in its
calculation of Chinese investment. In the political China-
Taiwan equation, Vietnam is staunchly pro-China. At this
point, however, the relationship with Taiwan is far more
valuable economically to Vietnam, and the key aspects of
this state visit may be in some part designed to address
this contradiction. End comment.
MARINE