By Li Wei    Source: Global Times    Published: 2019-3-25

Last year was marred by a series of economic shocks. In 2018, the World Trade Organization faced an unprecedented crisis, and the global trade order suffered clashes because of a tariff war launched by the US.

Against this backdrop, Vietnam's position on the global economic chain has advanced. China needs to enhance economic diplomacy and cooperation to counter the side effects of a declining international economy.

Vietnam, amid the current complicated international economic situation, has acquired its share of benefits. For one, with lower labor costs and strong economic growth, the country is the latest destination for developed countries to relocate their processing and manufacturing facilities.

As the EU-Vietnam Free Trade Agreement (EVFTA) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) came into force, Vietnam's role among the global free trade network has also become more prominent.

China, as the second largest economic entity in the world, faces pressure maintaining and expanding economic growth. On the one hand, China has to reinforce its major manufacturing power by improving its investment environment and further opening up. On the other hand, it should pay attention to economic diplomacy with Vietnam, making closer ties with Vietnam a breakthrough point of the current global predicament.

China needs to position its relationship with Vietnam on a strategic level, switching the focus of bilateral relations from the South China Sea to economic cooperation. Though the spat hasn't damaged bilateral economic cooperation, it could be a potential barrier to lifting bilateral relations to the next level. To share the dividends from Vietnam's rising position, China should consider downplaying the South China Sea issue without compromising territorial integrity. The move would reduce uncertainties in bilateral relations.

China should further its research and launch China-Vietnam free trade zone negotiations to connect with a broader trade network, which would help achieve higher trade standards.

Based on the differences in economic volume, opening the market to Vietnam will not jeopardize Chinese industries.

China can expand its overseas market by getting into developed markets such as the EU or Japan through Vietnam. The geographical advantages Vietnam offers have made it an emerging hub of international trade after Singapore and China's Hong Kong Special Administrative Region.

China is Vietnam's largest trading partner, with bilateral trade volume exceeding $100 billion in 2018, accounting for more than 20 percent of the total volume of Vietnam foreign trade. This is a favorable foothold to start negotiations for a free trade agreement.

Chinese companies should be encouraged to establish factories in Vietnam to bypass high tariffs targeted at them. Compared with Japan, South Korea, and Singapore, China is a latecomer in Vietnam investment.

Under the new international economic situation, China should accelerate local investment to create substantial interest for the country. China could transfer relatively low labor costs into price advantages. Launching factories in Vietnam can also extend China's corporate brand influence.

"Made in China" will become "Made in Vietnam," helping China avert unfair tariffs. The free trade network in Vietnam would help Chinese products sell on other overseas markets. Companies, domestic or international, relocating to Vietnam will motivate Chinese industries to upgrade and transform, eventually playing a different role in the global production chain.

Both countries need to increase their cooperation in the financial sector to facilitate bilateral trade and investment. The Chinese yuan and Vietnamese dong swap agreement and clearing system need to be pushed forward to reduce their dependence on US dollars and risks from exchange rate fluctuations.

More Chinese banks can move into Vietnam and provide better financial services there. The two countries also need to build high-level dialogue so different opinions can be exchanged.

Both countries need to strengthen people-to-people exchanges to pave the road for long-lasting peace and stability between them. China should increase public diplomacy by promoting tourism to Vietnam, providing scholarships to the country's students and encouraging inter-marriage between young people. Such cultural exchanges can help resolve negative sentiments and build mutual trust.

The author is professor with the School of International Studies and research fellow at the Chongyang Institute for Financial Studies at Renmin University of China.