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Russian-Vietnamese Economic Cooperation:

After the Slowdown
Marina TRIGUBENKO*
1. Economic Interests of Russia and Vietnam and
the Depth of Their Cooperation in the Early 21st Century
In the days of the socialist community of nations, Vietnam was, without
exaggeration, the U.S.S.Rs most valued political ally in East Asia, particularly
after the U.S.S.R. had rolled back its relations with China, as a way to maintain
balance of power in the Pacific region. Real strategic partnership would have
been hard to maintain without significant economic aid from the U.S.S.R., which
provided credits to restore, modernize, and build a modern economy in Vietnam,
and trained administrators, scholars, and engineers, and many of whose institutions were developing alternative concepts for Vietnams postwar industrialization.
In years before the breakup of the U.S.S.R., cooperation between the two
countries in investment was practiced by making and implementing intergovernmental agreements coordinated by the two countries State Planning Boards to
avoid risk and threat of default on existing arrangements as much as possible.
Cooperation in the investment area was effected by matching and coordinating
five-year economic development and foreign trade plans beginning in 1985. The
general long-term program for power industry development in Vietnam extending as far ahead as 2005, and long-term programs for cooperation in agribusiness, textiles, and industries in 1991-1995, and even 2000, were the more significant areas of cooperation for Vietnam.
Efficiency of investment cooperation with the U.S.S.R. was also achieved by
giving more weight to export-oriented industries in Vietnams economy, primarily agriculture and consumer goods.
Marina Trigubenko, M.Sc. (Econ.), Director, Center for Asian Studies at the RAS Institute of
International Economic and Political Studies.
* Report at the Second Russian-Vietnamese Academic Symposium held within the framework
of a plan for scientific cooperation between the Russian Academy of Sciences and the National Academy of Social Sciences of Vietnam in Hanoi on April 1, 2004.

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The largest projects built from borrowed funds included a 440 MW cogeneration plant at Pha Lai, hydroelectric power plants at Thak Ba (120 MW), Chi
An (420 MW), and Hao Binh (2,000 MW), a cogeneration power plant at Vong
Bi (153 MW), more than 1,400 km of high-tension power transmission lines and
substations, coal strip and underground coal mines with a total capacity of 10.3
million tons of coal a year, a machine plant in Hanoi, Lao Cai apatite mine, Tin
Tuk tin mine (capacity 450 tons of tin), Bim Shon cement plant (capacity 1.2 million tons), Lam Thao superphosphate plant (capacity 300,000 tons of superphosphate and 180,000 tons of sulfuric acid), tea-packing and coffee bean processing
plants, bakeries, hospitals, a polytechnic in Hanoi, a network of vocational
schools, two ground stations of the Intersputnik space communications system,
docks in Hai Phong, Than Long bridge 5.5 km long across the Red River in
Hanoi, a Labor Unions Cultural Center, a nuclear reactor at Da Lat, and many
other projects. By the early 1990s, enterprises built in Vietnam with credits and
engineering assistance from the U.S.S.R. were producing 70.5% of that countrys
electric power needs, 71.4% of its coal, 45.4% of its cement, 100% of its oil,
superphosphate, and apatite ore, 42% of its tin, and 100% of its metal machining
lathes. More than 190,000 Vietnamese engineers and technicians received training in the U.S.S.R. over the years of cooperation.
Investment projects required large loans. In decades of cooperation, beginning in 1955, the U.S.S.R. made government loans worth 16.4 billion rubles to
Vietnam, which actually used up 12.6 billion rubles and repaid or refinanced
around 2.8 billion rubles of the principal, with another 1.1 billion rubles of the
principal written off. In the early 1990s, Vietnam owed the former U.S.S.R. a
total of 10.2 billion rubles in outstanding debt on the loans it had received in the
preceding decades.1
The Russian government made little use of the positions the U.S.S.R. had
gained in Vietnams economy. Breaking off its trade and economic links with
former Comecon countries in favor of developed countries, Russia lost many of
its advantages in Asia and, in fact, abandoned Mongolia, Vietnam and, to an
extent, North Korea to be picked up by an anti-Russian alliance led by the U.S.
and its Asian allies. This neglect led to the rollback of all forms of cooperation
in trade and economic, scientific and engineering projects between this country
and Vietnam in the early half of the 1990s.
In addition to neglect, there were objective reasons as well because of
changes in the conditions and mechanisms of cooperation. In the heyday of the
U.S.S.R., cooperation was maintained almost entirely from government credits
and free aid at the level of central government agencies only and in the form of
direct links at the provincial level. In the new market-type environment in Russia, this country and Vietnam do not coordinate their long-term plans because the
Russian Ministry of Economy and Trade is deprived of these functions in its relationships with other countries and is yet to come up with a medium-term concept
for economic development of Russia itself.

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Of all forms of economic interaction between Russia and Vietnam, Russia

could only salvage or expand from the 1990s to this day the tradition, surviving
since before the collapse of the U.S.S.R., of assisting Vietnam to develop its
southern oil fields and its power industry.
Cooperation with Vietnam in oil and gas production is carried on today at the
intergovernmental level as it was in the days of the U.S.S.R. True, it is managed
differently now that the state-run organization, Zarubezhneft, has been reorganized into a public limited company, which is fully owned by the government.
On the Vietnamese side, cooperation in this area is monopolized by the government-owned company PetroVietnam. The joint venture, Vietsovpetro, which the
two companies had set up while the U.S.S.R. was still a superpower, is among
the worlds ten biggest oil producing companies. In spite of Vietsovpetros
monopoly position in Vietnams oil and gas sector (producing more than 80% of
Vietnams oil), it is gradually elbowed out by foreign, mostly South Korean, oil
and gas companies. In 2003, Vietnam produced 16 million tons of oil, of which
13 million tons was contributed by Vietsovpetro.2 In 2003, Vietnams government received $1.6 billion, or 4% of GDP, in budget revenues from oil exports,
with total receipts from oil reaching $2.9 billion in that year.
Even through it experiences a measure of its own financial problems,
Vietsovpetro shows no intention of surrendering its hard-won positions and is
looking for partners to lean on. An example of multilateral collaboration on Vietnams oil-rich continental shelf is provided by a consortium formed in mid-2002
by Zarubezhneft, Vietnams government-owned PetroVietnam, and the Japanese
corporation Idemitsu, which drilled a test well in Section 09-3, a promising oil
area 150 km south of Vung Tau. According to tentative estimates, Section 09-3
contains 50 million tons of oil. The consortium has invested $15 million, of
which a half was provided by Zarubezhneft.
Another example of cooperation is joint oil exploration on Vietnams northern shelf by Russias Gazprom and Zarubezhneft and Vietnams PetroVietnam.
The prospects of Russias involvement in the construction of Vietnams first
oil refinery in Trung Quant can be appreciated from the fact that, acting on the
agreement and protocol signed in December 2002, Russia transferred its interest
in the projects authorized capital to Vietnam. Previously, Russia offered a loan
worth $250 million to Vietnam for the construction of the refinery, but the loan
was not disbursed and was returned by Vietnam to the lender. Russias actual
withdrawal from the refinery project (which was to cost $1.3 billion, with completion scheduled for 2004) created major problems for Vietnam. The refinery
was designed to obtain 6.5 million tons of petroleum products a year from crude
oil to be supplied, under an agreement, by PetroVietnam. With the refinery completed, the Vietnamese government planned to sharply reduce imports of petroleum products, expecting to meet 70% of its needs by the refinerys products.3
PetroVietnams other problems arise from the need to get approvals for oil
production in the long term. At the latest session of the intergovernmental com-

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mission in February 2004, the Vietnamese delegation insisted on gradually

reducing it to 11 million tons [a year]. Russia wants to keep it at the 2003 level
of 13 million tons. Vietnam explains its insistence by deteriorating oil well production conditions and risks created by outworn equipment.
Russia is seeking to maintain its leadership in electric power generation.
Until recently, 80% of electric power has been generated by hydroelectric power
and cogeneration plants built with soft loans provided by the former U.S.S.R.
Unlike the oil and gas industry, Russia has many rivals among investors in Vietnams power industry, and it lacks experience in bidding and lobbying for its own
interests. Russia made a loan of $100 million for the construction of the Plei
Krong and Sesan-3 hydroelectric power plants. By 2004, 60% of the loan had
been disbursed, and the balance is to be used to expand the Kuang Chi hydroelectric power plant. Russia hinted it wanted to give a hand in the building of a
hydroelectric power plant at Son La, the biggest power plant in Southeast Asia.
The Son La project will require $5 billion in investments, and it is to be built by
inviting international tenders. So far, Russian involvement in the Son La power
plant has been confined to delivery of power equipment. In addition to these
power plants, Russia and Vietnam have shown interest in building the Na Hang
and Sesan-3A hydroelectric power plants and the Hai Phong cogeneration plant,
all eyed by contractors from other countries.
According to Russian government statements, Russia will strive to maintain
its economic presence in these key industries of Vietnams economy as priorities
in bilateral intergovernmental cooperation in the medium term. Russias resolve
to reinforce cooperation in several key industries of Vietnams economy (oil and
electric power), agriculture, science, and engineering was reaffirmed again during the official visits of Vietnams President Tran Duc Luong to Moscow in May
2004. President Tran Duc Luong emphasized in an exclusive interview to ITARTASS that the Moscow meeting was a sequel to the high-level political dialogue
between Vietnam and Russia, and that growing partnership between Vietnam and
Russia plays a positive role in the Asia-Pacific Region (APR).
The results of the talks we have had, Russian President Vladimir Putin
said at the end of the negotiations with Tran Duc Luong in the Kremlin, confirmed once again that our countries are fully determined to continue an open and
trusting dialogue. In his words, the two countries are on an upsurge, and relations between them are thriving. President Putin said he was sure that our relations will be gathering strength in days ahead.
The Russian President called the Vietnamese Presidents official visit to Russia an important stage in the development of our bilateral relations, traditionally friendly, mutually beneficial, and holding out an enormous promise for the
future. The talks, he said, would promote cooperation between the two countries.
President Putin named Russian-Vietnamese economic cooperation among
the key subjects discussed at the meeting. In his words, the talks covered coop-

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eration in the fuel and energy industries. Vietsovpetro is certainly the undisputed leader here, said the Russian President.
Mr. Putin also spoke about enormous prospects in engineering, agribusiness,
construction, and communications. We give much importance to developing
relations in the spheres of high technologies and work force training, he said.
The Russian and Vietnamese leaders exchanged opinions on key international issues. During our meeting today, we exchanged notes on major problems
in international politics, said Vladimir Putin. The issues he discussed with the
Vietnamese President included ways to promote stability and security in the
Asia-Pacific Region and in the world at large, and the fight against terrorism,
among others.
The Russian President said that Russia and Vietnam took similar or identical
stands on critical international issues. We are fully satisfied with the extent of interaction and understanding on ways to deal with international problems, he said.
The Vietnamese President stressed, in his turn, that Vietnam attaches great
importance to the cooperation with Russia as Vietnams traditional major and
significant strategic partner.
President Tran Duc Luong came out for the need to encourage cooperation
in order to boost commercial and economic exchanges. During his talks with
President Putin, he said, they explored the possibility of work on large joint projects and expressed confidence that such projects had great prospects.4 Russias
experience in reforms shows that it cannot maintain a significant presence in
other countries by reliance on the public budget only. The challenge requires
involvement of Russian nongovernmental interests ready to invest in Vietnam.
These goals were reflected in an agreement signed in Hanoi in November
2000 on cooperation in trade, economics, science, and engineering between the
Russian Union of Industrialists and Entrepreneurs and Vietnams Chamber of
Commerce and Industry. The agreement has helped expand exchanges in knowhow and critical information between the business communities, and hold joint
business workshops and exhibitions, all of which are important for comprehending the investment climate, legislations, and economic situation in the two
countries.
At the moment, however, these functions are shouldered by private Vietnamese businesspeople working in Russia. They have been relatively successful in
starting to deliver varied products, from knowledge-intensive to engineering and
technological goods, including spare parts for oil well equipment, motor vehicles,
civil aviation equipment, fuels, and primary commodities from Russia to Vietnam.
Working in Russia, they entered the markets of other CIS countries, where they
have established a well-informed network of Vietnamese small businesses. Their
success comes largely from the human element many of them who had lived
and studied in Russia, have learned to speak Russian know about Russian customs,
Russian mentality and are now well aware of the opportunities Russian manufacturing industries have for meeting Vietnamese businesses needs.5

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The Vietnamese, however, are exposed to factors affecting every small business in Russia: rising prices, shipment costs, and customs duties, and high interest rates that put Russian bank loans out of their reach, and so on.
Many deals collapse on the Russian side, undercutting Vietnamese businesses hopes of obtaining necessary goods in Russia. The Vietnamese, too, are prone
to break contract terms, like placing an order with a Russian manufacturer and
then going back on it. Russian manufacturers, too, lose faith in Vietnamese
traders. Unreliability is perhaps the greatest fault with Vietnamese businesspeople operating in Russia.
The need for a coordinating nongovernmental agency (like the Union of
Industrialists and Entrepreneurs in Russia and the Chamber of Commerce and
Industry in Vietnam) is dictated, above all, by Russias reluctance to invest in
Vietnam. Among the 13 biggest foreign investors in Vietnam in 1988 through
2002, Russia ranks ninth (with $1.5 billion, of which $670 million has actually
been disbursed, see: Table 1).
Table 1
Foreign Direct Investments by Countries in 1988-2002,
in millions of USD
Countries and territories

Number of projects

Total investments

Disbursement

Singapore

266

7,245

2,626

Taiwan

935

5,178

4,773

Japan

375

4,308

3,276

Republic of Korea

484

3,664

2,105

Hong Kong

262

2,875

1,752

France

127

2,099

884

British Virgin Islands

157

1,795

903

The Netherlands

45

1,685

1,055

Russian Federation

40

1,507*

670

Great Britain

49

1,218

894

Thailand

109

1,159

537

United States

157

1,113

546

Malaysia

117

1,110

893

* Less investments by Vietsovpetro Joint Venture.

Source: Vietnam Economic Review, 2003, No. 1, p. 22.

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Regardless of its modest rankings (2% of the total number of projects and
4% of total stated capital) in the total FDI in Vietnam, Russia was included in the
club of 13 leading investors in Vietnam in 2002, with over $1 billion in registered capital each and a total 85.65% share in FDI.
Unlike other Southeast Asian countries and China, Vietnam exports little
capital, with Russia in first place among its recipients. For example, Vietnamese
investments in the Russian economy amounted to $17.6 million under 10 projects of the total $52 million Vietnam had in overseas investments in 1988-2002.6
Beginning in the second half of the 1990s, trade between Russia and Vietnam has been growing steadily, even if slowly, from $271.2 million in 1996 to
$690 million in 2002. Growth in trade was, to an extent, caused by Vietnams
purchases of Russian machines and equipment for its investment projects.
According to tentative estimates, trade was to increase to $750 million in 2003,
or to 2% of Vietnams total foreign trade in that year.7 (See: Table 2)
Table 2
Russias Trade with Vietnam in 1996-2003, millions of USD
1996

1997

1998

1999

2000

2001

2002

2003 (nine months)

Total

271.2

278.9

357.4

353.5

363.1

571.3

690

485

Exports

186.5

159.1

224.8

239.0

240.6

376.8

500

370

Imports

84,.7

119.8

132.6

114.5

122.5

1 94.5

190

115

Source: Russias Foreign Trade. Statistical Yearbooks, Moscow (in Russian).

Apart from interstate trade, there is a significant amount of unofficial trade

that various sources estimate at between $13 million and $15 million a year.
Russia and Vietnam both have a vested interest in continuing cooperation in
science and engineering by drawing on their rich experience in these areas in the
past. The late 1990s saw a mild recovery in their old scientific and technological
ties and resumption of Russian field research in Vietnam, including exploration
and study of that countrys natural resources, climate, society, ethnic groups, and
languages. Cooperation is gathering momentum in workshop organization and
publication of joint projects of studies in linguistics, history, ethnography, geography, and economics of Vietnam. Less significant headway has been made in
equivalent exchanges of researchers between the two countries Academies of
Sciences because of financial constraints on both sides. Work on 20 projects and
50 subjects in natural sciences, such as high technologies and the environment,
and in social sciences and humanities was under way in the 1990s. An agreement
between the two countries education ministries on cooperation in higher education covered several new areas, including professional advancement facilities for

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researchers, skill improvement for Russian-language teachers, promotion of education in social sciences, humanities, natural sciences and engineering, application of modern techniques in education and vocational training, creation of databases and data search systems, and so on. To date, Russian higher education
institutions willing to accept Vietnamese students and lists of specialization they
offer in education have been identified.
At present, Vietnamese students study under three schemes in Russian institutions of higher learning. First, their tuition fees are paid from Vietnams government budget. Second, their tuition fees are covered from funds allocated by
the Vietnamese government to repay its debt to Russia. These allocations take up
0.25%, or $3 million, of the total repayment funds. This form of covering tuition
fees is approved in the agreement signed by the two governments on July 9,
2002, on training of Vietnamese citizens at Russian higher education institutions.
Education bills are settled by the Russian Bank for Foreign Trade and Vietnams
commercial Vietcombank. Under the third scheme, undergraduates and postgraduates pay their own tuition fees under contracts with education institutions.
In 2003, around 2,400 young Vietnamese studied at Russian academic and
research institutions under contracts.
Under yet another training scheme, labor is trained on the basis of contracts
between major Vietnamese business firms and Russian higher education institutions. Good examples of this scheme are contracts between the state-owned oil
and gas company PetroVietnam and the I.M. Gubkin Oil and Gas Academy in
Moscow,8 and between the VietnamAirline company and the Civil Aviation
Academy in St. Petersburg.
Professional training for Vietnams nationals under cooperation arrangements is being gradually extended to areas previously off-limits for foreigners,
such as military technology. Vietnam has received most of its military equipment
from the former U.S.S.R. and, after its breakup, from Russia, over several
decades. Cooperation, therefore, can extend to hardware modernization and
quality maintenance by Vietnamese professionals and technicians.
The two sides are now exploring the possibility of Vietnams first-ever training center being opened in that country with Russian assistance to prepare personnel for that countrys national emergency relief service. This possibility is
reflected in the Memorandum of Understanding between the two countries relief
services, in particular, their regular cooperation in exchange of expertise and
training of Vietnamese specialists. Under current plans, personnel for Vietnams
emergency control service is to be trained at the Russian Civilian Protection
Academy of the Federal Ministry of Emergencies and at the emergency relief
training center in Noginsk, east of Moscow. Graduates of Russian training centers will be appointed instructors at a training center in Vietnam. This kind of
center can play a key role for Vietnam itself and for the entire region, which is
notorious for its frequent natural disasters. In the view of Russian specialists, the
former naval base in Cam Ranh Bay, which has an air strip, aircraft hangars, and

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other auxiliary structures, could reduce costs involved in setting up an emergency personnel training center.
2. Resources and Opportunities for Russian-Vietnamese Relations
The experience Russia and Vietnam gained in the second half of the 1990s
shows that they are both interested in cooperating in industries and areas they
consider their top priorities. In addition to fuel and energy, these include military
hardware. Cooperation in military hardware is coordinated by government agencies, which arrange for heavy shipments of military equipment, estimated by
Western experts at $500 million [a year], to be delivered to Vietnam. This area
offers good prospects and high hopes of stability, with the Russian militaryindustrial complex back on its firm feet. In 2003, Russias exports of military
equipment and hardware to countries around the world topped $5.1 billion, for
the first time in its history, a jump from $3.2 billion in 2001. Growth was
achieved chiefly by growing arms sales to Asia, in particular, Southeast Asia,
including such customers as Malaysia, Indonesia, and Vietnam.9 The closure of
the Russian naval base in Cam Ranh Bay because of alleged financial problems
dealt a blow to Russias prestige as this country lost its most significant foreign
outpost in a region where the United States is building up its military, commercial, and economic presence.
Vietnam is not against foreign warships, including U.S. naval vessels, calling at its commercial ports, but the former Russian naval base in Cam Ranh Bay
will be closed to naval calls. The ban was announced by Vietnams National
Defense Minister Pham Van Tra at a meeting with foreign journalists on November 11, 2002: We welcome friendly visits by warships of foreign countries, but
no calls will be permitted at Cam Ranh, where we have a Vietnamese naval
base.10
U.S. warships have not called at Vietnamese ports since the end of the war
between the two countries in 1975. Today, however, Washington is displaying
significant interest in the possibility of its naval ships calling at the Cam Ranh
base for refueling and crew rest. The U.S. is proposing to make Cam Ranh a free
port offering anchorage facilities to warships of all nations. China, too, is showing much interest in this deep-water base in Vietnam.
Washington and Beijing started probing the possibility of their warships
using the Cam Ranh base after Russian military personnel were withdrawn from
it in May 2002 and the base reverted to Vietnam.
Unlike other Southeast Asian countries, for long close U.S. partners, Vietnams defensive power has, in technical terms, been so far built around Russianmade arms. Under the agreement on military hardware cooperation the two countries signed in 1998, their cooperation in this field is to be stepped up to modernize naval and air forces, and missile defense systems, and also to expand the

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Tropical Center, a unique facility to test Russian hardware in the tropical climate.11
The Tropical Center was established in March 1987 under an agreement
between the government of the former U.S.S.R. and its Vietnamese counterpart
as a multisectoral research institution of the U.S.S.R. Academy of Sciences and
Vietnams State Committee (long since reorganized as a ministry) for Science,
Engineering and the Environment.
One of the institutions chief concerns was that of studying the effect of
chemical warfare involving the U.S. militarys heavy use of toxic defoliants during the U.S. military campaign in Indochina in the 1960s and 1970s. Over the
war years, U.S. warplanes sprayed around 72 million liters of defoliants that
spread 170 kg of dioxin over Vietnams territory. If extracted in pure form, this
quantity was enough to poison everybody in Vietnam. Dioxin has a long life
(about ten years) and tends to accumulate in the human organism. Accordingly,
scientists at the Tropical Center are working to develop ways to neutralize it. By
now, the Tropical Center has completed its program to study the effect of dioxin
on the environment and human organism.
Russian and Vietnamese scientists have joined forces to conduct studies of
the biological diversity and present-day conditions of tropical land and water
ecosystems. The center is also a suitable place to exchange know-how and technologies, and to train top-class researchers.
An important part of the Tropical Centers work is to study how various
machines and devices, including specialized equipment, operate in tropical climate. This is a very relevant subject in view of the desire companies in the Russian military-industrial complex entertain to enter promising Southeastern markets.
Before its collapse at the turn of the 1990s, the U.S.S.R. provided 90 percent
of funding for the Tropical Center. The Center had 700 researchers, and its
research projects involved scholars from more than 60 institutions. The Center
used to publish many research papers. Today, the Tropical Center is financed on
a fifty-fifty basis.
Russia is expanding its military training programs for Vietnams armed
forces, and today the Vietnamese military has 13,000 officers who were educated at military institutions in the U.S.S.R. and Russia.
In engineering research, joint space research projects, peaceful uses of
nuclear energy (an agreement on cooperation in peaceful uses of nuclear power
and hydrometeorology was signed in Hanoi in March 2002), information technologies, and other new fields of scientific advance hold out the greatest
promise. The building of a Russian science and culture center was unveiled in
Hanoi in September 2003.
Foreign trade is a key component of the two countries economic relations,
but new approaches and a clear understanding of Russias ability to meet Vietnams needs for imports are required for expanding it. Decline of Russian man-

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ufacturing industries in the 1990s cut deep into their exports of machines and
equipment to Vietnam. Russian exports can only be stepped up by deliveries of
more traditional civilian equipment (motor vehicles, power equipment, and spare
parts), natural resources and materials (above all, quality steels) to Vietnam.
Recently, Russia seems to have built up enough resources to spare. According to
Russian economists, good prospects for penetration into foreign markets, with
the growth in world demand (and, we must add, Vietnams import needs), open
for the Russian aerospace industry, programming services, equipment for nuclear
power engineering, and high technologies.12 Considerable export potential has
survived in other engineering industries, such as shipbuilding and electronics,
and deliveries of complete plants for power and metal industries.
A look at Russias needs for imports from Vietnam shows that Vietnam
could become a major supplier of fruit and vegetables. According to available
estimates, Russias imports of foodstuffs and agricultural materials may grow
many times in the first decade of the 21st century from what they were at the end
of the 1990s.
To give a new lease on life to Russian-Vietnamese trade, it is vital, in addition to identifying what commodities Russia really needs, to modify Russian
policies, in customs in the first place, to offer certain preferences to Vietnam.
This possibility was mentioned, in particular, by Russias former Prime Minister
Mikhail Kasyanov during his visit to Vietnam in March 2002. He specifically
stressed that Russia could possibly lower its customs duties on imports from
Vietnam to facilitate the entry of Vietnamese goods into the Russian market. The
Russian prime minister assured his hosts that export loans may be provided to
increase Vietnams exports to Russia within the shortest possible time. The
Russian government decided to invite tenders from suppliers of Vietnamese
goods to Russia to help repay Vietnams remaining government debt to Russia.13
As a way to promote trade between the two countries, the Russian prime
minister suggested creation of a Russian-Vietnamese company to deliver oil and
gas produced from Vietnams shelf to foreign markets. Vietsovpetro and Russias
Gazprom could have a greater participation in energy sales.
Trade has begun to develop at the regional level as well. Municipal authorities in Moscow and Ho Chi Minh City have reached an agreement on large shopping centers to be built in Moscow to sell Vietnamese goods. The project is to be
carried out, for the most part, by private companies, and investments in it may run
up to $40 million, with Moscow underwriting 40%, including land rent payment.
The shopping centers may be supplemented with exhibitions and fairs and
business information centers in Moscow, Hanoi, and Ho Chi Minh City. In June
2003, Moscow hosted a national exhibition of Vietnamese export goods, timed
for the Eighth Russian Regions fair that ran concurrently.
Bilateral trade prospects depend, in no small measure, on Vietnamese export
trends. Vietnams total exports reached $23 billion in 2003, of which textiles,
clothing, and crude oil accounted for $3 billion. Another 17 commodities scored

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the sales of $100 million each.14 Among persisting problems, one is Vietnams
growing trade deficit with Russia, which rose from $80 million in 1995 to over
$310 million in 2002. According to Vietnamese officials, the swelling deficit is
due not so much to their countrys low exporting capacity as to the high import
duties in Russia, particularly on Vietnamese rice, fowl, pork, and other commodities, which discourage Vietnamese producers from exporting their commodities to Russia. Another reason is negligible involvement of major trade capital in trading. Trade is mostly conducted by small businesses that back down in
the face of harsh terms of banking letters of credit. To remedy the situation, the
intergovernmental commission on trade, economic, scientific, and engineering
cooperation, at its latest meeting in Hanoi in February 2004, reached an agreement to urge Vietcombank to open a credit line with the Moscow International
Bank at the earliest opportunity in order to stimulate interbank operations and
extend assistance to Vietnamese exporters.
Russia and Vietnam have the resources to continue cooperation in investment activities as well.
New opportunities have opened up for Russian investors in, for example,
mechanical engineering, nuclear power industry, information technologies,
transportation, and the travel industry. Examples of prospective cooperation projects in engineering include construction of an assembly plant to manufacture
Russian Kamaz trucks under a contract between the Russian Kamaz producer
and Vietnams Vinakoul. Russian Aluminum company has shown interest in
mining for bauxites in Vietnam. In nuclear power, work continues to modernize
the nuclear reactor in Da Lat by replacing its control system and reinforcing its
protection system. Russia has reaffirmed its interest in tenders for the construction of a nuclear power plant in Vietnam, with accent on personnel training programs and feasibility studies.
The Vietnamese authorities intend to have their first nuclear power plant
built in the Phu Yen province in the next 15 years. The need for nuclear power
plants is dictated by the shortage of electric power, 11,000,000 MW, generated
by all of the countrys power plants. According to estimates, the nuclear power
project could cost $3 billion, which Hanoi wants to raise by attracting foreign
direct investments and taking out soft loans. It has received offers of cooperation
in building the nuclear power plant from several countries, including Japan,
China, India, South Korea, and Germany.
More new opportunities have arisen for cooperation in transportation. Vietnam is considering the feasibility of building the transport systems called light
subway in Ho Chi Minh City. It could avail itself of the enormous expertise of
Russian subway builders and operators. Russia could bid for Ho Chi Minh Citys
biggest transportation investment project, which is also given serious attention
by major investors in the U.S., Germany, Japan, France, and China.
Actually, this is going to be an entirely new city transport infrastructure comprising electric commuter trains, high-speed trains, trams, and monorail lines. All

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together, these transport systems could meet the residents needs and connect the
megalopolis to its densely populated suburbs and industrial centers. The transportation project for Ho Chi Minh City is estimated to cost $2.1 billion. Project
implementation will begin with the construction of a monorail system. Public
transport is a weak spot in the country in general. In Ho Chi Minh City, private
vehicles can only carry about 3,500 passengers an hour, or only 3% of what is
actually needed.
Cooperation efforts have been launched by the Russian Communications
Ministry and Vietnams Ministry of Posts and Telecommunications in mobile
and satellite communications. Offers of construction and operation of a GSM
standard mobile system in Vietnam have been made by the Russian Megafon
company.
In the travel industry, Vietnamese travel companies offer business tours for
Russian company executives and representatives, in addition to traditional tourist
routes long familiar to residents of Russian Far Eastern districts. Vietnam Airline
was the first company to initiate the new travel format with a variety of options
in August 2003.
Russian-Vietnamese cooperation is developing in the early years of the new
century in the context of globalization and growing regional integration in Southeast Asia. The U.S. is trying to draw Vietnam into global processes in every way.
ASEAN countries and China (as a future member of a new free zone, ASEAN
and China, to be finalized by 2010) are pulling Vietnam into the regional economy, without asking Russia directly to join the free economic zone. An answer has
to be given soon to the question: Where will Vietnam gravitate, toward the U.S.
or ASEAN, with its open zones (free economic zone comprising ASEAN and
China, and, in the long term, a giant free economic zone comprising ASEAN,
China, Japan, and South Korea)? Does this forebode the possibility of Vietnam
distancing itself, against its own free will, from Russia in these circumstances?
In our view, to prevent this happening, new political and economic
approaches to Vietnam are needed. It is Russias most trusted ally in Asia today.
What is most needed today is practical implementation of existing investment
agreements between Vietnam and Russia, including development of Vietnams
fuel and energy industries, with Russian big business playing a role. At the intergovernmental level, efforts, involving Russian and Vietnamese academics and
big business, are to be launched to develop a long-term cooperation concept
spanning President Putins tenure (up to 2008). As if to emphasize the urgency
of these efforts, President Putin, on a visit to Hanoi in 2001, gave assurances of
his desire to strengthen strategic economic partnership. To see this through, Russia will probably have to make, in addition to trade contracts, tangible concessions to Vietnam, similar to those secured by it from the U.S. when the two countries signed a trade agreement in 2000.15 Russia would better study intergovernmental agreements Vietnam has signed with Japan and the European Union, and
particularly the trade agreement between the U.S. and Vietnam, which contains

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FAR EASTERN AFFAIRS

clear rules and offers from the U.S. side of privileges and guarantees to Vietnam.
This is evidence of aggressive U.S. foreign policy sweetened by economic concessions.
In January 2003, Vietnams government approved a program to speed up
implementation of its trade agreement with the U.S.
According to Vietnams Trade Minister Vu Khoan, lectures and workshops
are to be arranged, under this program, for employees of various government
agencies, public servants, and business people to give them insights into U.S.
laws and international trade practices. Besides, said Vu Khoan, Vietnamese delegations will go to the U.S. to explore opportunities and study the demand of the
American market and open Vietnamese trade missions in several large U.S.
cities.
In October 2003, the U.S. and Vietnam signed an agreement on U.S. assistance in training Vietnamese personnel, under the long name, Agreement on
Principles of Cooperation between the Board of Governors of the Vietnam Education Foundation and the Vietnam Consulting Company to Implement the Foundations Program. The Foundation was set up in the U.S. with Congressional
Approval to finance educational programs for Vietnamese specialists in the U.S.
The Foundation is expected to grant annual scholarships to about 100 Vietnamese citizens who will study natural sciences, mathematics, medicine, and
environmental sciences under bachelor, master, and higher degree programs at
U.S. universities and colleges. Besides, the Foundation will pay the expenses of
U.S. professors going to Vietnam to teach and conduct research at that countrys
educational and research institutions. Besides, the Foundation will help three
Vietnamese higher education institutions join American university programs in
information science, agronomy, and sanitation. The U.S. government has allocated $140 million to finance the Foundations programs, which are to run till
2016. Studies in the U.S. require knowledge of English. Under the Foundations
rules, only people passing TDEFL and GRE language tests can go from Vietnam
to study in the U.S.
U.S. benefits and preferences to Vietnam have sharply boosted trade
between the two countries. In 2002, Vietnam exported goods worth $2.5 billion
to the U.S. and imported U.S. goods worth $580 million. Its trade with the U.S.
was generally 4.3 times larger than with Russia. According to tentative estimates,
trade between Vietnam and the U.S. rose to $4.5 billion in 2003, or 10% of Vietnams foreign trade as a whole.16
In its forceful strategy toward Vietnam, the U.S. is pressing for its early
admission to the WTO, even though Vietnam has been declared a non-market
economy and in spite of the U.S. House of Representatives having passed a
Vietnam human rights act in July 2003, which triggered a negative response in
Vietnam. This did nothing, however, to thwart the expansion of commercial, economic and even military contacts between Hanoi and Washington. The high
point of military contacts between them was the visit by Vietnams National

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Defense Minister Pham Van Cha to the U.S. in October 2003 in response to the
official invitation of U.S. Defense Secretary Donald Rumsfeld.17
NOTES:
1. Asia2003. The East Asia Vector and Russia, Moscow, 2004, pp. 111-112 (in Russian).
2. The joint venture has produced 130 million tons of oil over its years in business.
3. According to Vietnams high-ranking officials, crude oil exports give their country almost no
advantages on a scale comparable to what Russia derives from high world prices of oil, because
it is compelled to import petroleum products of an almost equal value.
4. ITAR-TASS, May 19, 2004.
5. Of the 600,000 Vietnamese in the CIS and Central and East European countries, 100,000 live
in Russia, where they run about 300 businesses fully Vietnamese-owned or in joint ventures
under Russian jurisdiction. Vietnamese enterprises are overseen by the Association of Vietnamese Entrepreneurs (VINAENTRASSO).
6. Among other countries, some Vietnamese capital was exported in 1988-2002 to Laos (20 projects worth $13 million), Cambodia (five projects worth $10 million), Singapore (six projects
worth $2.9 million) and the U.S. (four projects worth $1.7 million).
7. Data courtesy of Vietnams Trade Mission in the Russian Federation.
8. Serious consideration is being given to the possibility of opening the Academys branch in
Vietnam.
9. Data provided by Rosoboronexport, the Federal State Unitary Enterprise, January 2004.
10. ITAR-TASS, January 13, 2002.
11. Vietnam. Today and Tomorrow, Moscow, 2002, p. 16 (in Russian).
12. Barkovsky, A.N., and Alabian, S.S., Prognosis of the Russian Federations Foreign Trade
for the Period up to 2050. In: Foreign Trade Bulletin, 2003, No. 12, pp. 36 and 39 (in Russian).
13. Following the 2000 agreement, there have been two operations of goods against debt for a
total value of $1 billion. A total of $300 million worth of goods were supplied to the U.S.
According to Vietnams Finance Ministry, Hanois remaining debt did not exceed $650 million
in early 2004.
14. Nhan Dan, January 12, 2003.
15. The bilateral trade agreement, work on which started almost immediately following the
restoration of diplomatic relations in August 1995, was signed in 2000. In 2002, it came into
force after ratification by both countries parliaments and presidents.
16. By comparison, trade between Vietnam and the U.S. amounted to $300 million in 1995, and
over $1 billion in 2000. In 2003, it exceeded Vietnams trade with the European Union, which
was $4.1 billion in 2000.
17. On-line edition of Asia Times, October 23, 2003.