US expects to upgrade Vietnam ties, risks China anger

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U.S. President Biden awards Medals of Honor to Vietnam War veterans during White House ceremony in Washington

U.S. President Joe Biden speaks prior to awarding Medals of Honor to U.S. Army veterans who fought in the Vietnam War, during a ceremony in the East Room at the White House in Washington, U.S., July 5, 2022. REUTERS/Kevin Lamarque/File Photo Acquire Licensing Rights

HANOI, Sept 4 (Reuters) – The United States expects to elevate its diplomatic relations with former foe Vietnam to the top level as President Joe Biden travels to Hanoi in a week, in a move that may irk China and with unclear business implications.

Fearful of the potential reaction from its much larger neighbour, Vietnam had initially expressed caution about the upgrade. That led the Biden administration to multiply efforts to persuade the southeast Asian nation, including through multiple visits of high-ranking members of the U.S. government in recent months.

The unprecedented push has led Washington to expect to be elevated to the top tier of Vietnam’s diplomatic ranking, together with China and Russia, from two notches below now.

Biden said it publicly in July and officials in both countries have since informally expressed optimism about the two-step upgrade, although no official statements have been released from either government.

Perhaps seeking to assuage Beijing, Vietnam is discussing top-level visits to Hanoi after or even shortly before Biden’s arrival on Sept. 10, with officials saying China’s President Xi Jinping or Premier Li Qiang could meet Vietnamese leaders in coming days or weeks.

China’s foreign ministry did not immediately respond to a request for comment on Monday.

Risks that a double upgrade with Washington may not go down well in Beijing remain high, but Vietnam’s communist leaders may have calculated the best timing for the move is now as U.S. relations with China are “likely to get worse in the future,” said Le Hong Hiep, a senior fellow at Singapore’s Iseas–Yusof Ishak Institute.

“Vietnam’s economy badly needs a boost in capital, technology, and market access,” said Alexander Vuving of the Hawaii-based Inouye Asia-Pacific Center for Security Studies, noting that may have been a key reason for the possible upgrade.

A boost of U.S. military supplies to Hanoi has also long been discussed but no immediate deal is expected as these talks take time, Hiep said.

Meanwhile, Vietnam is talking with several other countries to upgrade and expand its mostly Russian-made arsenal, and has recently engaged in multiple high-level defence meetings with top Russian officials.

Supporting Vietnam’s ambitions to become a hub for the semiconductor industry is also part of Washington’s inducements, but public funds so far available under the CHIPS Act are very limited.

The U.S. may offer more, said Vu Tu Thanh, head of the Vietnam office of the US-ASEAN Business Council.

Energy is another sector where cooperation could increase as Vietnam prepares to become a player in Liquefied Natural Gas (LNG) and offshore wind although administrative and funding delays are dampening the mood.

The upgrade of relations is expected to boost U.S. firms’ plans in Vietnam. Planemaker Boeing (BA.N) and energy firm AES (AES.N) may make announcements during Biden’s visit, people familiar with the plans said.

Boeing hopes to sell as many as 50 of its 737 MAX jets during the visit, they said. The companies declined to comment.

The U.S. is already Vietnam’s largest market for its exports and U.S. customs procedures could be eased to boost trade, Thanh from the US-ASEAN Business Council.

Reporting by Francesco Guarascio @fraguarascio; additional reporting by Trevor Hunnicutt, Khanh Vu, Martin Quin Pollard and Tim Hepher; Editing by Lincoln Feast and Sharon Singleton

Our Standards: The Thomson Reuters Trust Principles.

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Francesco leads a team of reporters in Vietnam that covers top financial and political news in the fast-growing southeast Asian country with a focus on supply chains and manufacturing investments in several sectors, including electronics, semiconductors, automotive and renewables. Before Hanoi, Francesco worked in Brussels on EU affairs. He was also part of Reuters core global team that covered the COVID-19 pandemic and participated in investigations into money laundering and corruption in Europe. He is an eager traveler, always keen to put on a backpack to explore new places.

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