Index trend
Previous quarterly editions
Expropriation Risk: 56 56 56 56 ►Political Violence Risk:48 48 48 39 ▼Terrorism Risk:11 11 11 11 ►Exchange Transfer and Trade Sanction Risk: 63 55 55 55 ►Sovereign Default Risk:47 47 47 37 ▼
Overall Risk Temperature: 47 (Medium -5) TREND ▼
Special topic: Gray zone aggression
Degree to which the country relies on outbound gray zone action to achieve its strategic objectives1 = Not at all5 = Gray zone action is a core tactic
3
Impact of inbound gray zone attacks on the country1 = Negligible impact5 = Significant impact on economic growth and/or political stability
In 1979 Vietnam and China engaged in a brief military conflict in which Vietnam fought off a Chinese attack across their shared land border. At the time, China was reeling from the devastation it had inflicted upon itself with the Cultural Revolution, and the Vietnamese armed forces were over-equipped with U.S. weapons they acquired after their defeat of South Vietnam in 1975. If the border war were fought today, there is little doubt that China would prevail. However, conflict between the two countries continues over opposing claims in the Spratly Islands as well as the Paracels in the South China Sea.
Despite this, both countries have strong incentives to keep bilateral tensions in the South China Sea in the gray zone. They are economically interdependent, and their leaders support each other’s determination to maintain one-party rule in their countries. Moreover, Vietnamese foreign policy aims to balance relations with the major powers as much as possible. As a result, Hanoi has strengthened relations with Moscow in recent years and last year also signed a Comprehensive Strategic Partnership agreement with the U.S. In 2024, Hanoi began cautious discussions with Manila on joint maritime exercises — a signal to Beijing that comity among the Southeast Asian claimant countries is growing.
Vietnamese and Russian energy companies cooperate in exploration and extraction activities in the South China Sea. China’s episodic attempts to disrupt these activities affect its relationship not only with Hanoi but also with Moscow. As China and Russia grow closer, this further complicates Chinese gray zone action against Vietnam in the South China Sea. The Chinese maritime militia is more direct in its gray zone aggression surrounding the Paracels, which China seized in 1974 when they were held by South Vietnam.
Since 2022, Vietnam’s primary response to Chinese incursions into its exclusive economic zone and other gray zone actions has been to step up construction on the island features in the Spratlys it claims. This parallels Beijing’s policy; China has built on all the island features that it holds. Vietnam’s building program will help to maintain the momentum in gray zone aggression in the South China Sea well into the midterm.
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Vietnam’s aspirations to develop its economy with foreign investment — and the Vietnamese Communist Party’s decision to shift that to high-tech investment where possible — is a constraint on expropriation. This is particularly the case given Hanoi’s determination to forge free trade agreements with the European Union and, when politically possible on Washington’s side, with the U.S.
That said, two factors could contribute minutely to the risk of expropriation in Vietnam. In 2023 – 2024, the ruling party’s anti-corruption campaign — known as “burning furnace” — made a sharp turn toward the private sector, which could lead to greater government control of business.
Second, Public Security Minister To Lam’s rise to become Party Secretary-General in July 2024 may encourage stronger controls on data produced and held by foreign companies in Vietnam. Lam was behind the tightening of data security laws, which have on occasion forced Big Tech companies to provide the Vietnamese government with data in their possession. Since his inauguration, Lam has reached out to U.S. internet and social media companies, but it is not clear what he intends in terms of data controls.
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To Lam’s ascension to the leadership following the death of Nguyen Phu Trong moved Vietnam past a political transition that had long been anticipated with some nervousness. Lam’s role as manager of the “burning furnace” campaign was instrumental in his climb to the top, enabling him to sideline many of his political rivals.
Since taking power, Lam has filled some top positions in his administration with his former colleagues in the Ministry of Public Security. He will likely continue the anti-corruption purge in some form. These factors combine to suggest that Lam will keep a tight hold on any public dissension. At the same time, Lam has been careful not to suggest that he aims to consolidate solely within his own political camp. When he became secretary-general he resigned from his position as president, thereby preserving the ruling party’s “four pillars” configuration of power-sharing.
The transition to To Lam ensures continued strong security. However, two factors may raise the threat of terrorism slightly. First, new governments are usually challenged in their early stage, and the prospect for violence in territories with strong minority representation remains, particularly in the Montagnard areas. Second, the current war in Gaza has some resonance with the Vietnamese population, which sees parallels to their own history of self-determination — though Israel is also popular for similar reasons. The government’s attempts to balance these domestic sentiments with its own aim to remain neutral will likely hold any activism related to the war in the Middle East in check.
In August, Hanoi was disappointed to learn that the U.S. Department of Commerce, with urging from Congress, would maintain Vietnam’s status as a non-market economy. The department cited the continued involvement of the Vietnamese government in the economy as a primary justification for the decision, despite some reforms in this area. Vietnam’s currency, the dong, continued to fluctuate, but overall the economy demonstrated resilience.
There are no international sanctions on Vietnam as a country, but U.S. imposes sanctions on a small number of Vietnamese entities and individuals for activities related to Iran and North Korea. The U.S. Treasury Department has also imposed sanctions on the Vietnam-Russia Joint Venture Bank, in keeping with “secondary sanctions” on entities and individuals that interface with the Russian economy.
In June, Fitch renewed its BB+ rating for Vietnam, finding that there has been little spillover from the political changes this year on the country’s macroeconomic outlook. Government debt is expected to stabilize at 34% of GDP, and flows of foreign direct investment are expected to continue. Growth is projected at 6% to 7% over the medium term.
