Germany builds ties with Vietnam, hedging bets against China

German Chancellor Olaf Scholz wrapped up his two-day visit to Vietnam on Monday with a reassuring message for the country's rapidly growing economy.

Scholz said Germany wants to considerably boost trade and investment, while helping Vietnam become a beneficiary as Western firms look to diversify away from China.

Vietnam is one of Southeast Asia's fastest growing economies, with its GDP forecast to increase by 7.5% this year and 6.7% in 2023, according to the World Bank.

Scholz, accompanied by a 12-member business delegation, met with Vietnamese Prime Minister Pham Minh Chinh and Nguyen Phu Trong, head of its long-ruling Communist Party.

The visit that began on Sunday makes Scholz the first European leader to visit Vietnam since the start of the COVID-19 pandemic. He traveled onward to Singapore before arriving in Indonesia to take part in the G20 summit.

Germany biggest European trade partner

Germany is Vietnam's largest trading partner among EU states, slightly ahead of the Netherlands. Bilateral trade was worth €7.5 billion ($7.8 million) last year, and trade in the first seven months of the year was around €7 billion, up 18.5% year-on-year, according to Vietnamese government data. An EU free trade agreement with Vietnam came into force in 2020.

"As the largest trading partner in the EU, Germany plays a significant role in Vietnam's further economic future. This role is likely to increase in the future, as both sides are strongly interested in further deepening relations," said Daniel Müller, regional manager for ASEAN at the German Asia-Pacific Business Association.

Cooperation deals on energy and vocational training were signed during Scholz's visit to Hanoi, and analysts reckon Germany will play an even more important role in Vietnam's energy and education sectors.

This will likely be accompanied by a considerable transfer of technology and knowledge, essential for Vietnam's development, Müller told DW.

During a press conference, Scholz suggested Germany could also help with developing Hanoi's metro system, a project which has been stalled for several years.

More than 90% of German companies already operating in Vietnam want to continue their investment in the country, and two-thirds expect business opportunities will improve over the next 12 months, according to a study published in June by the German Chambers of Commerce Abroad.

Prime Minister Chinh reportedly asked Scholz to press Germany's parliament to complete the ratification of the EU-Vietnam Investment Protection Agreement.

He also appealed for the EU to remove its "yellow card" on the Vietnam's seafood sector, which has considerably cut exports to the EU over allegations of illegal and unregulated fishing.

"In view of the current attempts by German companies to increase their involvement in Vietnam and, conversely, the attempts by Vietnamese companies to become more active in Germany, this growth trend in trade relations is likely to continue," said Müller.

Germany not 'decoupling' from China

Scholz attracted much criticism, including from his own coalition partners, for visiting Beijing last week to meet with Chinese President Xi Jinping, the first European leader to do so since before the pandemic.

Many commentators have said Germany risks being overly reliant on China for business ties, similar to how it had been dependent on Russia for energy supplies.

Scholz stressed that his four-day visit to Southeast Asia shows that Berlin accepts the need to diversify trade links, even if he is no fan of "decoupling" from China.

"We are against any decoupling of China in the world economy because we are deeply convinced that globalization has brought a lot of progress," Scholz said on Monday. "But we have to be clear that globalization also means not to just look to one country."

A large measure of Vietnam's economic progress over the past five years has come on the back of Western decoupling from China, amid growing superpower tensions as firms look to avoid tariffs and sanctions on Beijing.

"If Germany wants to capitalize on other markets, such as the US, and wants to access regional supply chains, Vietnam is an attractive place to diversify investment," said Trinh Nguyen, a senior economist covering Asia at French corporate and investment bank Natixis.

"Scholz's visit is rather timely as Germany needs to also diversify not only supply chains, but also expand market access to rapidly growing economies," she told DW.

Assisting Vietnam on South China Sea

Aside from economic issues, Scholz agreed a new security cooperation agreement with Vietnam, which for decades has been engaged in disputes with Beijing over territory they both claim in the South China Sea.

"Unlike economic collaboration, the German-Vietnamese defense and security cooperation will remain mostly symbolic," said Alfred Gerstl, an expert on Indo-Pacific international relations at the University of Vienna.

However, Gerstl expects more port visits to Vietnam by Germany's navy; the first German frigate docked in Vietnam this past January. Berlin's Indo-Pacific strategy, released in 2020, promotes a "rules-based order and freedom of navigation" in the South China Sea, which has been accepted by several European navies in recent years.

"In this regard, there is a strong overlap of interests between the two strategic partners," Gerstl told DW. "German experts could also provide training for the Vietnamese army in the field of peacekeeping or cybersecurity."

What are sore spots in diplomatic relations?

Scholz's trip marks the first visit to Vietnam by a German chancellor in more than a decade. The trip also reaffirmed bilateral diplomatic relations that had soured after 2017 when Vietnamese security agents in Berlin allegedly kidnapped a Communist Party functionary wanted for corruption.

In response, the German government expelled two Vietnamese diplomats and branded the kidnapping a "scandalous violation" of its sovereignty. Political relations remained frosty during the final years of former Chancellor Angela Merkel's tenure. It's not clear if that event was discussed during Scholz's visit.

But Scholz didn't overlook other sensitive issues, pressing Vietnam's leaders on their human rights record. Vietnam is one of the most repressive states in Southeast Asia, with an estimated 207 political activists currently in jail and 350 at risk, according to the 88 Project, an NGO that collates such data in Vietnam.

Formerly one of the largest importers of Russian-made military equipment, Vietnam has consistently abstained on UN General Assembly votes condemning Moscow's invasion of Ukraine, but Scholz also pressed Hanoi to make its position clear.

"It is a question of the Russian war of aggression being a breach of international law with a dangerous precedent. Small countries can no longer be safe from the behavior of their larger, more powerful neighbors," Scholz said following his meeting with the prime minister.

Edited by: Wesley Rahn