South China Sea : why China’s business interests in Vietnam are at stake amid nine-dash line controversies

Controversies over Beijing’s nine-dash line claim in the South China Sea highlight how geopolitical tensions can challenge international businesses. Although the economic implications may be minimal presently, businesses should be mindful of potential risks posed by the issue in the future.

Beijing’s “nine-dash line” claim in the South China Sea caused an uproar in Vietnam recently. Earlier this month, Vietnamese authorities banned the film Barbie, produced by Warner Bros, for containing an illustration that allegedly depicted the nine-dash line that China uses to claim most of the disputed waterway.

In the same week, it was dscovered that IME Entertainment, a Chinese firm that is organising a concert of the K-pop band Blackpink in Hanoi later this month, included a map on its website showing the nine-dash line.

As a result, Vietnamese authorities are investigating the issue while many Vietnamese social media users have called for a boycott of the concert. In response to the backlash, IME Entertainment quickly shut down its website and its CEO apologised to the Vietnamese public.

This is not the first, and it will certainly not be the last, time that the nine-dash line – also known as the “cow’s tongue line” in Vietnam – has caused problems for businesses, including Chinese ones. Since 2019, Vietnam has banned several media properties featuring images of the line, including Abominable, Unchartered and Pine Gap.

Additionally, maps, globes, books, and mobile games carrying such images have been outlawed in the country. In 2020, the Vietnamese government put out a decree permitting the confiscation of publications that feature the nine-dash line and fining their publishers.

The line, which has been depicted in Chinese passport pages since 2012, has also posed obstacles to firms from China investing in Vietnam.

Vietnamese authorities have refused to accept Chinese passport holders as legal representatives of companies in Vietnam, for example, leading to delays in applications to set up companies. As the legal representative typically plays an important role in dealing with local authorities and signing off on key company documents, using proxies for the position is undesirable.

Authorities in Hanoi have reportedly been rejecting applications for work permits and police clearance certificates from Chinese nationals with passports displaying the nine-dash line map since late 2019.

Following a 2019 incident in which a domestic importer of vehicles was discovered to be selling Chinese-manufactured cars featuring the nine-dash line in the navigation system, the Ministry of Industry and Trade requested that Vietnamese importers reject any products featuring similar maps.

More importantly, China’s repeated aggressive actions to enforce its nine-dash line claim have given rise to anti-Chinese sentiment in Vietnam.

In 2014, for instance, China planted a massive oil rig in Vietnam’s exclusive economic zone. A violent confrontation between the two countries ensued, and several anti–Chinese riots targeting Chinese factories erupted in different locations in Vietnam. This caused extensive damage to the factories that were thought to be Chinese-owned.

These examples show that China’s assertiveness in the South China Sea and its nine-dash line claim have had a detrimental impact on Chinese companies in foreign markets. This has caused Chinese investors to be wary of investing in Vietnam, which could partly explain China’s relatively low investment in the country.

By March, despite the proximity of the two countries and Vietnam’s increasing appeal to foreign investors, China ranked only sixth out of all foreign direct investors in Vietnam in terms of cumulative registered capital, with 3,651 projects worth US$23.85 billion. South Korea, which does not have any territorial or maritime dispute with Vietnam, ranked first, with US$81.5 billion worth of investments.

An international arbitral tribunal ruled in 2016 that China’s nine-dash line claim in the South China Sea had no basis in international law. As such, Vietnam’s actions can be seen as measures to protect its legitimate maritime interests and to enforce the ruling.

Businesses operating in Vietnam must comply with the country’s policies or incur losses due to product bans. This poses a dilemma for international companies, as many have far greater business interests in China, leading to pressure to comply with Beijing’s maritime claims by including the nine-dash line in their relevant products.

Some companies have so far accepted sacrificing their business interests in Vietnam in order to satisfy Beijing and protect their commercial concerns in the Chinese market.

However, considering the 2016 ruling and increasing strategic competition between the United States and China, as well as growing tensions in the South China Sea, it is not completely inconceivable that other nations may implement similar restrictions on products featuring the nine-dash-line image in future.

The Philippines considered imposing a similar ban on the Barbie film, while US politicians such as Republican Senator Ted Cruz have accused Warner Bros of helping to spread what his office called “Chinese communist propaganda”.

Should Washington and its allies seek to enforce the 2016 ruling to counter Beijing’s unlawful claims in the South China Sea, it is likely that companies that choose to submit to China’s pressures will suffer immense losses in other markets.

Controversies surrounding Beijing’s nine-dash line claim in the South China Sea have highlighted geopolitical tensions that can create challenges for international businesses.

Although the economic implications of the issue may be minimal presently, businesses should be mindful of the potential risks posed by it in the future. They should, therefore, seek to navigate the tensions and deal with the nine-dash line issue in a more prudent manner, including by removing the line from their products that they sell in markets outside China.

After all, supporting an unlawful claim could lead to severe financial losses and irreparable reputational damage for them in the long term.

By Le Hong Hiep – The South China Morning Post – July 15, 2023