Thayer Consultancy Background Briefing:

ABN # 65 648 097 123

Vietnam in Wait and See Mode
Over China's Next Move
Carlyle A. Thayer
JuIy 19, 2017

[client name deleted]

we request your assessment for a report on current Vietnam-chinese relations,
including South China Sea issues related to both. ls there an
easing of tensions or do
you expect more problems?
ANSWER: Vietnam's relations with China improved after the L2th congress of the
Vietnam Communist Party in January last year. Both the prime Minister,
Nguyen Xuan
Phuc, and the Defense Minister, Ngo Xuan Lich, visited
China in September last year.
This year the party Secretary General Nguyen Phu Trong, the
Foreign Minister, pham
Binh Minh, and the Defense Minister, Ngo Xuan Lich, made separate
visits in January,
April and May, respectively.
ln 2013, China and Vietnam agreed to inaugurate annual friendly border
defense
exchange activities. They were put off by the HYSY gg1 crisis in
mid-20L4 when china
placed the mega oil drilling rig in Vietnam's Exclusive
Economic Zone (EEZ). Once this
crisis blew over Beijing received a visit by a special envoy representing
the party
Secretary General and a i.2-person high-level defense delegation
led by the Defense
Minister' The first friendly border defense exchange was held at the
end of the year.
Subsequently, defense ministers from both sides took part in this
annual exchange
each paying reciprocal visits.
ln June this year the fourth friendly border exchange activity
was abruptly cancelled
by General Fan Changlong, deputy chair of China's Central
Military Commission when
Vietnamese leaders rebuffed his request that they cease oil drilling
activities in the
South China Sea' General Fan also left Vietnam early. China's ire
was aroused when
Vietnam Save permission to the spanish company Repsolto start
drilling in Block 136-
03 in the waters near Vanguard Bank off Vietnam's southeast
coast. Before coming to
Vietnam General Fan visited Spain and reportedly expressed
China's displeasure to
Repsol representatives.

General Fan's visit to Hanoi followed Prime Minister phuc's meeting

with president
Donald Trump at The White House. The two leaders issued a joint
statement that
contained reaffirmations of U.S. support for maritime security capacity
building, the
potential visit by an aircraft carrier, and a strongly worded
section on the South China
Sea.
 2

Vietnam's media has been silent on these latest developments. Hanoi rumors suggest
that Vietnam has temporarily suspended oil drilling activities.
There is a larger context for these developments: ln May, President Duterte publicly
stated that China would take action if the Philippines resumed oil exploration and
drilling at Recto Bank. After the General Fan visit to Hanoi, China protested when
Vietnam renewed lndia's ONGC's lease in Block 128 for another two years. These three
developments took place just before the first anniversary of the Arbitral Tribunal's
unanimous Award against China.

Finally, there is the larger strategic context: the Trump Administration resumed arms
sales to Taiwan and conducted two freedom of navigation patrols in the South China
Sea. The U.S. and Japan's MSDF conducted a joint exercise in the South China Sea. And
the JMSDF's largest ship, the lzumo-class Helicopter Landing Dock sailed through the
South China Sea with military representatives from ASEAN countries.
ASEAN members and China are poised to begin substantial discussion on a Code of
Conduct after having reached agreement on a draft Framework for the COC
agreement. The forthcoming meeting should serve to dampen China's assertive
impulses.
Wild rumors that China had dispatched a mix fleet of forty vessels to the South China
Sea and was once again deploying the HYSY 981 mega-oil drilling platform inside
Vietnam's EEZ have proved unfounded.
Vietnam is presently in a "wait and see" mode.

Suggested citation: Carlyle A. Thayer, "Vietnam in Wait and See Mode Over China's
Next Move," Thayer Consultoncy Background Brief, July 19, 20L7. All background
briefs are posted on Soibd.com (search for Thayer). To remove yourself from the
mailing list type, UNSUBSCRIBE in the Subject heading and hit the Reply key.

Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in2OO2.
 Thayer Consultancy Background Briefing:
ABN # 65 648 097 123
China Threatens Force to Stop
Vietnam from Oil Drilling
Carlyle A. Thayer
July 24, 2017

[client name deleted]

The BBC is reporting that ViQtnam has suspended drilling in block 136-03. We request
your assessment of the significance of this development.
ANSWER: The BBC report by Bill Hayden, quoting industry sources, confirms a

Background Brief thatThayer Consultancy issued on July 15. The Brielconcluded:

o This is a test of Vietnam's policy of cooperation and struggle (doi tac, doi tuong\.
lf Vietnam forgoes oil exploration it will sets back its energy program. lf Vietnam
takes this course it is because of the fear of Chinese retribution and because it
cannot yet count on the Trump Administration to provide support.
o Vietnam usually offers some guarantee of support for oil companies operating in
its Exclusive Economic Zone... [At the moment, July 15] China is only applying
political and diplomatic pressure on either or both Repsol and Vietnam, China is
more likely to take some punitive economic action before resorting to any
confrontation at sea.
o Vietnam would need to make public that China was interfering in oil exploralion
in Block 136 in order to lay the ground work for diplomatic support from
ASEAN, the U.S. and Japan and other countries.
o Obviously, ExxonMobil would be following this reported incident carefully in order
to assess risks to its activities in the Blue Whale project. lf China put pressure on
ExxonMobil the United States likely would have greater reason to become
involved than the Repsol case.
o There is a larger context: this year President Duterte said China would act
aggressively (go to war) if the Philippines restarted oil exploration in Recto Bank,
Then China abruptly cancelled the 4th friendly border defense exchange activities
when Vietnam's leaders rebuffed General Fan's request that Vietnam stop oil
exploration. Finally, China protested when Vietnam extended ONGC's lease in
Block 128. lf these dots are connected it appearsthat China is reasserting its nine-
dotted map claim on the first anniversary of the Arbitral Tribunal's Award.
The BBC reported that Vietnamese officials told Repsol executives that China
threatened to attack Vietnamese bases in the South China Sea if the drilling did not
stop. This is a major escalation in China's posture. lt raises a nightmare scenario for
Hanoi's leaders because any attack on a Vietnamese-occupied feature in the South
 2

China Sea would result is a massive eruption of anti-Chinese sentiment in Vietnam.

This could seriously undermine the political authority of the current leadership. ln the
midst of the HD 981 crisis in 2014, for example, sixty-one retired senior Vietnamese
officials called on their leadership to take legal action against China, to exit China's
orbit (thoot Trung) and to abandon the policy of three no's (no foreign alliances, no
foreign bases, and no use of Vietnam to harm the interests of a third country).
lf Chinese threats result in a stepping down by Vietnam, this would have grave
ramifications for all of Vietnam other oil exploration contracts with foreign oil
companies and, more significantly, Vietnam's future energy security.

Suggested citation: Carlyle A. Thayer, "China Threatens Force to Stop Vietnam From
Oil Drilling," Thoyer Consultancy Background Brief , July 24,20L7 . All background briefs
are posted on Scribd.com (search for Thayer). To remove yourself from the mailing list
type, UNSUBSCRIBE in the Subject heading and hit the Reply key.

Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in2002.
 Thayer Consultancy Background Briefing:
ABN # 65 648 097 123
China Threatens Force to Stop
Vietnam's Oil Exploration in the
Spratly Islands
Carlyle A. Thayer
July 24,2017
[client name deleted]
The BBC has reported (http:/www.bbc.com/news/world-asia-40701j"21) and
Vietnamese sources in Hanoi have confirmed, that Vietnam has ceased drilling in block
136-03 as a result of pressure from China. We urgently request your assessment.
ANSWER: The BBC report that Vietnamese officials told Repsol executives that China
threatened to attack Vietnamese bases in the South China Sea if the drilling did not
stop is a marked and alarming step up of Chinese assertiveness. lt is a major escalation
in China's posture.
Vietnam's current pause in oil exploration in block 1-36-03 has long term ramifications.
Foreign oil companies if they assessed the risk as serious could demand protection
from Vietnam or "cut bait and leave." lf Vietnam stops exploration permanently this
would have long terms implications for present oil contracts with foreign companies
and more significantly, Vietnam's future energy security.
China's threat raises a nightmare scenario for Vietnam's leaders because any attack
on a Vietnamese-occupied feature in the South China Sea would result is a massive
eruption of anti-Chinese sentiment in Vietnam. This could seriously undermine the
political authority of the current leadership. ln the midst of the HD 9g1 crisis in 2O!4,
for example, sixty-one retired senior Vietnamese officials called on their leadership to
take legal action against China, to exit China's orbit (thootTrung) and to abandon the
policy of three no's (no foreign alliances, no foreign bases, and no use of Vietnam to
harm the interests of a third country).

Any Chinese attack on Vietnam would send off alarm bells all over the region. ASEAN
would be split about how to respond. Capitulationists like Duterte could seriously
impair ASEAN consensus.
Any Chinese attack on Vietnam would be like throwing down the gauntlet to the
United States, Japan and other maritime powers. Do they really want to go to war with
Chia to protect Vietnam's oil industry or over a few little rocks in the South China Sea?

Suggested citation: Carlyle A. Thayer, "China Threatens Force to Stop Vietnam's Oil
Exploration in the Spratly lslands" Thoyer Consultancy Bockground Brief July 24,2017 .
,
 2

All background briefs are posted on Scribd.com (search for Thayer). To remove
yourself from the mailing list type, UNSUBSCRIBE in the Subject heading and hit the
Reply key.

Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.
 Thayer Consultancy Background Briefing:
ABN # 65 648 097 123
Why Did Vietnam Suspend Oil
Drilling in Block 136-03?
Carlyle A. Thayer
July 25 ,2017

We request your assessment of Vietnam's recent cancellation of oil drilling in the

South China Sea.

Q1- Were you surprised when Vietnam backied down so quickly?

ANSWER: What surprised me was that China threatened to use force against
Vietnamese bases in the South China Sea if oil drilling continued without, it would
appear, any forewarning. I had assumed China would engineer some indirect use of
intimidation to signal Vietnam first.
Q2- So far all resports on this development come from the BBC's Bill Hayton. Did you
have an independent source about Vietnam directing Talisman-Vietnam to suspend
oil drilling in block 136-03?
ANSWER: I was told on July that Vietnam has asked Repsol to halt its oil drilling
1.5
activities in block 136-03. This was reported a Thoyer Consultoncy Bockground Brief
issued the same day. The BBC cited industry sources while my source was a trusted
Vietnamese working in Hanoi.

Q3- ls it possible that Vietnam did this because of China's threats to attack
Vietnamese bases in Spratly lslands?
ANSWER: What we do not know is whether General Fan Changlong delivered a
threat during his visit to Hanoi or whether the threat was delivered after his
departure. lf the BBC sources are correct Vietnam would have been prudent to
suspend drilling before deciding on what action to take next. lt is now being claimed
that China delivered its threat to the Vietnamese Ambassador in Beijing. The threat
was considered by the Politburo on July L4 and they agreed to stop drilling. There is
currently some uncertainty over whether China actually threatened force.

Q4- What does China's move tellyou about its behavior?

ANSWER: China's reported threat to Vietnam forms part of a pattern of increased
bellicosity from China. President Rodrigo Duterte from the Philippines has spoken
openly in May, before China's current threat to Vietnam was made, that Xi Jinping
threatened to "go to war" if the Philippines resumed oil exploration and drilling in
Recto Bank. The recent Chinese Air Force intercept of U.S. Air Force WC-135
Constant Phoenix aircraft over the East Sea is the most recent example of China
 2

intercepting U.S. flights over the East and South China Seas. China is currently
conducting naval exercises in the Baltic with the Russian Navy.
Q5- What would happen if Vietnam continued drilling for oil with Repsol?
ANSWER: China undoubtedly would interfere. China has many options: it might
attempt to cut the cable of the oil drilling vessel, it could deploy fishing boats with
embedded maritime militia, China Coast Guard vessels or even People's Liberation
Army Navy warships to stop drilling in Block L36-03. Additionally, China could cut off
Vietnamese supplyvessels. And atthe extreme end of the spectrum, China could fire
warning shots at the exploration vessel or, as threatened, take some form of limited
military action against one of features that Vietnam occupies. The maritime area
around Vanguard Bank hosts fifteen technical support services platforms built on
stilts that are highly vulnerable.

Q6- Was Vietnam trying to avoid confrontation with China or there are any other
reasons behind this in your view?

ANSWER: Vietnam always uses both diplomacy and a demonstration of resolve in

responding to Chinese actions. From the facts available, it would appear that
Vietnam responded to an unprecedented threat to use force by China by standing
down in order to buy time to map out a strategy. At the moment, the Vietnamese
press has been silent and the Foreign Ministry unusually quiet. Vietnam does not
want to precipitate an incident in which it comes off second best. Vietnam will need
time to mobilize international opinion and seek support from Japan, the United
States, lndia, Australia and Europe. Vietnam must also meet with representatives of
foreign oil companies presently operating in Vietnam's Exclusive Economic Zone to
share assessments. And, finally, Vietnam will have to press China through diplomatic
and other channels to resolve the matter peacefullyl

Suggested citation: Carlyle A. Thayer, "Why Did Vietnam Suspend Oil Drilling in Block
136-03?" Thoyer Consultoncy Bockground Brief, July 25, 2017. All background briefs
are posted on Scribd.com (search for Thayer). To remove yourself from the mailing
list type, UNSUBSCRIBE in the Subject heading and hit the Reply key.

Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.
 Thayer Consultancy Background Briefing:
ABN # 65 648 097 123
South China Sea: Did China
Threaten Force? Did Vietnam
Withdraw from Block 136?
Carlyle A. Thayer
July 25,2017
Our analysts are struck by how little comment has been made on China's reported
threat to use force against Vietnam and Vietnam's decision to withdraw the oil
exploration vessel from Block 136 by those who track the South China Sea in details.
We would appreciate your assessment.

Q1. ls it possible Bill Hayton is exaggerating what's happened? Do we know whether

this is a temporary pause or full pullback, or whether it was Vietnam's decision or
Repsol's, and so forth?

ANSWER: My sources say China called in Vietnam's Ambassador to Beijing and

delivered a demarche. lt is unclear whether it was a demand to stop drilling in
contested waters or was an actual threat to use force. I have reservations about
china's Foreign Ministry being so explicit about the use of force.
The Vietnamese Ambassador reported back to the Politburo and they met on or
about 14 July to deliberate. They made the decision to ask Talisman-Vietnam, a unit
of Repsol of Spain, to stop drilling and leave Block 136-03.
By all accounts, the decision was made by vietnam's leaders. Whether the
withdrawal of the oil-drilling vessel is permanent or temporary is not known with
certainty. A complete cessation is unlikely; a pause is more likely. A pause gives
Vietnam time to raise the matter bilaterally with China and to lobby other states for
support. Vietnam also needs time to devise a strategy to respond and avoid, in the
meantime, any confrontation that they would loose.

Q2. How how much of a game-changer should we treat these developments?

ANSWER: lt would be an unprecedented and alarming escalation if China actually
threatened to use physical force against a Vietnamese-occupied featured in the
Vanguard Bank area or in the Spratly islands. Vietnam has fifteen technical service
support platforms built on stilts in the Vanguard area. These cannot be defended
and china could easily take one or more and destroy the structures.
There is a pattern of increased Chinese bellicosity across the board from challenging
U.S. military flights in the region to conducting joint naval exercises with Russia in
the Baltic Sea and sending an intelligence collector to eavesdrop on Exercise
Talisman sabre underway between Australia and the United states.
 2

China may be reacting to a number of trends that it perceives as threatening: U.S.

arms sales to Taiwan, resumption of freedom of navigation patrols and over flights
by the Trump Administration, continual U.S. criticism of China for not doing enough
over North Korea, threats by the U.S. to impose tariffs on Chinese steel, and actual
and potential resumption of oil exploration by Vietnam and the Philippines,
respectively.

China may be gambling that President Trump will not respond in the South China
Sea for three reasons: (1) the Trump Administration is mired in dealing with
domestic issues (repealing and replacing Obamacare and dealing with allegations of
Russian interference in the U.S. elections); (2) because Trump has set priority on
defeating lslamic State in Syria and is encountering Russian pushback; and (3)
because of the North Korean issue - ballistic missile test and a possible test of a
nuclear device - and no clear means to halt these developments.

Suggested citation: Carlyle A. Thayer, "South China Sea: Did China Threaten Force?
Did Vietnam Withdraw from Block L36?," Thayer Consultoncy Bockground Brief , July
25 ,20!7. All background briefs are posted on Scribd.com (search for Thayer). To
remove yourself from the mailing list type UNSUBSCRIBE in the Subject heading and
hit the Reply key.

Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.