How the nine-dash line undermines China's economic interests in Vietnam

China's nine-dash line claim in the South China Sea has recently caused an uproar in Vietnam. Early last week, Vietnamese authorities banned the movie Barbie, produced by Warner Bros, for containing an illustration that allegedly depicts the nine-dash line.

Later, it was discovered that IME Entertainment, a Chinese company which 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 now investigating the issue, while many Vietnamese netizens have called for a boycott of the show. In response to the backlash, IME Entertainment quickly shut down its website, and its CEO issued an apology to the Vietnamese public.

This is not the first, and certainly not 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 films with images of the line, including Abominable, Uncharted, and Pine Gap. Additionally, maps, globes, books, and mobile games including 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 nine-dash line, which has been depicted in Chinese passport pages since 2012, has also posed obstacles to Chinese companies investing in Vietnam. For example, Vietnamese authorities have refused to accept Chinese passport holders as legal representatives of companies in Vietnam, 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.

Since late 2019, Hanoi authorities have reportedly rejected applications for work permits and police clearance certificates from Chinese nationals with passports displaying the nine-dash line map. In addition, following an incident where a domestic automotive importer was discovered selling Chinese-manufactured cars fitted with the nine-dash line in the navigation system, the Ministry of Industry and Trade requested Vietnamese importers to 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 factories 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 2023, despite the close 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 of investment.

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 above actions can be seen as measures to protect its legitimate maritime interests and to enforce the ruling. As a result, businesses operating in Vietnam must comply with the country's policy 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 China's policy by including the nine-dash line in their relevant products.

Some businesses have so far accepted to sacrifice their interest in Vietnam in order to satisfy Beijing and protect their commercial concerns in the Chinese market. However, considering the 2016 ruling and the increasing strategic competition between the US and China, as well as the 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 the future.

Currently, the Philippines is reportedly considering a similar ban on the Barbie movie, 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 the US and its allies seek to enforce the 2016 ruling to counter China'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 markets outside China.

Controversies surrounding China'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 the issue 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 nine-dash line in products that they sell in markets outside China. After all, supporting an unlawful claim could lead them to severe financial losses and irreparable reputational damage in the long term.

This article was first published in Fulcrum, ISEAS - Yusof Ishak Institute's blogsite.

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