ASIA TIMES Taiwanese companies in Vietnam are increasingly being squeezed between a rock and a hard place as China ramps up diplomatic pressure on their displays of national identity.

If they hang Taiwan’s national flag outside their offices and factories, then China kicks up a threatening fuss with Hanoi about its professed sovereignty over the island state Beijing views as a renegade province.

If they keep their flags furled, then their factories may be perceived to be China-owned and potentially targeted by nationalistic protesters who see China’s growing commercial and economic interests in Vietnam as a threat to sovereignty.

The lose-lose situation came to a head in July, when Beijing lodged an official diplomatic complaint with Hanoi for allowing Taiwanese businesses to fly the red-and-blue-flag above their local buildings.

“There is only one China in the world, and Taiwan is part of China,” Chinese foreign ministry spokesman Geng Shuang was quoted saying in reports. “We have taken up the matter with the Vietnamese side, and they have already instructed the relevant companies to correct their wrong practices.”

That’s not immediately clear on the ground as the flag can still be seen at some Taiwanese businesses nearly a month later. Taiwan was Vietnam’s fourth largest foreign investor, with total invested capital of around US$8 billion, as of 2017, according to official statistics.

Vietnam is a key target of Taiwan’s so-called “Southbound” foreign policy to strengthen ties to Southeast Asia.

But the dust-up over Taiwanese flag-flying is part and parcel of an intensifying diplomatic drama between China and Vietnam, one that is raising new downstream risks to those who rely on Vietnamese production for their global supply chains.

Taiwan is unwillingly faced with rising anti-China sentiment in Vietnam, which over the last two months has seen some of the most intense and widespread anti-China protests in years. Hundreds of thousands protested across the country, sparking a harsh crackdown that has resulted in hundreds of arrests.

The spark: a draft special economic zone (SEZ) law that many Vietnamese believe will allow China to dominate major industrial areas through a new 99-year lease provision. Taiwanese businesses are now reportedly concerned that popular anger will mistakenly hit their factories and businesses during a new wave of protests.

“The protesters pointed to the risks of losing national sovereignty to China, alleged to be the key beneficiary of the Special Administrative and Economic zones scheme,” California State University professor Angie Ngoc Tran wrote in New Mandala, an academic blog.

Tran noted that while the draft law does not overtly mention China, it does grant special privileges to three of Vietnam’s special economic zones in particular: one on the Chinese border, another situated on the shores of the South China Sea, and a third bordering on an area of Cambodia dominated by Chinese investment.

“Who else would stand to benefit the most from both economic and administrative control over land, air, and sea lanes from these three zones?” she asked.

As Vietnamese ire rises against a law they see as ceding sovereignty to China, so too have Taiwanese flags outside of their local businesses.

Observers say the Taiwanese companies are not so much taking a patriotic stand vis-à-vis China than taking pragmatic corporate decisions. Taiwanese firms here know acutely how politics and business often mix volatilely in Vietnam.

In May 2014, Beijing’s decision to position an oil rig in a part of the South China Sea claimed by Hanoi led to days of fiery anti-China demonstrations across Vietnam. Local protests took out their fury on perceived Chinese interests by damaging, looting and destroying over 350 factories in Binh Duong province alone.

The protestors, however, often missed their nationalistic mark by apparently targeting plants with foreign Asian lettering on their signs that resulted in not only Chinese but also Korean, Japanese and Taiwanese factories coming under assault.

While Vietnam confirmed three Chinese deaths in the 2014 melee, foreign reports quoting doctors put the figure as high as 21. Hundreds of Chinese fled the violence, with many taking flight across the border into neighboring Cambodia.

Flag-flying Taiwanese businesses clearly fear a possible repeat of the overly anti-China violence that also indiscriminately targeted foreigners.

One Taiwanese businessman told a local newspaper his furniture company suffered US$1 million in losses in the 2014 violence and that he recently erected Taiwan’s flag outside of his firm when anti-China protests kicked up again in June.

The draft SEZ law that sparked the protests is now on hold in the Communist Party-dominated National Assembly, but some believe a new wave of anti-China demonstrations could erupt if and when the law is finally passed.

Taiwan’s recent experience adds to its political risk. In 2016, Taiwanese steel maker Formosa caused one of Vietnam’s worst ever environmental disasters when it was found to have dumped tons of toxic waste in the central region’s sea, a spill that killed a massive number of fish and devastated coastlines.

The disaster sparked nationwide protests that were fueled in part by perceived as insensitive remarks by a Formosa executive who said at the height of the disaster that Vietnam needed to choose between having a modern steel or traditional fishing industry.

The company paid a US$500 million fine but is now expanding the same contentious facility that was also hit in the 2014 violence. But if new anti-China protests erupt in the weeks ahead, it’s not entirely clear that flying the flag will protect Taiwanese businesses from xenophobic sentiment.