Oil tensions with China highlight Vietnam's economic vulnerabilities

Amid tensions over a Chinese oil rig in disputed waters, an economic policy center in Hanoi said Vietnam needs to take steps to reduce its ties to China.

An annual report from the Vietnam Center for Economic and Policy Research says Vietnam's economy is expected to slow down because of ongoing tensions with China over an oil rig operating in disputed waters in the South China Sea.

"Facing tensions with China, Vietnam needs to commit to changing its economic model, development path and ideology in governing its economy," the report said. "The economic slowdown has offered a number of reasons to call for radical reforms and reduce dependence on China."

The Vietnamese government in May said it has the right to defend its national interests. Beijing says it's operating within its territorial waters and has called on Vietnam to stop interfering with its legitimate work in the region.

The U.S. government has weighed in on the row, saying it has no stance on territorial claims, though it views China as the aggressor.

U.S. Defense Secretary Chuck Hagel met Saturday in Singapore with his Vietnamese counterpart, Gen. Phung Quang Thanh.

The U.S. Defense Department, in a statement on the meeting, said both sides discussed regional security challenges, "including their mutual concerns over the recent provocative behavior by the Chinese in the South China Sea."

China's oil rig is accompanied by government-owned vessels in the region.