Prime Minister Scott Morrison, speaking during a trip to Vietnam, has urged China's neighbours to resist coercion, warning the entire region would suffer if their sovereignty were undermined.

Key points: The PM made a veiled swipe at China's aggression in the South China Sea

The PM made a veiled swipe at China's aggression in the South China Sea While business is the focus of his visit to Vietnam, but China is the subtext

While business is the focus of his visit to Vietnam, but China is the subtext Australia is seeking to diversify as China is its biggest trading partner

In a thinly veiled swipe at Beijing's aggression in the South China Sea, Mr Morrison has used a speech he gave in Hanoi to emphasise the importance of an "open, inclusive and prosperous Indo-Pacific neighbourhood".

"An Indo-Pacific where we respect each other's sovereignty and independence, because if we allow the sovereignty or independence of any of our neighbours to suffer coercion, then we are all diminished," he said.

"We share a deep interest in the stability and prosperity of our region."

Mr Morrison's visit comes at a time of rising tensions in the South China Sea where Beijing has been accused of repeated incursions into Vietnamese-controlled waters, most recently sending an oil survey ship through Hanoi's exclusive economic zone.

Having received a red-carpet welcome into Hanoi last night, Mr Morrison addressed a gathering of about 100 diplomats and business leaders from both countries, declaring "Vietnam matters to Australia".

"I am here because of how far the relationship has come, and because I see the potential," he said.

Australian businesses also see the potential in this booming country of nearly 100 million people.

One of the big four banks, ANZ, already has a presence in Vietnam along with logistics giant Linfox and shipbuilder Austal.

Australian businesses see potential in Vietnam its nearly 100 million people. ( Reuters: Kham )

West Australian-based oil and gas giant Woodside is bidding for a contract to supply Liquefied Natural Gas to Vietnam to help fill a looming shortfall in domestic supply.

The company's chief executive, Peter Coleman, described Vietnam as a "dynamic economy" and said the Prime Minister's visit was helpful for business.

"It opens a lot of doors for us as business leaders but equally I think it's symbolic when Australians travel as a group," he said.

"This is Australia Inc working very well together."

Vietnam at sharp edge of China's expansion

The US and China are embroiled in a trade war and the US has criticised China's actions in the South China Sea. ( AP: Susan Walsh )

While business is the focus of this visit, China is the subtext.

The Australian Government is yet to explicitly condemn Beijing's actions in the South China Sea but its language has been gradually strengthening.

Mr Morrison is in Vietnam to forge closer trade and military ties. ( AAP: Lukas Coch )

Without naming China, Australia recently signed a joint statement with the United States and Japan in which the three nations expressed "serious concerns about negative developments" in the disputed waters and cited "credible reports of disruptive activities in relation to long-standing oil and gas projects" in the region.

The United States, however, has been using increasingly pointed language, issuing a statement yesterday that it was " deeply concerned" about China's interference in oil and gas activities in waters claimed by Vietnam, saying this called into serious question Beijing's commitment to peaceful resolution of maritime disputes.

A State Department statement said China's redeployment of a government-owned survey vessel, together with armed escorts, into waters off Vietnam on August 13 was "an escalation by Beijing in its efforts to intimidate other claimants out of developing resources in the South China Sea".

Vietnam is at the sharp edge of China's aggressive expansionism and is constantly having to contend with its coercive actions in the disputed waters.

In recent years, Australia and Vietnam have been forging ever-closer security ties, recently upgrading diplomatic relations to a "strategic partnership", as the two nations seek to hedge against China's ambitions in the region.

Last year, the Australian Defence Force trained and transported Vietnamese troops to South Sudan for the nation's first ever peace-keeping mission and today Mr Morrison will visit the second rotation of peace-keepers at Hanoi's Military Medical University.

In what could be viewed as a subtle message to China, Mr Morrison pointed out that Australia and Vietnam are two nations "from different systems, with different languages, and very different cultures".

"But ours has become a comfortable partnership," he said.

Canberra's relationship with Beijing, meanwhile, is becoming increasingly difficult to manage, which is problematic given China is Australia's biggest trading partner.

This is partly why Australia has been seeking to diversify its economic and strategic relationships in the region and develop stronger ties with countries like Vietnam.

To continue building that relationship, Mr Morrison has announced the establishment of the $5 million Australia-Vietnam Centre at the Ho Chi Minh National Academy of Politics — which will bring together government officials, policymakers and academics from both countries.

The Prime Minister will today receive a ceremonial welcome before holding a formal "tete-a-tete" bilateral meeting with his Vietnamese counterpart Nguyn Xuan Phuc and Communist Party leaders.

ABC/Reuters