CHINA and Vietnam, the major powers in the shrinking fraternity of avowedly communist states, have pledged to normalize relations and end a chill lasting nearly two decades.In a joint communique issued Aug. 10, Hanoi and Beijing said they will continue discussions aimed at removing obstacles to normalization. The improvement in relations is part of a "circling of wagons" by socialist states that assert that the worldwide repudiation of communism is the result of a capitalist conspiracy, diplomats and foreign policy observers say. "The Chinese are finding it very uncomfortable to be living in a world with a smaller and smaller club of socialist states," says James Tang, a political scientist at Hong Kong University. "China's old adversary Vietnam is one of the few members of this diminished club." More immediately, the Sino-Vietnam rapprochement stems from recent progress in resolving the 12-year civil war in Cambodia. China has long said that better relations with its southern neighbor must follow a settlement in Cambodia. The two countries fought a brief border war in early 1979 after Vietnam invaded Cambodia, ousted the Khmer Rouge regime backed by China, and installed a pliant government. Both countries have publicly expressed a desire to improve relations since Vietnam made an initial public overture in January 1989. But the communique is the first joint effort on paper. The statement "is more optimistic in tone and looks a lot more positive" than previous references to Sino-Vietnam relations, says a Western diplomat. "But to say the two sides will march lockstep to normalization is going too far." The two countries in July found cause for concord when the Vietnam-backed Hun Sen regime in Cambodia and its rival, three-member coalition agreed to allow the United Nations to monitor a cease-fire. The warring factions, meeting in Beijing as the Supreme National Council of Cambodia, agreed on a mutual representative at the next General Assembly of the UN and pledged to forgo foreign contributions of arms for their forces. The Council plans to meet again in late August. Still, the threat of discord among the Cambodian factions - and between Hanoi and Beijing - remains very real, Western diplomats say. The council has so far avoided the ticklish issue of how its members will share power in the interim period before the UN-sponsored election of a new government. "We'll have to wait for the outcome of the next meeting of the council before we can say with great confidence that Sino-Vietnamese relations are headed for better days," says a Western diplomat.