Vietnam Economy 2015: Precautionary Measures against Risks

 

Holding a cautious outlook towards Vietnam's economic prospects, Prof Tran Dinh Thien, Director of the Vietnam Institute of Economics, said that Vietnam’s economic recovery has fallen short of expectations. It is not complete if only GDP indicator is taken to assert the recovery. Despite the fact that the economic health has certain recovery, barriers to development still exist.

 

If we base on GDP growth to prove the recovery and growth of Vietnamese economy, it is not complete because the economic revival only means the health is a little stronger, with the disease not totally cured. He argued that if equitisation was considered a key task in 2014, Vietnam only privatised only 134 companies as of end-October, less than half of the target. This also meant that 432 companies must go public in 2014 and 2015. State-owned enterprises’ divestment from non-core businesses only brought in VND4,400 billion as of October 2014. The task of divesting VND16,367 billion in 2015 is very difficult, said Thien.

 

Dr Nguyen Dai Lai, a banking and financial expert, said that although growth model change and economic restructuring policies have been reiterated year after year, the result remain disappointing. The State economy is still the leading actor, holding a majority of the country’s resources, but its competitiveness and capacity is weak. FDI strategy still upholds enormous incentives to draw foreign investors while Vietnamese companies can only handle low-valued outsourcing. They are not transferred advanced technologies from foreign parent companies; hence, their labour productivity was low and inputs are reliant on foreign suppliers.

 

Prof Nguyen Quang Thai noted that the overall picture of Vietnamese economy is portrayed by antithetical colour gamut. Local economic development features localised short-term thinking. 63 provinces and cities have different economic development models. They tend to vie for achievements and waste their resources for their targets. They lack coordination to create general strengths.

 

Dr Tran Dinh Thien said that Vietnam’s cross-border trade policy is now quite unreasonable, which may drag down the Vietnamese economy. Vietnam’s payment for border trade with China was US$15 billion in 2014, he cited. If it was plus nearly US$30 billion of official trade deficit, Vietnam ran a deficit of US$45 billion with this market only. According to Dr Thien, the cross-border trade spending of US$15 billion was a heavy rock weighing on the Vietnamese economy.

 

Dr Vu Hoang Linh, an economic expert, pointed out that rice was the most valuable export of Vietnam in 2014, while unofficial cross-border trading with China accounted for up to 1 million tonnes, causing difficulties in official trading of this commodity with this market because of short supply. In reverse, Vietnam imported machines, vehicles, electronics devices, tobacco materials, coal and chemicals from China as Vietnam’s manufacturing was heavily dependent on Chinese supplies. This weakness led to competitiveness risks of Vietnamese enterprises when technology, machinery, equipment, commodities and input materials often have average and low quality. Besides, cross-border exports mainly had low value and account for small trade proportions. This will cause trade imbalance in the long term and gradually make Vietnam a dependent country, he said.

 

Economic specialist Nguyen Thi Bich Ngoc warned of illegal cross-border trade between Vietnam and China. The illegal trade turnover was at least US$5 billion in 2012. Minerals are the top illegally traded items. For example, Vietnam reported the export of 23,000 tonnes of iron ores a year but China counted 1.74 million tonnes of iron ores imported from Vietnam. In 2011 and 2012, Vietnam lost VND1,700 billion of taxes from iron ore a year due to smuggling. In addition, trade deficit announced by Vietnam and China was usually different. In 2011, the difference in official trade deficit values was US$4.7 billion. Illegal exportation of minerals worsens the shortage of inputs among Vietnamese companies, she said.

 

According to experts, to avoid being lost in cross border trade and reduce reliance on Chinese supplies, Vietnam needs to seek out alternative supply sources and markets, while increasing official trade contacts with Chinese companies.