Vietnam must improve its balance of trade with China to secure sustainable trade development between the two sides into the future.
Vietnam and China have committed to increasing bilateral trade turnover to $60 billion by 2015, which will see China become one of the leading exporters to Vietnam. Such a sharp increase is not anticipated with any of Vietnam’s other trading partners.
In 2000 the two countries agreed to set a goal of recording trade turnover of $2 billion, which actually reached $2.5 billion, according to Vietnam Customs. The target was then lifted to $5 billion by 2005, but reached $7.2 billion. The target of $20 billion by 2010 was also exceeded easily, reaching $20.18 billion. These rapid increases prompted the two countries to sharply increase the target to $60 billion by 2015. To speed up the implementation of commitments between the two, both have signed agreements on the establishment of trade promotion offices in each country, a memorandum of understanding on the establishment of Vietnam-China border economic cooperation zones, and a memorandum of understanding on the establishment of a taskforce supporting the implementation of Chinese-invested projects in Vietnam. The annual growth in import value, at 30 per cent, is higher than growth in export value, of 20 per cent.
Analysts have warned this is not good news for Vietnam’s balance of trade and it must boost its exports to China. In 2001 the trade deficit was modest, at $190 million, before increasing to $4.4 billion in 2006 and then $13.5 billion in 2011 and $16.4 billion in 2012. Vietnam is recording a trade surplus with developed countries but posting deficits with China and with ASEAN. In 2013 Vietnam’s imports from China reached a staggering $36.9 billion, accounting for 28.1 per cent of the country’s total imports, while exports to the market were estimated at $13.3 billion, for 10 per cent of the total. The trade deficit in 2013 was $23.6 billion, up 44.5 per cent compared to 2012’s figure, and it’s expected to continue to rise into the future.
A study by the Vietnam Centre for Economic and Policy Research (VEPR) this year shows that half of Vietnam’s exports to China are raw or preliminarily processed goods, while 85 per cent of imports from the country are refined products. Up to 80 per cent of the materials and technologies Vietnam uses for domestic production are Chinese. In 2013, imports of machinery, equipment, tools and related components stood at $6.56 billion, against $5.19 billion in 2012. In the first three months of 2014 the figure was $1.57 billion. One of the reasons why local enterprises are importing Chinese technologies is their low price, even though the country isn’t a source of modern technologies. According to the Ministry of Industry and Trade, Chinese Engineering/Procurement/Construction (EPC) contractors offer technologies at half the price quoted by G7 countries, and also promise to assist Vietnamese enterprises in arranging project capital. Instead of using in-place materials and workers, the EPC contractors import technologies from China. The technologies at many projects conducted by foreign-invested enterprises (FIEs) are also Chinese. Imports by FIEs from China rose sharply in 2013, by 38.7 per cent to $20.59 billion, while imports by local enterprises increased by 17.4 per cent to $16.36 billion. In 2012, though imports by local enterprises fell by 2 per cent, those by FIEs soared 43 per cent, adding significantly to the trade deficit with China.
According to Vietnam Customs, the country imports 42 categories of products from China, including six that have turnover in excess of $1 billion (machinery, equipment, tools, and related components; fabric; personal computers, electronics and spare parts; phones and spare parts; various steel products; and petrol). Meanwhile, Vietnam’s exports to China are primarily raw materials in the agriculture-forestry-fishery category, which account for 31.2 per cent of total exports to the market. Though China buys rice, fruit and vegetables, tea, pepper and rubber from Vietnam in large quantities and at low prices, exporting these products to the market is a challenge for Vietnamese enterprises due to instabilities in cross-border trade. Trade turnover via border economic zones now accounts for some 15 per cent of total trade turnover between two sides.
In terms of the structure of natural resources and technology-intensive exports to China, the World Integrated Trade Solutions (WITS) 2013 report showed that Vietnam sharply cut its natural resource-intensive exports from 63.52 per cent in 2000 to 19.75 per cent in 2011. There was a shift in increasing high-technology exports, as these increased from 5.84 per cent in 2000 to 39.86 per cent in 2011. Meanwhile, low- and medium-technology exports increased slightly, from 18.85 per cent to 24.06 per cent and from 11.8 per cent to 16.33 per cent, respectively, in the 2000-2011 period.
Dr Pham Sy Thanh, Director of the Chinese Studies Programme at VEPR, said that if the value of the Vietnam-China two-way trade was compared to a three-piece cake, two would belong to China while only one would be for Vietnam. Dr Thanh has already issued warnings about the so called “trade liberalisation trap” Vietnam may be falling into when doing business with China. The situation is not unique to Vietnam. Many other countries rich in natural resources but with a relatively low level of industrialisation also export a large amount of natural resources and raw materials to China, only to see China export finished products back to them. “As a result, natural resource-exporting countries cannot develop industrial production, due to their heavy reliance on raw material exports and low-value added products,” Dr Thanh said.
In narrowing its trade gap with China, Vietnam’s agricultural goods are a priority category as demand in China is huge given its population of 1.3 billion people. The challenge for improving the trade balance is that Vietnam lacks a mechanism to control and inspect the quality of Chinese imports. It is also developing support industries to increase localisation ratios, and if this can lessen its reliance on Chinese imports then it will become more attractive in the eyes of foreign investors manufacturing in Vietnam for distribution to the Asia-Pacific region.
Senior leaders from both sides officially agreed to enhance the strategic cooperative partnership for future sustainable development in 2013. The Ministry of Industry and Trade recently approved a master plan on the development of industrial and trade cooperation at border areas with China to 2020 with a vision to 2030. Vietnam will continue to build and upgrade its border markets, especially those at the border gates of Tan Thanh (Lang Son province), Mong Cai (Quang Ninh province), and Lao Cai (Lao Cai province). Vietnam also plans to open four new economic zones along its border with China by 2020, and targets border trade turnover of $16 billion with China by 2015.
“I think a careful view of the East Sea dispute is needed. It’s true that China withdrew workers and experts from some construction works in Vietnam and the effect of this is yet to be determined. When two sides engage in a territorial dispute there are sure to be repercussions regarding economic issues. The government provides certain directions. The most important thing is that Vietnam needs to build an economy based on freedom and independence in the long term. In the context of integration and participation in the global value chain, any part of the value chain with a problem will affect the entire chain. If Vietnam is affected then China and neighbouring countries will also be affected. The State will have its solutions but, initially, every enterprise also needs its own solutions.”