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Trade deficit below 3% and dependence on FDI companies

Trade deficit below 3% and dependence on FDI companies

Thursday 06, 02 2020
Vietnam's exports in 2019 are expected to grow spectacularly despite objective difficulties resulting from the impact of the US-China trade war across the globe.

However, the National Assembly is concerned about the export quota of 2020 which is unchanged while the actual situation has changed. It is wondered whether the trade deficit index which is remained at 3% closely reflects the situation of trade exchange in Vietnam?

Not boldly set the trade surplus target

According to the Government Report presented to the National Assembly at the opening of the 8th session of the 14th National Assembly, export of the year 2019 is estimated at 7.9% (the target of 7-8%); trade deficit accounted for less than 3% of total export turnover (trade surplus is estimated at 0.4%). In other words, export is one of the 2019 socio-economic targets that exceeds the expectation. However, in the plan set for 2020, the Government still submitted to the National Assembly the target of 7% export growth and the trade deficit rate below 3%.

In the context of increasingly complicated global trade war and its unpredictable effects on Vietnam's trade and exports, these goals seem unrealistic. The verification report of the National Assembly's Economic Committee on the same day stated: “Please clarify the basis of the determination for these indicators (because the target does not change in the socio-economic development plan) to match actual results. In the last 4 years (2016-2019), the Government has submitted to the National Assembly a trade deficit of 3% of the total export turnover but in fact, it turned out to be trade surplus”.

The National Assembly's concern lies in the fact that in 2019 the total export turnover is estimated to increase by 7.9% while the world economy is facing difficulties and the demand is slowing down. Many key products of the country including seafood, vegetables, computers, electronic products and components have decreased or increased slowly. The Government could not immediately explain to the National Assembly about specific targets. However, looking at the overall unpredictable picture of economy and trade, the adjustment of targets must also be carefully considered.

According to the Government's estimate, the export turnover in 2019 is expected to reach USD 525 billion, up 9.2% compared to 2018 and the trade surplus will happen again after 3 consecutive years. The trade balance keeps a high growth rate in both exports and imports over the same period in 2018 thanks to the improved export growth of the domestic economic sector (16.4%), higher than that of the FDI sector (5%). However, the trade deficit of the domestic sector is still very large (USD 19.26 billion). In other words, the FDI sector plays a key role in the country's export with the proportion of 69.36% of total turnover. For many years, the export growth rate of this sector has been high. Its current low growth rate is due to the impact of the global trade war. The high export growth of the domestic sector still does not compensate for this influence.

Dependence on FDI

The Ministry of Industry and Trade, in a recent report on the situation of industrial production and trade in the first 9 months, said that from the beginning of 2019, despite the trade deficit in the first few months of the year, Vietnam's trade balance maintained a trade surplus, with a trade surplus of USD 5.9 billion. Of which, the domestic economic sector had a trade deficit of USD 19.4 billion USD; FDI sector (including crude oil) saw a surplus of USD 25.3 billion.

The trade surplus is mainly in FDI, showing that it is the determinant of Vietnam's trade balance. This sector is strongly affected by the global trade war, which means set the target trade deficit of 3% compared to the total export turnover is reasonable because the business it is difficult to forecast the situation of FDI. For example, the proportion of processed products accounted for 84.23% of total exports (which is mainly from FDI), higher than that in 2018 thanks to Samsung whose revenue has accounted for 28% of Vietnam's total GDP since October, with the Galaxy Note 10 product line.

The Ministry of Industry and Trade also noticed that the US and China trade tensions continued to escalate in August 2019 after the US announced a new tariff on Chinese goods imported into the country (the tax rate of 15% for USD 112 billion of Chinese goods went into effect on September 1, and the tax rate for USD 250 billion of goods will increase from 25% to 30% from October 15). And Vietnam will not be exempt from the impact.

Some industries including electronics, computers and optical products, especially mobile phones that have been the driving force of export growth, are no longer able to maintain impressive growth rates as in the previous period. When the growth motivation from Samsung is still a mystery as its global sales has not shown signs of positive growth again.

The yuan devaluation of China will directly affect Vietnam's exports of goods, especially agricultural and aquatic products. Accordingly, the decrease of the yuan against the dollar will also affect the competitiveness of Vietnam's agricultural exports compared to China in the world market, especially the exports of seafood, timber and wood products, coffee and pepper to the US and European markets.

At the same time, the devaluation of the yuan will have more impact on Vietnam's exports to the Chinese market, when Vietnam's agricultural exports such as vegetables, rubber, seafood and timber have higher price than before and less competitive than similar products in the Chinese market. Recently, the market has recorded a fall to bottom of the yuan in the past 11 years. It is also expected to continue to be devalued in 2020.

Imports of goods from China have experienced a sharp increase recently. Tensions between the US and China are raising concerns about the phenomenon of goods imported from China to Vietnam to evade origin, and then re-exported to the US to avoid taxes, especially when Vietnam's export to the US is also increasing strongly in recent years. It can be firmly believed that Vietnam's export growth, regardless of changes, must be paid full attention.


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