Despite the expectation to benefit from the US – China trade war, Vietnamese enterprises are now facing challenges from the trend towards a “currency war”.
Decline in exportation
Although Vietnam’s export turnover appears to have increased since the beginning of 2019, this increase belongs to enterprises receiving Foreign Direct Investment (FDI). According to Dr. Pham Sy Thanh – Director of VERP’s Chinese Economic Studies Program (VCES), FDI-invested enterprises benefit the most from the US – China war trade. Among Vietnam’s advantageous commodities (garments, wooden furniture), FDI-invested enterprises
are gaining advantage over other countries and gaining numerous export orders within the last year.
According to Finn Group’s statistics, from June 2018 to June 2019, Vietnamese enterprises accounted for merely 16% the total garment export value to the US. Meanwhile, FDI-invested enterprises of Taiwan, China, and Korea account for 12%, 13%, and 49% of the total export turnover respectively.
In terms of Chinese market specifically, in recent years, the amount of commodity exported to this country has sharply dropped. The statistics provided by the Vietnamese Ministry of Industry and Trade show that rice and mobile phones exported from Vietnam to China have experienced a decrease of nearly 330 million USD and 550 million USD respectively. Notably, while exportation to China fell dramatically, importation from China has increased considerably. Within the first 7 months of 2019, the exportation turnover from China to Vietnam reached almost 20 billion USD, increasing by 18% compared to the same period the previous year.
Addressing the meeting over the first half of 2019 held by the Import - Export Department (Ministry of Industry and Trade), Deputy Minister of Industry and Trade Tran Quoc Khanh says that the US – China trade war has posed considerable challenges to countries having trade relations with these two countries, including Vietnam. From a trade conflict, the war has become a technological conflict and now, a currency conflict. The trade conflict can directly affect the major export commodities of Vietnam. The sale drop-off is likely to have an enormous impact on Vietnamese export growth.
Concern over origin and foreign exchange fraud
The growth of importation from China and the domination of FDI-invested enterprises have significantly affect Vietnamese enterprises. Additionally, Vietnamese commodities are also subject to US Trade Remedies. The US Financial Supervisory Agency has included Vietnam, together with other 8 countries, into the list of “special supervision” due to their high trade surplus with the US. If Vietnam does not strictly control origin fraud, the US is likely to apply sanctions similar to those applied to China.
The risk of original fraud from Chinese commodities has been warned a long time ago. Dr. Vu Thanh Tu Anh – Director of the Fulbirght Schol of Public Policy and Management, member of the consultancy council of the Prime Minister – believes that since many Chinese commodities which used to be imported to the US with the low tax rate are now suffering from the sanction tax rate, they are being imported to the US via other channels. This fact gives rise to suspicion over the unusual growth of certain commodities exported from China to Vietnam and from Vietnam to the US. In meetings over exportation, the Minister of Industry and Trade Tran Tuan Anh has repeatedly warned the enterprises of the risk of origin fraud. Chinese commodities may be imported to the US by using Vietnam as the middleman to avoid tariffs.
Although currently, the US has not applied any sanction measures to Vietnamese commodities, Vietnamese enterprises have faced certain difficulties in exporting to this country. Director of the Trade Remedies Authority (Ministry of Industry and Trade) Le Trieu Dung remarks that over the last period, investigations into illegal transportation, origin fraud, and trade remedies avoidance of Vietnamese export commodities are trending up. Specifically, within the last 8 months, there have been 7 cases of investigation into Vietnamese export commodities. The investigated commodities include aluminum products, steel products, plywood products, household products, maritime products, and solar battery, etc.
Apart from the aforementioned difficulties, Vietnamese enterprises are also severely affected by the devaluation of the Chinese yuan (CNY). Presently China has devaluated the domestic currency, lowering the CNY – USD exchange rate to the lowest level in the past 10 years. This situation forces the Vietnamese cotton exported to China not only reduce its retail price but also suffer from loss due to the devaluated CNY.
The Chairman of the Vietnam Cotton and Spinning Association Nguyen Van Tuan shares that the US – China trade war has greatly affected the cotton exportation from Vietnam to China. Particularly, when the trade war took place, the exportation from China to the US declined, which led to the need to import. At the same time, three countries providing China with cotton which are Vietnam, India, and Pakistan remain strong in their providing competence. Given the current situation, the export turnover of Vietnamese cotton is expected to decrease by 10-15% compared to the previous year. The price would also fall from 3,5 USD/kg to 2,8 USD/kg, which means cotton enterprises would lose 0,5 billion USD.
According to the Chairman of the HCM Rubber and Plastic Association Nguyen Quoc Anh, the devaluation of the CNY leads to the rise of the sale price in Vietnamese commodities such as tires and plastic accessories. The lower the CNY price is, the more inventory the Vietnamese enterprises have.
