Vietnam's economy faces challenges
In recent years, Vietnam has been favored by more and more investors and financial institutions due to its sustained high economic growth. Several recent global economic outlook reports believe that with the continuous investment of labor resources and social capital, as well as the continuous improvement of the country's macro management level, this Southeast Asian country will play a huge economic potential in the future.
According to a report by the Vietnam News Agency on August 13, a series of indicators in the first half of 2018 proved that Vietnam’s economy is growing rapidly, and its gross domestic product (GDP) increased by 7.1% year-on-year, the fastest growth rate since 2011. The output of Vietnam's manufacturing sector increased by 13.1% year-on-year. An analyst at the National Bank of Qatar said that the boom in manufacturing has boosted exports, making Vietnam's exports in the first half of 2018 a year-on-year growth of nearly 20%, while the growth rate for the whole of 2017 was 17%.
According to the report, the bank attributed the success of manufacturing and export to Vietnam's ability to attract huge foreign direct investment into the apparel, footwear and electronics industries. The inflow of foreign direct investment into Vietnam has also increased. It is estimated that the total value in the first half of this year reached 13 billion U.S. dollars, with an annual growth rate of 11%.
According to the latest data from the International Monetary Fund, Vietnam’s GDP in 2017 was approximately US$220 billion. According to the report, there are three crucial factors behind Vietnam's rapid growth. First, Vietnam is actively pursuing trade liberalization on a multilateral and bilateral basis. The trade agreement significantly reduced the external tariffs faced by its exports, helped Vietnam integrate into the global economy, and further accelerated the growth of foreign direct investment.
Second, Vietnam’s investment in human capital, namely education, helps Vietnam maximize its demographic potential. Among 72 countries participating in the most recent international student assessment program, Vietnam ranks 8th. The assessment plan tests middle school students' math, science and other subjects. This achievement surpasses several top-ranked economies in the Organization for Economic Cooperation and Development, the sponsor of the evaluation plan. Finally, Vietnam has made progress in improving its business environment, which supports investment in human capital. In the World Economic Forum's Global Competitiveness Index and the World Bank's Ease of Doing Business Index, Vietnam has steadily climbed.
According to the report, the National Bank of Qatar pointed out that success may be accompanied by vulnerabilities and challenges. Most of the foreign direct investment in Vietnam is concentrated in the textile and electronic product sectors, creating employment opportunities, but these jobs are generally associated with low skills and low wages and have little added value. This makes Vietnam vulnerable to the US-China trade war in the short term. In the long run, as Vietnam climbs up the development ladder and raises wages and living standards, its competitive advantage may fade.
According to the report, the bank also pointed out new economic drivers that could help Vietnam maintain its current position in the next few years. Vietnam's excellent performance in the International Student Assessment Program means that compared to most emerging market economies, Vietnam is more likely to climb up the global value chain.
The prospects for the rapid development of service industries, especially tourism, may help promote long-term economic growth. The latest data shows that the number of tourists to Vietnam in June this year has increased by nearly 25% compared to 2017.
However, the escalating global trade war has aroused the concerns of the Vietnamese government. Vietnam’s Minister of Industry and Trade Chen Junying said earlier that as an active participant in the global value chain, the trade war is bound to have an impact on Vietnam. Some commentators believe that the continued intensification of the trade war and the continued rise of trade protectionism will have a negative impact on Vietnam's macro economy in the second half of the year, and the government's annual economic growth target of 6.5% to 6.7% will be challenged.
In fact, the cloud of trade protectionism has already had a negative impact on Vietnam’s stock and exchange rate markets. After the stock market surged 48% in 2017 to hit a record high in April this year, the Vietnamese stock market continued to fall by 25%. Investors worry that some manufacturing products will flood into the Vietnamese market. In order to hedge risks, they continue to sell stocks, and the risk of selling pressure has risen sharply. The stock exchange of this Asian securities "frontier" market has also lost its vitality in the past due to the recent complicated situation. On the other hand, the exchange rate of the Vietnamese dong against the U.S. dollar has continued to fall and has hit a record low as of this week. According to the report of the Ministry of Planning and Investment of Vietnam, the intensification of the trade war may cause about 6 trillion Vietnamese dong in losses in the future.
Liu Bihu, a well-known Vietnamese economist, told reporters that the impact of the trade war on Vietnam is not only reflected in the exchange rate and securities market levels, but may also extend to foreign trade and foreign direct investment. Taking exports as an example, Vietnam maintains close economic and trade ties with China and the United States at the same time. China has been Vietnam's largest trading partner and largest exporter for many consecutive years, while the United States has been Vietnam's largest export market. The intensified trade war is bound to have a significant impact on Vietnam, which is sandwiched between the two large countries. In addition, due to the uncertainty of the Trump administration’s policies and the long-term trade surplus with the United States, and in recent years, there have been many precedents in which some steel products have been levied high tariffs by the United States. There are voices in Vietnam concerned about its agricultural products and textiles. Waiting for the main export products will become Trump's next goal.
Vietnamese leaders have stated on many occasions that more active integration into the international community is one of the basic principles of Vietnam’s foreign policy. Vietnam has long supported regional integration and globalization. An inclusive and open international economic structure will provide a stable external environment for this Southeast Asian "Rising Star". However, under the current impact of the economic globalization process, Vietnam will not be able to No countermeasures are taken. When talking about preventive measures, Chen Junying said that Vietnam will accelerate the advancement of the Regional Comprehensive Economic Partnership Agreement (RCEP), the Vietnam-Europe Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP) Wait for the new free trade agreement to deal with the possible impact of the intensified trade war on Vietnam. Some scholars call on the government to adopt more flexible monetary policies and further improve the business environment to eliminate negative impacts and maintain stable macroeconomic development.