Rural economy

Among 14 free trade agreements (FTAs) Vietnam has signed, the CPTPP is a new generation FTA with high standards and the highest level of facilitation. Vietnam has been forecast to be one of the members that benefits the most from the deal.

However, the country has experienced challenges in optimizing the FTA because of its modest level of development and competitiveness.

Due to US-China trade tensions and the impact of COVID-19, the global economy fell into crisis last year with interrupted supply chains. Vietnam also suffered an economic downturn. Therefore, after two years of implementation, the benefits from the CPTPP are still to be seen.

Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), said that positive results in the two years of implementation include the reform of institutions and administrative procedures.

Explaining the modest benefits so far, Loc said major reasons include the poor competitiveness of Vietnamese enterprises, market instability, and the low capacity of State agencies.

Meanwhile, Nguyen Cam Trang, Vice Director of the Import-Export Department at the Ministry of Industry and Trade, said the CPTPP has helped promote Vietnam’s exports.

However, its market share and export growth to the six partners that have implemented the CPTPP have been low.

She noted that Vietnam’s market share is 3.1 percent in Japan, 1.9 percent in Australia, 1.6 percent in New Zealand, 1.3 percent in Mexico, 1.1 percent in Canada, and 1 percent in Singapore.

Growth in exports to CPTPP markets was 12.2 percent in 2018, 13 percent in 2019, and 12.02 percent in 2020, Trang added.

She said that, in the future, State agencies should enhance their capacity to implement the CPTPP while continuing to complete legal policies, strengthen communications regarding the deal, support macro-, small-, and medium-sized enterprises to improve their capacity, encourage investment in material production, and design measures to reduce logistics costs.

Businesses should also be more active in seeking opportunities from the deal, while changing their mindset and exploring demand in CPTPP markets to design suitable business strategies and plans, she added.

A survey by VCCI showed that about three-quarters of businesses said they will adjust their business plans to optimise the opportunities from the CPTPP and other FTAs.

Source: VNA

Lychee being canned for export to the US. Viet Nam’s exports to the US in the first two months of the year accounted for $13.83 billion or 28.4 per cent of total exports. VNA/VNS Photo Vu Sinh

Exports for the year as of March 15 were worth US$62.01 billion, a year-on-year increase of 22.7 per cent, according to the General Department of Viet Nam Customs.

Exports to the US in the first two months of the year accounted for $13.83 billion or 28.4 per cent of total exports.

In recent years the US has become Viet Nam’s biggest market. Last year, for instance, at $76.4 billion it accounted for 27 per cent of the latter’s total exports.

Than Duc Viet, general director of Garment 10 Joint Stock Company, said there were several factors behind Viet Nam’s rapid growth in exports including to the US.

Primarily, he said, the COVID-19 pandemic has gradually been controlled around the world, especially after several countries started vaccinating their populations, enabling many of them to reopen their borders and trade to resume.

Businesses in the country, hit badly for the last year or so by the pandemic, are making strenuous efforts to bounce back, he pointed out.

Many countries around the world have rolled out large stimulus packages to spend their way out of the economic slump, and this has revived trade, he added.

Many analysts concurred with these views, saying the US recently launched a $1.9 trillion package to make direct payments of $1,400 to individuals earning up to $75,000 a year starting in April.

This is the third and largest stimulus since the COVID-19 pandemic broke out.

Viet Nam, one of the US’s major exporters, supplying essential items like fisheries products and garments and electronics, is expected to benefit from this relief package.

Viet of Garment 10 told Dau Tu Chung Khoan magazine that Vietnamese exporters hope to get orders from the US.

Americans are known as big spenders, and if they get the money from the Government consumption would surely rise, he said.

His own company’s exports to the US saw relatively high growth in the first quarter and are expected to grow further due to the huge new stimulus package.

Bui Viet Quang, general director of Red River Garment Joint Stock Company, said his company had enough export orders for until August this year, 80 per cent from the US.

“The US’s $1.9 trillion stimulus package will surely affect enterprises that export to the market. We expect to see robust growth [in US export orders] in the fourth quarter.”

Analysts said a recovery in the US economy would help Vietnamese exporters, especially those in the textile and garment industry.

However, analysts also sounded a warning saying while the US stimulus packages would benefit Viet Nam’s exporters in the short term, loose monetary policies could cause high inflation, which would increase their costs whereas they would not be able to increase prices immediately, affecting their margins.

Besides, the inflation would also hurt demand, they added.

Why property companies want to own banks

Nguyen Tuan Anh, director of the State Bank of Viet Nam’s department of credit for economic sectors, said growth in bank lending to the property sector in 2020 was 9.97 per cent, lower than the overall credit growth rate of 12.13 per cent.

This is becoming an emerging trend.

Enterprises in the sector have found it difficult to borrow from banks after the central bank issued a circular in 2019 prescribing limits and prudential ratios for banks.

It reduced the use of short-term deposits for medium- and long-term loans from 40 per cent to 37 per cent from October 2021 and to 30 per cent from October 2022.

This was aimed at controlling credit to high-risk sectors like real estate.

In the event, the only option real estate companies have is to themselves acquire stakes in banks.

They also target owning a piece of securities firms since that would enable them to mobilise capital from the market by issuing stocks and bonds.

Thus, Tran Thi Thu Hang, the CEO of Sunshine group, became vice chairwoman of the Kien Long Joint Stock Commercial Bank in 2018 and chairwoman of KS Joint Stock Company (KS Securities) around the same time, indicating that Sunshine or related parties had become major shareholders in the two.

Analysts said the finance and property sectors always have a symbiotic relationship since the latter is highly capital intensive with slow returns.

Thus, Vingroup has tied up with Techcombank, MIKGroup with VPBank, Dat Xanh Group with Viet A Bank, and TNR Holdings Viet Nam with MSB.

While the Government’s efforts to control lending to the property sector have had some effect, banks remain an important source of funding for real estate development projects.

This trend is expected continue in future, analysts said. VNS

Dung, the owner of a hotel, said he has a “treasure” hidden at the bottom of the pond which yields about VND34 billion a year.

Goldman Sachs expected exports to be Vietnam’s major driving force for economic recovery.

In 2020, Vietnam’s GDP growth is set to slow to 2.7% and rebound to 8.1% next year, according to the US-based investment bank Goldman Sachs.

Forecast for Vietnam’s GDP growth.

Goldman Sachs’ 2.7%-GDP growth forecast for Vietnam in its first ever macro-economic report on the country, one of the fastest growing economies in Asia, is lower than that of the World Bank (2.8%), but higher than ADB’s 1.8%.

While Vietnam’s economy growth slowed to 3.8% and 0.4% in the respective first and second quarters, the US bank expected GDP growth to quickly recover in the third quarter, mainly thanks to public investment, retail’s revenue and exports.

Notably, Goldman Sachs expects exports to be Vietnam’s major driving force for economic recovery. In the first eight months of 2020, Vietnam’s trade surplus reached an all-time high of US$13.5 billion, representing a 150% increase compared to the same period of last year (US$5.47 billion)

The bank’s report pointed to three major advantages contributing to a growing export turnover.

Firstly, Vietnam holds significant advantage in regional supply chains as the country is located in close proximity with China.

The labor cost in Vietnam is also considered competitive, which remains at half of China’s. For example, the minimum wage in major cities such as Hanoi or Ho Chi Minh City is regulated at US$190 per month, significantly lower than the US$360 in Shanghai. Meanwhile, the minimum wage in other cities in Vietnam and China were estimated at US$132 and US$220 per month, respectively.

According to Goldman Sachs, these factors led to a shift in production of firms in the fields of textile and footwear from China to Vietnam, especially during the US – China trade war. Since 2010, the FDI investment capital that was initially bound to China, South Korea, Japan or countries in ASEAN have now flowed to Vietnam.

Meanwhile, the fact that Vietnam is currently member of a number of free trade agreements (FTAs) with major trading partners could shield the country from growing protectionism globally. For instance in 2019, at the peak of the US – China trade tension, Vietnam’s exports had not been much impacted, which eventually led to a record trade surplus of US$11.12 billion that year.

In the future with the presence of the EU – Vietnam Free Trade Agreement (EVFTA), Goldman Sachs expects Vietnam’s exports to continue growing.

Secondly, Vietnam’s structure of export products with a focus on hi-tech items would continue to be a major plus point for Vietnam. Since 2015, export turnover of products such as smart phones and electronic appliances have exceeded that of traditional items like textile or footwear.

In the January – August period, Vietnam’s export turnover of electronic products increased by 6.3% year-on-year amid the Covid-19 pandemic, accounting for 70% of total exports.

Thirdly, Vietnam’s long-standing trade partnership with China is also an advantage, as the latter would be among a handful of economies with a positive economic growth this year.

It is worth mentioning that China is currently Vietnam’s largest buyer.

In its baseline scenario, Goldman Sachs expects Vietnam’s exports to reach US$180 billion by the end of 2021, assuming the world would gradually contain the pandemic and the development of Covid-19 vaccine remains on track.