Vietnam moves to protect economy as US, China spar

A port in Hai Phong city in north-eastern Vietnam. The country needs exports to remain strong to support economic growth, which eased to 6.8 per cent in the second quarter.
A port in Hai Phong city in north-eastern Vietnam. The country needs exports to remain strong to support economic growth, which eased to 6.8 per cent in the second quarter.PHOTO: REUTERS

Experts call for dong to be devalued, more border checks against flood of Chinese goods

HANOI • With China and the United States as its largest export destinations, Vietnam is seeking ways to insulate itself from an escalating trade war between the world's two biggest economies.

Analysts are calling for measures, from devaluing the dong to increasing scrutiny of products to counter an anticipated flood of Chinese goods.

The National Centre for Socio-economic Information and Forecast - under the Ministry of Planning and Investment - has submitted a report to the ministry on the potential impact of the trade war and how the authorities should prepare to defend the economy.

"If the US and China escalate the tension with tit-for-tat moves, it could reduce our exports and foreign investment inflow and hurt domestic production," said the centre's deputy director-general Luong Van Khoi.

Vietnam's reliance on exports and foreign direct investment to power its growth makes it vulnerable to the showdown between the US and its trading partners like China and the European Union.

The economy, much like other developing nations, is also under threat from financial volatility, with the currency and stocks weakening while inflation is surging.

Ms Eugenia Victorino, an economist at Australia & New Zealand Banking Group in Singapore, said: "It would be naive to think that Vietnam will remain unscathed from the global trade war.

"Vietnam is well integrated into global supply chains. The government needs to carefully calibrate its external and domestic policy settings to offset these risks."

The central bank should consider devaluing the dong against the US dollar to boost the competitiveness of Vietnamese products, the Vietnam Institute for Economic and Policy Research said this month.

The dong, which has lost more than 1 per cent this year and is trading at a record low, is still performing better than most Asian currencies.

Said senior economist Can Van Luc of the Bank for Investment and Development of Vietnam: "Devaluing the dong can help exports, but it will also fuel inflation and increase costs in importing materials for domestic production, therefore we must be very cautious.

"A drop of about 2 per cent for the dong for the entire 2018 will be suitable."

The currency is little changed - at about 23,045 dong per US dollar.

With the US threatening more tariffs on Chinese goods, Vietnam is worried that Chinese products such as garments, leather and furniture will flood the local market.

The Ministry of Industry and Trade is working to prevent such an eventuality, Minister Tran Tuan Anh said this month.

The nation imported US$57 billion (S$78 billion) of goods from China last year.

Ministries should work together to come up with non-tariff measures to limit large inflows of Chinese products, Dr Luc and Dr Khoi suggested. The authorities need to intensify checks at border checkpoints and increase quality requirements, they said.

Reducing costs for exporters and producers by cutting the number of licences and permits, as well as helping them find new markets, would also help, said Mr Nguyen Anh Duong, head of the macroeconomic policies department at the Central Institute for Economic Management, a government think-tank in Hanoi.

Exports, which accounted for 102 per cent of gross domestic product last year, are holding up.

They gained 16 per cent in January to June from a year ago, outperforming those in Singapore and the Philippines.

Vietnam has transformed itself into a manufacturing giant and shipments of Samsung Electronics alone accounted for about one-fourth of its US$227 billion exports last year.

It would need exports to remain strong to support economic growth, which eased to 6.8 per cent in the second quarter.

The government has already forecast a further slowing in the second half of the year.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 19, 2018, with the headline 'Vietnam moves to protect economy as US, China spar'. Print Edition | Subscribe