Vietnam has seen rapid change since the authorities launched a political and economic renewal campaign (Doi Moi) that introduced reforms intended facilitate the transition from a centralized economy to a “socialist-oriented market economy”, which seemed to mimic China's earlier market-friendly moves. Utilizing the data and information from Internet -such as web, report, paper and youtube-, this report explores the outlook of economic performance in Vietnam (based on data from different sources; World Bank, IMF, Trading Economics, and UNCTAD Statistic) and in the second focus of this report (Vietnam as a Mimic China) provides short explanation of people’s argument (based on history, economic, and politic) and how Vietnam has learned from China and how it has not. This report also shows that the convergence of governance systems in Vietnam and China lies in principles and policy (the value system of reform) rather than in structures and polity. At the end, it can be said that it would be difficult for Vietnam to pursue Chinese model because it is a big country. Maybe Vietnam is not to become the next China, but still will continue to grow.
After Vietnam was forcibly unified by the communist North Vietnamese in 1975, it spent a decade mired in disastrous economic experiments that brought it to the brink of famine. In 1986, communist authorities launched Doi Moi, political and economic renewal campaign.
The main reason Doi Moi Vietnam issued a policy in 1986 is due to the face of the failure of centralized economic development planning system and see the success of China in the process of economic reform. The purpose of the Doi Moi policy is to encourage development and economic growth by initiating a gradual transition from central planning to a market-based economy and the progressive integration with the world economy. Doi Moi reforms under this policy has gradually shifted the power of the public sector in the economy and foster investment and private initiative.
Only in recent years has the economy begun to gather steam, averaging 7.8% annual growth from 2001 to 2006. A young, well-educated population of enterprising workers and eager consumers is drawing the gaze of multinational corporations, long mesmerized by China's much larger market. Foreign direct investment exceeded $10 billion last year and is on pace to top $12 billion this year, thanks in part to Vietnam's joining the World Trade Organization in January 2007.
GDP is the monetary value of all the finished goods and services produced within a country's borders in a specific time period (usually on an annual basis). GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living.
Composition of Vietnam’s GDP:
Vietnam's economy is predominantly manufacturing-based. Below is the composition of Vietnam’s Gross Domestic Product:
Figure 1
Composition of Vietnam GDP
1. Agriculture accounts for 18.38% of GDP and employs 47.40% of the population.
The agriculture commodities are: coffee, coconuts, Brazil nuts, cashews, pepper, sugar cane, peanuts, bananas, poultry, fish, seafood, rubber, tea, and products rice.
For some agricultural products, Vietnam stands for the largest producer:
· Cashew nuts; one-third of global share
· Black pepper; one-third of global share
· Rice; second largest exporter in the world
· Coffee; secod largest exporter in the world
Vietnam has the highest proportion of land use for permanent crops of any nation in Greater Mekong Subregion. However, agriculture's share of Vietnam's GDP has fallen in recent decades, declining from 42% in 1989 to 20% in 2006, and 19% in 2013 as production in other sectors of the economy has risen.
2. Manufacturing and industry accounts for 38.31% of GDP and employs 21.10% of the population.
The main industries in Vietnam are food processing, garments, shoes, machine-building, mining, coal, steel, cement, chemical fertilizer, glass, tires, oil, and mobile phones.
3. The service sector accounts for 43.31% of the GDP and employs 31.50% of the population.
Vietnam GDP Growth Rate
Below is the figure of Vietnam’s GDP Annual Growth Rate, which is taken from trading economics.com.
Figure 2
Vietnam GDP Annual Growth Rate
Vietnam is one of the fastest growing economy in Southeast Asia. Especially because of in 2007 – the first year of the WTO era – Vietnam’s economy grew by 8.44 percent, which is the highest gross domestic product (GDP) growth rate since the Asian financial crisis in 1997. Then, Vietnam called as the liveliest “little tiger” in Asia.
As we can see in figure 2, the current gross domestic product of Vietnam, as of 2014, is 4,023,766 billion VND. The (GDP) in Vietnam expanded 6.19 percent in the third quarter of 2014 over the same quarter of the previous year. GDP Annual Growth Rate in Vietnam averaged 6.49 percent from 2000 until 2014, and a record low of 3.12 percent in the first quarter of 2009. As we can see from the graph, in 2009 the GDP growth has gone slumped into 3.12 percent because of the world financial crisis. Vietnam GDP’s hang on exports and FDI.
Exports
The graph in figure 3 give us illustration of the exports trend in Vietnam averaged 4,253.01 USD Million from 1990 until 2014, reaching an all time high of 14,068 USD Million in October of 2014 and a record low of 537 USD Million in February of 1997. This low record happens because of the Asian Financial Crisis, which give great loss to Asian countries.
Figure 3
Exports of Vietnam
Figure 4 give us a brief detail about the major products that exported by Vietnam, which are: telephone, textile, foot-wears, computer, crude oil, fishery products, machine, wood, other means of transportation, and coffee.
United States of America is the highest receiver of Vietnam’s product- which accounts for 18.5 USD Billion-, China and Japan is the second and third highest receiver which account for 9.8 USD Billion, and Republic of Korea is the third highest.
Figure 4
Top 10 Major Exports of Vietnam from January to Sept 2014 as compared to the same period 2013
Figure 5
Top 10 Main Exporting Markets of Vietnam in the 8 months of 2014
Imports
The main major imports of Vietnam is machine, computer, fabrics, petroleum products, telepone, irons and steels, plastics, textile, animal fodders, and other base material. From January 1, 2014 until September 15, 2014, the total export of Vietnam is 100,655 Million USD. This total is less than the total exports in the same period.
Figure 6
Top 10 major imports of Vietnam from January to September 15th 2014 as compared to the same period 2013
China, which is located in the northern of Vietnam is the largest exporter for Vietnam. Vietnam import China’s product by 27.2 USD Billion in early 8 months of 2014, followed by Republic of Korea and Japan as the second and third biggest exporter for Vietnam, respectively.
Figure 7
Top 10 main importing markets of Vietnam in the 8 months of 2014
Foreign direct investment are the net inflows of investment to acquire a lasting management interest. I have not got the Vietnam’s FDI data in 2014, but in 2013 some of people especially Standard Chartered's Betty Rui Wang predicted that
“FDI is likely to grow strongly in 2014, outpacing overall growth and resulting in a “two-speed” economy. International manufacturers and investors are attracted to Vietnam’s low-cost labor pool and large domestic market … [they] are showing sustained investment interest in the country, despite structural challenges to the economy.”
Figure 8
FDI of Vietnam
Figure 8 shows that the greatest Foreign Direct investment had a great increase in 2007 to 2009, and the biggest FDI was received in 2009 by almost 10,000 Million USD, thanks in part to Vietnam's joining the World Trade Organization in January 2007.
In 2013, among 50 nations and territories with new investment licenses in Vietnam; Korea was the biggest investor with over US$3.7 billion, making up 26.3% of the total, the second biggest is Singapore, China, Japan and then Russia. Manufacturing and processing proposals have received the greatest share of interest from foreign investors and represents 77 percent of contributed capital.
The October 2013 record showed great inflow of FDI due to the approval of two large projects - the first is a 1,200MW thermal power plant worth US$2 billion sponsored by the China Southern Power Grid Company and China Power International Holdings, which will share a 95% ownership stake in the project; and the second is a US$1.2 billion dollar integrated circuit project funded through FDI contributions from Samsung. Samsung mobile phones will be manufacturing in Vietnam and it is estimated that Vietnam will account for 40% of Samsung's mobile phone production by 2015.
The country’s balance of payment records a high surplus, due to massive influx of overseas remittance, foreign investment and foreign aid despite a record amount of imports.
Figure 9
Balance of Payments
In 2008, the balance of payments of Vietnam has a great loss (the current account shows a deficit of up to 12% of GDP)because the global economic crisis in 2008 and 2009 hit Vietnam hard. To cover the shortfall on the current account, Vietnam mainly relies on foreign direct investment inflows (FDI).
However, we can see from Figure 9 that; as the trade balance improved, the current account showed surpluses in 2011 and 2012 because of weak domestic activity on the back of the government’s efforts to rein in credit growth and a devaluation of the dong reduced import growth in those year.
Inflation is one of the major challenges to Vietnam’s economy. It is also the reason for slow growth of the state of the economy of Vietnam. Inflation is understood as the uncontrolled increase in price. It means the devaluation of Vietnam currency. As we can see in Figure 10 that the highest inflaton occured in 2008 and 2011 (with the inflation number more than twenty and almost twenty, respectively).
Inflation in Vietnam
In 2008, Vietnam has very high inflation rate because of the global economic crisis which hit Vietnam hard. On the other hand, the inflation in 2011 was an impact of pro-growth policies following the global economic downturn and unpredictable attempts to prevent the economy from overheating. This event cause the confidence in Vietnam’s economy plummeted, leading to a drop in FDI inflows and capital flight, the government was forced to change tactics.
Early 2011, the policy focus shifted towards stabilizing the economy. Monetary policies were tightened through a number of interest rate hikes, and, as monetary policies are not very effective in Vietnam, credit controls were introduced to further lower credit growth. Between March and May 2011, the discount rate was raised by a total of 600bps to 13% and the re-financing rate was raised by 600bps to 15% between February and November 2011. As a result, inflation decreased and on the fiscal front, government spending growth was reduced. The policy shift has paid off, as the most acute balance of payment problems have eased, as has inflation, and economic confidence has been slowly returning.
Below is the figure of Vietnam exchange rates, from 1996 to 2014. The exchange rates in December 19, 2014 is 21,444.5 VND for 1 USD.
Figure 11
Exchange Rates
On average, the dong has lost nearly 30% of its value since early 2008. This was occured because the dong has been devalued multiple times in the past years in order to cope with pressures resulting from capital flight, largely due to locals exchanging their dong (VND) for USD.
From the Figure 11, we also can see that between 2008 and 2011, Vietnam managed their currency; (Dong) was devalued in excess of 20%, but its value remained relatively stable in 2013.
International Labor Organization (ILO) says that Vietnam is still among the countries with the lowest unemployment rates across the globe.
Figure 12
Unemployment Rate
However, Vietnam’s wage levels are a lot lower than elsewhere in Asia. According to a JETRO report, monthly pay for general workers in Vietnam is roughly 32 percent of levels in China, 43 percent in Malaysia and Thailand and 62 percent in Indonesia.
Corruption remains a major problem in Vietnam, as indicated by the country’s poor ranking on Transparency International’s Corruption Perception Index 2014 (119 out of 176) with score 31. Actually, corruption is a problem for all countries. A poor score is likely a sign of widespread bribery, lack of punishment for corruption and public institutions that don’t respond to citizens’ needs.
Solving corruption problem is very important, as many Vietnamese have not been able to profit evenly from the country’s strong growth and income inequality has been rising. If not addressed, this could prove a source of dissatisfaction with the government.
Furthermore, foreign investors has complained that the Vietnam communist bureaucracy remains opaque and, at times, corrupt. More reforms need to be done on all dimensions of investor protection, so investors can be more confident to invest their money in Vietnam.
Figure 13
Vietnam’s Corruption Rank Score based on CPI 2014
China’s Importance for Vietnam and it’s relevance for Vietnam’s economic development
Note: Base years are 1990 for Vietnam (Doi Moi), 1977 for China (modern economic reform).
Figure 14
The Comparison of long-term growth accelerations between Vietnam and China
Vietnam runs a very similar economic model to its large northern neighbor, China. Figure 1 shows that growth accelerations in both China and Vietnam started at roughly the same per-capita income level, and by 2013 Vietnam had kept pace with China also 23 years into its growth acceleration.
In contrast, although Vietnam’s foreign trade hit new heights, with exports rising to US$48.3 billion and imports to US$60.8 billion in 2007, the country’s exports grew by only 21 percent, a rate much lower than China’s 35 percent in its first year after entering the WTO and even lower than Vietnam’s own 26 percent in 2006 (Le Dang Doanh, quoted in Quang Thuan 2007). Moreover, while China has consistently enjoyed export surpluses, Vietnam’s trade deficit has persisted for decades. Also in contrast with the early phase of economic growth in China, Vietnam continues to be haunted by the high inflation rate which stood at 12.6 percent in 2007 (the highest level of inflation since 1996). These contrasts suggest that Vietnam is unlikely to go down the Chinese path, which is characterized by a long lasting process of high-speed economic expansion.
Moreover, in Vietnam, official corruption is endemic. Vietnam also lags behind China in terms of property rights, the efficient regulation of markets, and labor and financial market reforms. Furthermore, state-owned banks that are poorly managed and suffer from non-performing loans still dominate the financial sector.
From a Chinese point of view, there is a little doubt that Vietnam benefits from close relationship with China and particularly the lessons learnt from the latter’s experiences. Zhai Kun (Director- Southeast Asian Studies, CICIR) said that:
“Vietnam will surely further enhance its good neighbor relations with China. The two countries have an inseparable geopolitical bond and China’s development brings opportunities to Vietnam. If China s reform and opening efforts can be described as ‘crossing the river by feeling the stones’- in the words of Deng Xiaoping, Vietnam’s opening to the world should be seen as benefiting from China’s experience, which has dramatically reduced the cost of repeating mistakes. Vietnam has long been a country looking for its own place around major powers. The post-Cold War reality has shown that a diplomacy dealing with the major powers gives Vietnam more leverage for self-decision and paves the way for economic development” (2007)
· At critical junctures of its economic reform program, particularly during the mini-crisis at the turn of the century, Vietnamese leaders have indeed looked for Chinese advice and guidance. In June 2000, 16 of Vietnam's senior-most officials assembled in China for an unpublicized lesson on how to reform a socialist economy without losing party control.
· With regard to the impressive FDI inflows, it seems that Vietnam has benefited less from its learning of the Chinese model than from its being next to China.
· “China-plus-one” strategy and went to Vietnam to diversify their manufacturing base. Many foreign investors followed a “China-plus-one” strategy and went to Vietnam to diversify their manufacturing base. An example is Taiwan’s Foxconn (Hon Hai) Group, the world’s leading maker of outsourced electronics components and one of the largest foreign investors in China, which unveiled a plan to allocate up to US$ 5 billion into two projects in Vietnam.
· Related, Vietnam will likely complement China by making small runs of high value-added items.
“A 10 container order is nothing in China, but welcome in Vietnam. Sophisticated investors do not want all their eggs in China’s basket: believers in the ‘China plus one’ theory are increasingly coming to the conclusion that the ‘one’ is Vietnam” (Barnes 2007, 12).
· Industrial growth in Vietnam is being fuelled by some China’s fast expanding industries which regard the neighbor as a near-shore production base for lowcost supplies to the Chinese market or exports to third countries that avoid the protective tariffs placed against China (notably in textiles).
· Vietnam’s learning from China is more a “path imitation” than “model imitation”.
· Futhermore, Vietnam and China give economic reform priority over political reform. Vietnamese leaders have adopted a value system of reform that bears striking similarities with that of China. Both states give economic reform priority over political reform. Vietnamese integrationists share with China the view that the major world trend is “peace and development” and the central path of reform is “opening and integration” to the outside world. Vietnamese anti-imperialists share with China the view that the major threat is the Western strategy of “peaceful evolution.”
· Vietnam imitates China’s policy rather than China’s polity.
· Vietnam has upheld its troika structure which is characterized by 3 different persons holding the posts of the party chief, the state president, and the government chief while in china, the party chief also assumes the position of the head of state.
While China has been a role model for Vietnam economically and the latter has generally followed the formers lead politically, however, Vietnam has been more experimental and progressive than the more economically advanced neighbor.
· China remains advanced in economic reform and marketization while Vietnam has surged ahead in political reform. The easy example is Vietnamese Central Committee meets considerably more often than its Chinese counterpart.
· The party report in Vietnam was released two months before the congress began, and feedback from the public and the media was inivited.
In China, the party report is released only during the CCP congress. In China, legislators' committees can query government officials, but behind closed doors.
· Vietnam also holds more direct and competitive elections of national legislators (exceed by 30 %) which the number of nominated candidates can exceed the number of seats by 30 per cent or more. Candidates meet constituents and state their platforms during campaigning. In China, national-level legislators are elected indirectly by provincial legislators, who also select the candidates.
• Similarities of governance structures in Vietnam and China are primarily the result of analogy or the fact that both regimes have faced comparable challenges first with regard to their respective national revolutionary struggles and later the establishment and institutional fostering of communist rule.
• The prominent example is economic reform processes toward market systems and the integration in global economic structures without touching the main pillars of the respective political orders.
• The convergence of governance systems in Vietnam and China lies in principles and policy (the value system of reform) rather than in structures and polity.
• It would be difficult for Vietnam to pursue Chinese model because it is a big country. Maybe Vietnam is not to become the next China, but it will still continue to grow.
China: GDP growth (annual %) https://www.quandl.com/WORLDBANK/CHN_NY_GDP_MKTP_KD_ZG-China-GDP-growth-annual
Country Report Vietnam https://economics.rabobank.com/publications/2013/february/country-report-vietnam/
Developments and trends of Vietnam international merchandise trade in June and the first half of 2013 http://www.customs.gov.vn/Lists/EnglishNews/ViewDetails.aspx?language=en-US&ID=195
Foreign Direct Investment, net inflows (BoP, current US$) http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD
Kebijakan Investasi Langsung di Vietnam dan Thailand: Pelajaran Apa bagi Indonesia http://www.online.fe.trisakti.ac.id/pusatstudi_industri/pusat%20study%20tulus%20tambunan/pusat%20studi/policy%20discussion%20paper/pdf6.pdf
Perbandingan Demokratisasi Vietnam dan China (Efek Doi-Moi Vietnam 1987 dan Reformasi Ekonomi China 1978) http://ejournal.umm.ac.id/index.php/jshi/article/viewFile/1125/1218
Something Happened in Vietnam http://ekonomi.kompasiana.com/bisnis/2014/09/22/something-happened-in-vietnam-675725.html
The Impact of China on Governance Structures in Vietnam (Jörn Dosch and Alexander L. Vuving)
The Relationship between Inflation and Unemployment in Vietnam http://www.ukessays.com/essays/economics/the-relationship-between-inflation-and-unemployment-in-vietnam-economics-essay.php
Vietnam Economic Outlook 2014: Exports, FDI To Support Growth http://www.ibtimes.com/vietnam-economic-outlook-2014-exports-fdi-support-growth-1525182
Vietnam’s long-term growth performance: A comparative perspective http://blogs.worldbank.org/eastasiapacific/vietnam-s-long-term-growth-performance-comparative-perspective
Vietnam Economy - The Growth is Now Faltering https://www.youtube.com/watch?v=dtHMKNB16tQ
Can't see the figures? Download the file on https://www.scribd.com/doc/267078544/Vietnam-Reports-in-2014
Can't see the figures? Download the file on https://www.scribd.com/doc/267078544/Vietnam-Reports-in-2014
ReplyDelete