Trade deficit with China heads north northwards

Chinese equipment is playing a part in Vietnam’s development process

It made up more than 80 per cent of the country’s total deficit during the period, according to the Ministry of Industry and Trade.

The latest figures show Vietnam incurred nearly $4 billion trade deficit with China from January to April this year. Vietnam’s overall trade deficit  in the same period was $4.9 billion.

In April alone, Vietnam’s trade deficit with China stood at $1.37 billion, one and a half times up on March’s figure.

A study carried out by the Vietnam Centre for Economic and Policy Research (VEPR), found that level of Chinese penetration in Vietnam was increasing for a majority of products, from machinery to consumer goods.

“Industries with the highest penetration rates are concentrated in important sectors including power, petroleum, engineering, metallurgy, mining and chemicals,” according to the VEPR study released last week.

“These are upstream industries with many large-scale engineering-procurement-construction contracts where contractors are Chinese and counterpart investors are important economic groups of Vietnam.”

Pham Hong Son, rector of the University of Economic and Business in Hanoi, to which VEPR belongs, said that Vietnam’s deficit with China reflected a south-north trade relationship, in which Vietnam usually exported raw goods, materials and natural resources to China while importing a great deal of input materials, equipment and machinery for local production.

Son predicted Vietnam would continue to have a large trade deficit with its northern neighbour as this country developed.

“The problem is that the imports of equipment and machinery into Vietnam must be high-tech. Otherwise, they would cause many environmental problems and not support Vietnam’s long-term economic development,” he said.

According to the VEPR study, despite the idea that imported technology and equipment were needed to increase the added value of Vietnamese products, the spillover effect of importing from China was not as high as expected in both technological and sociological terms.

Vietnam’s trade deficit with China has been the largest with a single country for a number of years.

The ASEAN region ranked second after China in having trade surplus with Vietnam during January-April period this year with a figure reported at $2.6 billion. 

Vietnam, however, had a trade surplus of $2.5 billion with European markets in the first four months of this year, while the surplus with American markets in this period was $3.58 billion. These partly offset the country’s large deficits with both China and ASEAN bloc.