Trade possibilities restored as China softens restrictions

January 13, 2023 | 14:31
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It is anticipated that reopening of China’s border could somewhat alleviate Vietnam’s sluggish import and export positions.

Thang Van Thong, deputy general manager of Hao Hung Wood Chips, said that the average price of wood chips sold to the Chinese market has risen to $180 per tonne from $117 per tonne at the start of 2021. In 2022, the price of free on-board wood chips in Cai Lan port fluctuated according to market conditions, but has been higher than the $50-60 per tonne pricing at the end of 2021.

Trade possibilities restored as China softens restrictions
January could see a boost for Vietnam’s import and export status if China moves ahead with reopening, photo Le Toan

“The demand for the Chinese market and the export price of woodchips will continue to rise over the next several years,” Thong said.

According to China’s 2021-2025 plan issued in September 2021, the nation will combat the overuse of plastic in packaging and agriculture and encourage the usage of wood-alternative goods. In 2021, Vietnam exported 13.6 million metric tonnes of woodchips, of which 8.8 million metric tonnes were sent to China, representing almost 65 per cent.

China is Vietnam’s biggest bilateral economic partner, with trade volume consistently exceeding $100 billion each year. Nguyen Viet Phong, director general of the Department of Trade and Services under the General Statistics Office, stated that import and export were highlights of 2022 as Vietnam set a record with total import-export turnover of approximately $732 billion.

“The trade balance maintained a surplus for the seventh year in a row, with nine export goods surpassing tens of billions of US dollars, placing Vietnam among the top countries in terms of international commerce,” Phong said.

As of December 2022, there were nearly 3,570 Chinese investment projects in Vietnam over the past decade, registered at about $23.34 billion. According to the MPI, China spent more than $2.13 billion in Vietnam in 2021 and placed seventh among all nations investing here.

Vietnam has been ASEAN’s biggest trade partner since 2016 and China’s sixth-largest trading partner since 2020. China was Vietnam’s top import market last year, with an anticipated turnover of $119.3 billion and a trade deficit of $60.9 billion, an increase of 11.5 per cent.

Bilateral trade between Vietnam and China has skyrocketed from $32 million in 1991 to $165.9 billion in 2021.

Over the last few months, the worldwide market for consumer products slowed significantly. In several key markets, like the United States, the European Union, and Japan, excessive inflation has diminished buying power, which has a direct impact on Vietnam’s export orders.

According to Phong, the trade surplus of $11.2 billion in 2022, even though it seems good in the near term, is in fact a “warning sign that firms have imported less”, which will impact the following production cycle and the manufacturing of export items.

In this context, the fact that China is to open borders this month is anticipated to ease Vietnam’s import and export positions, which have slowed due to the global economic struggles. In 2022, China had the greatest import-export turnover with Vietnam, reaching $177.7 billion, an increase of 6.8 per cent on-year. Imports hit $58.4 billion, up of 4.5 per cent, and exports reached $119.3 billion, up 7.2 per cent.

According to a number of local experts, Vietnam offers Chinese businesses the opportunity to lower transportation costs and more securely link the Chinese distribution network to the global market. Chinese investment is now present in the majority of provinces and cities in Vietnam.

However, the majority of such projects are located in provinces with border-gate economic zones, coastal regions, and highly populated cities with strong labour appeal, adequate infrastructure, and advantageous circumstances for export, import, and transit between the two nations.

For example, the China National Technical Import and Export Corporation (CNTIC), one of China’s major state-owned firms, chose Vietnam as a long-term investment market in the power and energy sectors. Vietnam is a key market for the corporation, which is eager to develop and invest in significant power production projects using sustainable energy. CNTIC intends to engage in rooftop solar projects based on private power purchase agreements in Vietnam, which has hundreds of industrial parks.

With the Chinese government’s relaxation of its pandemic policy, Nguyen Thanh Trung, head of analysis at Thanh Cong Securities, stated, “Chinese investors will show up again and be the key driver to boost foreign cash inflows into Vietnam, including working capital in the stock market and cash flow in other industries, such as real estate.”

China is a factory for the mass manufacturing of numerous groups of industries’ commodities, particularly basic items, and its reopening will put many Vietnamese industry groups in competition, Trung added. “The need for energy, oil, and gas is anticipated to rise this year,” he said.

According to the Ministry of Planning and Investment, the total amount of foreign capital registered from China has risen at a compound annual growth rate of 17 per cent since 2015.

China accounts for around 60 per cent of the development potential of this sector. “If China’s openness is encouraged, world oil consumption could climb by approximately 60 per cent, causing “commodity prices to soar again,” he added.

Assoc. Prof. Dr. Vo Dai Luoc General director, Vietnam Asia-Pacific Economic Centre

Vietnam’s leading commercial partner is China. However, this country ranks only sixth among countries investing in Vietnam in terms of foreign direct investment, which is inconsistent with the bilateral trade and investment links between the two nations.

The US-China trade disputes have spurred Chinese investment firms to shift a portion of their capital to a nation in ASEAN, as foreign investment continues to follow the China+1 pattern. Vietnam has advantages in attracting foreign direct investment from nations across the globe, particularly China, due to its stable economic and political climate, labour advantages, and strong economic development.

Together with Vietnam’s participation in a number of bilateral and international trade agreements, these provide Vietnam with the potential to attract new additional investments from China and the global economy.

Dr. Phan Thi Tra My Chairman, Association of Vietnamese Enterprises in China

Vietnamese enterprises still have a limited understanding of the Chinese market. Before sending Vietnamese agricultural goods to the Chinese market, businesses must defend their trademarks, designs, and patterns, with a particular focus on quantity, under the present circumstances.

Next, it is vital to choose merchants or distributors who are economically feasible, have solid sales channels, and have a staff devoted to growing the brand of agricultural goods from Vietnam. Particularly, Vietnamese enterprises should modify their way of thinking, stop selling what they have, and do more research on the market they want to enter. Whoever wishes to do long-term business in Vietnam should establish a representative office or subsidiary in China.

Before entering the Chinese market, the Association of Vietnamese Enterprises in China offers groups free assistance in protecting their trademarks and logos. In addition, the organisation provides display space at the Vietnam National Pavilion in China for agricultural product brands authorised for export to the Chinese market.

For provinces with abundant agricultural product sources, the association is willing to negotiate with China’s major import companies.

Le Thanh Hoa Director, Vietnam Sanitary and Phytosanitary Notification Authority

China’s General Administration of Customs is strengthening inspections for microbiological contamination and collecting statistics about the proportion of imported agricultural items. If Vietnamese businesses do not comply with requirements on information on commodities and products, it may result in the return of goods, the loss of the market, and a negative impact on the prestige of Vietnamese agricultural exports to this market.

To legally export Vietnamese bird’s nest goods to China, businesses must register their establishments in accordance with the law and satisfy the standards for food safety, agricultural area, processing method, and even heat treatment in water.

The Ministry of Agriculture and Rural Development is cooperating with appropriate entities to establish good practices for each variety of fruit in order to meet the export and import specifications of the Chinese government. From there, Vietnam’s Plant Protection Department and the General Administration of Customs in China may monitor and execute the export of agricultural goods in accordance with the procedure and regulations.

Dr. Vo Tri Thanh Former deputy director Central Institute for Economic Management

In the first few months of 2022, the economic recovery generated a tremendous demand for money from businesses. Vietnam aimed for 14 per cent credit growth in 2022, but if computed month-by-month compared to the same period last year, the credit growth rate might reach 17 per cent.

During that time, the total supply of bank money expanded by just 56 per cent, but credit growth accelerated dramatically, putting strain on the banking system’s liquidity as seen by rising operational interest rates and deposit rates.

In Vietnam, loan growth in real estate or associated industries has also lately expanded faster than the average growth rate of medium- and long-term lending activities. When the existing loan is slowly repaid, it will be very difficult to get a new loan, let alone credit space.

China features a coordinated real estate rescue programme that Vietnam might examine for total cash flow remedies to eliminate manufacturing and company organisation challenges. China’s policy focuses on three issues: easing requirements for real estate loans, expanding credit to homeowners, and reviving the bond market.

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By Hai Van

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