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China’s economic woes affect Vietnam’s financial market

VietNamNet Bridge - The problems of the Chinese economy have had a negative impact on Vietnam’s economy, including the financial market.

VietNamNet Bridge - The problems of the Chinese economy have had a negative impact on Vietnam’s economy, including the financial market.

 


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The problems of the Chinese economy have had a negative impact on Vietnam’s economy

The Chinese stock market has twice stopped operations this year. The Chinese renminbi has been devalued, and the country’s GDP growth has slowed down. 

International news agencies have published many reports about the serious problems in the world’s second largest economy.

Import materials and equipment prices have been decreasing. And the PMI (purchasing managers index) dropped to under 50 points in the last months of 2015.

Le Xuan Nghia, a renowned economist, said there were some big problems China is facing. First, global demand is decreasing. Second, China has to devalue its currency, which has prompted foreign investors to leave the Chinese market. Third, the economic restructuring to shift production serve domestic demand has not succeeded. 

Regarding the capital outflow, Nghia quoted international institutions as saying that foreign investors withdrew some $500 billion worth of portfolio investment capital in the last year.

While the Shanghai Composite Index dropped by 15 percent by January 14, the S&P 500 in the US decreased by 6 percent, STOXX 600 by 7.2 percent, and the VN Index of Vietnam by 4.5 percent.

The Chinese problems have caused disturbances to the global economy, including Vietnam's. While the Shanghai Composite Index dropped by 15 percent by January 14, the S&P 500 in the US decreased by 6 percent, STOXX 600 by 7.2 percent, and the VN Index of Vietnam by 4.5 percent.


According to SSI Research, the slowdown of Chinese economic growth would have negative impact on industries such as mining, rubber, sugar and gas distribution. The prices of these goods in the world market are expected to decrease sharply in the short and medium term.

The steel industry is also predicted to be badly affected; however, as the demand has increased recently, domestic steel mills still can maintain selling prices despite the iron ore price decrease.

The export of farm produce would also suffer because of the lower demand from China which is meeting economic problems.

In 2015, China was third, after the US and ASEAN, export market for Vietnam. China consumed $17 billion worth of products, mostly farm produce, seafood, rice, cassava, rubber and coal.

However, Chinese economic growth slowdown would benefit enterprises which import input materials to make products for export. These include some listed companies such as Vinamilk, Binh Minh Plastics, Pinaco (battery manufacturer), CAV (wire cable manufacturer) and Phu My Fertilizer.

When asked about the Chinese exchange rate policy to be applied in 2016, Nghia said he inclines towards the World Bank’s prediction that China may devalue the renminbi by another 4 percent in the year.

ANZ, in its report released recently, commented that Vietnam was the South East Asian economy least influenced by China’s economic growth slowdown.


Kim Chi

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