VietNamNet Bridge - The decline of the Chinese economy will have a negative impact on Vietnam, but the impacts will be insignificant in the short term. Vietnam’s import/export activities will suffer the most, according to a Ministry of Planning and Investment’s report.

The ministry, in its report about the 2016-2020 five-year plan, pointed out that the Chinese economy has experienced a decline for the first time in 25 years while its high growth rate will not be maintained in the time to come. 

The world’s third largest economy has seen economic growth rate fall from 10 percent in 2010-2011 to 7 percent in the first two quarters of 2015. The economic slowdown and the yuan depreciation would have certain negative impact on Vietnam.

In Vietnam-China trade, Vietnam always imports from China more than exports to the country. The trade deficit in 2005-2014 increased by 10 times from $2.8 billion in 2005 to $29 billion in 2014, while the figure is forecast to reach $35 billion in 2015.

The Chinese economic slowdown will lead to lower demand for Vietnam’s imports, which means Vietnamese exports, mostly farm produce and minerals, would find it more difficult to enter China.

Meanwhile, the lower demand in the domestic market would encourage Chinese manufacturers to increase exports to Vietnam, which would make Vietnam’s trade deficit higher.

Analysts have warned that China would try to export more steel to Vietnam as the Chinese output is 70-100 percent over the Chinese demand. Chinese steel imports to Vietnam increased by 3.7 times in 2011-2014.

Vietnam has been warned that its revenue from crude oil exports would decrease as the Chinese economic slowdown would lead to the lower demand for oil. A report showed that China consumes 1/3 of the world’s oil output.

Chinese economic problems also affect world trade, thus indirectly leading to oil price falls.

Vietnam imports input materials mostly from China to serve its local production. Therefore, as the Chinese yuan has depreciated, Vietnam is able to buy materials at lower prices, thus enabling to cut production costs and raise Vietnam’s competitiveness.

The price decreases in the world market, caused by the weaker demand from China, will also help Vietnamese businesses cut production costs.

Regarding foreign direct investment, the Chinese economic slowdown may make foreign investors reconsider their business strategies and leave China for more promising markets like Vietnam, which can provide a cheap labor force and great opportunities thanks to free trade agreements, including the Trans Pacific Partnership Agreement (TPP). 

In related news, ANZ, in its updated report about Vietnam’s economy released on November 4, said that the Vietnam economy may see growth rate of 7 percent or even higher in 2017, which would be higher than that of China.

Kim Chi