Chinese companies may pour large investments into Vietnam so that their products can bear made-in-Vietnam labels. This could be detrimental to Vietnamese exporters, especially those in the wood processing and textile-garments industries, said experts.

Workers are seen at a wood processing factory. Wood and wooden products are one of the main product groups that Vietnam imports from China

Vietnam purchases intermediate products and raw materials from the northern neighbor, according to the Development and Policies Research Center.

Wood and wooden products are one of the main product groups that Vietnam imports from China.

To Xuan Phuc, a senior policy analyst at U.S.-based Forest Trends, told the Saigon Times that the depreciation of the Chinese yuan (or renminbi) would give China an advantage in its exports but place its imports at a disadvantage.

On an annual basis, Vietnam sells wood and wooden products to China with total revenue of about US$1 billion while its import bill for these items from the neighboring country is roughly US$400 million. As such, the trade surplus of the Vietnamese wood industry from China is some US$600 million per year.

“The depreciation of the yuan will be detrimental to the Vietnamese wood sector in exporting its products to the Chinese market,” Phu said. However, this is also a favorable condition for Vietnam in buying wood and wooden products from China.

Vietnam mainly exports wooden materials such as wooden lathe chips, sawn timber, wooden planks and woodworking tools to China.

“China’s market suffers less impact than its export markets,” Phuc said, adding that the Chinese market is more stable, while its level of vulnerability, due to external factors such as trade war, is lower than that of other markets.

Overall, the export growth of Vietnam’s wood and wooden products to the Northeast Asian nation this year may not be as high as in previous years. However, it is unlikely that there will be sharp declines in Vietnam’s exports of wood products to this market.

Regarding the textile and garments sector, the majority of Vietnam’s materials are imported from China, so it will suffer no impact when the yuan depreciates in value, according to Nguyen Xuan Duong, chairman of Hung Yen Garment Corporation, who is also vice president of the Vietnam Textile and Apparel Association (VITAS).

The fall of the yuan will stimulate China’s exports. Duong expressed concern that if Chinese textiles and garments are not easily shipped to the United States over the long term, these products could find their way to the U.S. market through ASEAN countries, including Vietnam. Chinese products are also subject to zero tariffs given the free trade agreement between the ASEAN and China.

The United States has imposed 25% tariffs on Chinese textiles and garments. However, China also ships its products to Japan, Europe and other major markets.

VITAS President Vu Duc Giang said that if Vietnam maintains its current exchange rate, Vietnamese textiles and garments would not be able to compete with Chinese equivalents in terms of prices. But the rapid adjustment of the exchange rate could have positive effects on Vietnamese textile and garment companies.

“What worries me most is that China will further depreciate the yuan so that the prices of its products become more  competitive than those of other exporting countries, including Vietnam,” Giang said, suggesting that the U.S. dollar-Vietnam dong exchange rate be adjusted up to VND24,000-25,000 per dollar so that Vietnamese textiles and garments could be more competitive.

He also expressed concern over the large Chinese capital inflows headed for Vietnam, allowing Chinese products to claim Vietnamese origins, so they can be shipped to other countries at lower tariffs.

China’s investment in the wood processing industry in the southern provinces of Dong Nai and Binh Duong has been substantial. Chinese companies compete for Vietnam’s labor and wood material resources, and then export their products to the U.S.

Sudden increases in wood exports to the world’s largest economy could lead to the U.S. imposition of antidumping duties on Vietnam.

Given the yuan devaluation, the situation may expand to the Vietnamese textile and garment sector.

“I have advised local governments to be cautious with foreign investment flows,” Giang said, explaining that foreign clothing products could be shipped to Vietnam and may later bear made-in-Vietnam labels. Foreign investors will be likely to invest in the final production stage in Vietnam, while other stages are executed in their home countries.

Nguyen Duc Thanh, director of the Vietnam Institute for Economic and Policy Research, said the Vietnamese dong should be weakened to match the recent decline of the yuan.

“Devaluing the dong by 2-3% is still acceptable,” he noted, pointing out that Vietnam primarily imports raw materials from China. Thus, the devaluation of the yuan will make raw materials originally from China cheaper. Products made from Chinese materials will be shipped abroad, and if the exchange rate rises slightly, Vietnamese companies will still  benefit.

SGT