VietNamNet Bridge – The exchange rate will not be the main factor that leads to big changes in trades with China. Only the inner strength and strategic policies of Vietnam can make changes.

In mid 2010, China revalued the yuan by 0.44 percent against the dollar. As the Chinese yuan has a close link with Vietnam dong, a question has been raised as to what impacts the appreciation of the yuan will have on Vietnam’s economy.

Input materials become more expensive

In principle, the Chinese yuan appreciation makes garment and footwear materials imported from China become more expensive. However, Vietnam will still have to continue importing materials from China, because China remains a good supply source.

According to the Vietnam Textile and Garment Association, Vietnam has to import 60 percent of materials it needs to produce goods, and imports from China account for a big proportion.

In 2009, Vietnam imported $1.566 billion worth of various fabrics.  It also imported billions of dollars worth of other materials, chemicals and equipments that serve the garment industry. The majority of the imports were sourced from China.

As Vietnam has to import materials from China, due to the yuan appreciation, the prices they have to pay for the imports have increased.  Despite the higher input material prices, which have led to higher production costs, Vietnamese enterprises still do not dare to raise the export prices, because they need to keep the prices competitive.

Garment companies said that now they still can endure the slight yuan appreciation. However, if the yuan continues to be revalued, which is very likely to happen in the near future, they will suffer heavily.

Trade deficit not likely to decrease

At present, Vietnam imports from China more than it exports to the economy. In 2009, the trade gap was $11.53 billion. Businesses hope that the yuan appreciation which makes Chinese goods more expensive will help reduce the imports from China and increase Vietnam’s exports to the country. 

However, experts have warned that the scenario may not occur, at least in the near future.

According to the General Department of Customs, Vietnam is importing some 10 main products from China, and 70 percent of the products are 1/ equipments, parts and accessories ($4155 million) 2/ fabric ($1566 million) 3/computers, electronics and parts ($1464 million) 4/ petroleum products ($1290 million) 5/ steel ($816 million), 6/ fertilizer ($596 million) 7/ garment and footwear materials ($407 million) 8/ chemicals ($399 million) 9/ products made of steel ($387 million) and 10/ car parts ($314 million).

The figures show that though it may want to, Vietnam cannot stop importing products because the majority of imports from China are equipments and input materials needed for domestic production.

Therefore, the economists from the Central Institute of Economic Management CIEM said that the Chinese yuan appreciation does not seem to help improve Vietnam’s export turnover to China.

Changes will not be caused by the exchange rate

The experts have also pointed out that the exchange rate will not be the factor that can reduce the trade gap with China. The changes in the import-export activities should come from Vietnam’s inner strength and its suitable policies.

A lot of measures have been put forward in order to ease the trade deficit and reduce the reliance on imports from China. Vietnamese enterprises have been urged to renovate technologies, reduce the production costs and increase the productivity. They have also been advised to restructure investments by shifting to invest in non-China markets, try to attract foreign investment and foreign advanced technologies, and reduce the foreign investment from China, especially the projects using backward technologies.

Le Khac