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The Ministry of Planning and Investment (MPI) has warned that the weaker yuan will badly affect Vietnam’s exports to China, especially farm produce exports. Chinese exports will become more competitive in the world market thanks to low prices.
Le Quang Hung, Chair of Garmex, a textile and garment export company, said the yuan devaluation would not have an impact on the company’s production plan, because Garmex is implementing contracts signed with Chinese partners under which the payment will be made in US dollar. However, things will get worse next year, when the company takes new orders.
Hung noted that it will be more difficult for Vietnamese exports to compete with made-in-China products.
Vietnamese exporters expect to enjoy benefits from the Vietnam-EU Free Trade Agreement (FTA) as the import tariff on Vietnam’s textile & garment products will be cut from 9 percent to zero percent after seven years.
However, the benefits would not have much significance for Vietnamese exporters because of the 3 percent yuan devaluation.
“Vietnam has widened the foreign exchange trading band by one percent so as to help boost exports. However, Vietnamese products are still more expensive than Chinese,” Hung said.
“It is still unclear when Vietnamese exporters can enjoy the benefits from FTA as the agreement still needs to be officially inked. Meanwhile, the risks from the yuan devaluation will come immediately,” he said.
Dang Phuong Dung, deputy chair of the Vietnam Textile and Apparel Association (Vinatas), warned that the yuan weakening will have negative impacts on Vietnam’s economy in the long term.
“Chinese imports to Vietnam will increase in the time to come as a result of the weaker yuan. This will discourage enterprises to spend money to increase their localization ratios. With low locally made content, Vietnamese products will not be able to satisfy the requirements on product origin to enjoy preferential tariffs within the framework of FTAs and the Trans Pacific Partnership (TPP),” Dung said.
The director of a seafood company complained that his yearly business plan in 2015 may be unattainable because of the yuan weakening.
With the yuan/dollar exchange rate at 6.2298/1, the company could earn $482,000 when exporting a consignment of products worth 3 million yuan. Now as the dollar has appreciated, the company will earn $474,000 only for the same consignment of goods.
The HCM City Securities Company (HSC), in its August 11 report, pointed out that the yuan depreciation would have a negative impact on Vietnam-China trade balance.
HSC estimates that every one percent of the yuan devaluation will increase Vietnam’s trade deficit by 0.6-0.8 percent.
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