Vietnam Addresses Trade Deficit with China

Trade has surged since an ASEAN-China trade agreement, but Vietnamese exports are lagging behind.

Bilateral trade between China and Vietnam has seen exponential growth in recent years following the establishment of the ASEAN-China Free Trade Area. In 2001, trade between the two countries stood at $3 billion but has since climbed to $40 billion by 2012, expanding over 1,200 percent.

While both countries have benefited from this meteoric rise in bilateral trade, in recent months Vietnamese leaders have sought to address the trade deficit that exists with China.

During the first two quarters of 2013, Vietnam’s trade deficit with China reached $11.4 billion dollars, with exports worth $6 billion and imports totaling $17.4 billion.

In order to increase Vietnam’s exporting power to China, the government has ratified new addendums to liberalize the country’s Law on Investment aimed at boosting foreign direct investment into several sectors, including oil refining, iron and steel, cement and construction materials. It is hoped that the increased flow of foreign capital will allow Vietnam to boost the value of its exported goods by climbing the value added chain.

“These moves aimed to make Vietnam less dependent on the import market and more active in reshaping its export pattern,” said Dao Viet Hoa, vice consul general to Vietnam’s consulate in Nanning, China.

FDI into Vietnam has already seen favorable growth this year, with inflows growing 20 percent year on year. Manufacturing and processing operations remain the most active sector for FDI, accounting for over 85 percent of committed capital.

Capitalizing on Vietnam’s strong industrial capabilities and potential, the Vietnamese government has also welcomed Chinese companies to participate in the growth of these sectors through direct involvement.

“Vietnam will create favorable conditions for China to build industrial parks and export processing zones with a focus on providing input materials for industrial production and export outsourcing,” Dao Viet Hoa further commented.

As Vietnam’s largest trade partner, bilateral economic relations with China are a key component of Vietnam’s continued growth. According to Dao Viet Hoa, government officials expect to see continued growth in trade between the two countries of up to 20 percent per year in spite of the global economic slowdown.

This story first appeared at Asia Briefing, August 6, 2013.