Overseas Market Profiles

Major Economic Indicators

Source: General Statistics Office of Vietnam (GSO), IMF and CEIC

Latest Development

• Vietnam’s economy registered a robust growth of 6.8% in 2010 amid the global economic recovery. The Vietnamese government expects economic expansion to continue in 2011-2015 with an average annual growth rate of 7%. 
• Vietnam’s inflation is fast surging, with consumer prices increasing by 19.8% year-on-year (YoY) in May 2011, the highest recorded since December 2008. To cope with rising inflation, the State Bank of Vietnam has further tightened the monetary policy, raising the base interest rate to 9%.
• Vietnam exports grew 26% to US$71.63 billion in 2010, while imports gained 20% to US$84 billion, reversing negative growth in 2009. However, trade deficits continued to widen to reach US$1.7 billion in May 2011, the peak in the past 18 months.
• In the first four months of 2011, Hong Kong’s exports to Vietnam surged by 23.5% YoY to US$1.6 billion, while imports from Vietnam increased by 18.8% YoY to US$652 million.

Current Economic Situation

With the global economy recovering from the financial and economic crisis in 2010, Vietnam’s economy grew at its fastest pace in three years, with a real GDP growth rate of 6.8% for that year. The industry & construction and service sectors contributed the most to the robust growth.

Vietnam’s consumer price inflation grew by 9.2% in 2010, with signs of acceleration in the first few months of 2011. In May 2011, consumer prices reached the highest YoY level of 19.9% in two and a half years. The State Bank of Vietnam (SBV), setting its inflation target for 2011 at below 7%, has taken steps to tighten monetary policy in recent months, pushing up its base interest rate to 9%. In 2010, Vietnam’s credit ratings were lowered by Standard & Poor’s (S&P), Moody’s and Fitch, citing concerns over rising inflation, balance of payments, and the country’s banking system.

While many Asian currencies have appreciated against the US dollar over the past year, the Vietnamese currency has been falling amid widening trade deficits. The SBV announced its biggest currency devaluation in recent years in February 2011, with the average exchange rate devalued by 9.3% to 20,693 dong against the US dollar from 18,932 dong.

In the first quarter of 2011, Vietnam’s economy slowed to 5.4% from 7.3% in the year-earlier quarter. The World Bank forecasts that the Vietnamese economy will grow at 6.3% in 2011, while the Vietnamese government trimmed its GDP forecast down to 6% from 6.5% previously projected. Yet, the Vietnamese government expects economic expansion to continue in 2011-2015 with an average annual growth rate of 7%.

External Trade

Vietnam’s international trade experienced a significantly faster growth in 2010 to reverse from the negative growth in 2009. The country’s exports gained 25.5% to US$71.6 billion in 2010, while imports grew 20.1% to US$84 billion, continuing the trend of widening trade deficits. In May 2011, the trade deficit widened to US$1.7 billion, the largest monthly record since December 2009. In order to arrest the worsening trade deficit situation, the Ministry of Finance announced that it would adopt measures to stimulate domestic manufacturing and slow the import of various products.

Among all the export industries, textile and footwear still had relatively larger shares in 2010, with respective export shares of 16% and 7%. However, there was a change in the export turnover structure in 2010 compared to the previous years, with the share of light industrial & handicraft items increasing from 42.8% to 46%. Other groups, including heavy industrial and mineral goods, sea food and gold & gold products, saw their shares declining. The two largest export markets of Vietnam in 2010 were the US and the EU. In the first five months in 2011, garment and textile products exported reached US$5.1billion, up 35.6% YoY.
In addition, the bulk of imports in 2010 consisted of machinery, equipment and parts (16% of the total), as well as textiles (6.3%). Nevertheless, the import turnover structure little changed compared to last year, with capital goods remaining the largest import category. In addition, China remained the largest source of Vietnam’s imports in 2010.

Tourism was gaining importance in 2010, in which Vietnam attracted over 5 million foreign tourists for the first time, marking an increase of 1.2 million against 2009. Therefore, tourism revenues reached 96 trillion dong (roughly US$4.7 billion) with a growth YoY of 37%. The number of tourists is expected to further increase in 2011, with the government seen as taking measures to promote the tourism industry, improving the service quality, efficiency and professionalism of the industry.

WTO Accession

Vietnam became a World Trade Organisation (WTO) member in January 2007. While facing fewer restrictions and lower tariffs in export markets, Vietnamese manufacturers also benefit from the improving access to imports of cheaper raw materials and semi-processed inputs as Vietnam's import tariffs drop.

Upon its WTO accession in January 2007, Vietnam was committed to bound tariff rates on most products ranging from zero to 35%, although tariffs on cars and motorbikes remain high, with certain sensitive products (such as eggs, tobacco, sugar and salt) subject to tariff quotas (higher duties for quantities exceeding the quotas).

Among other benefits, WTO accession allows Vietnam to take advantage of the phase-out of the Agreement on Textiles and Clothing, which eliminated quotas on textiles and clothing for WTO partners on 1 January 2005.

In January 2009, Vietnam allowed foreign investors to operate 100% foreign-owned retail business as per its WTO commitments. Previously, foreign companies had to form joint ventures with local companies if they wanted to enter the retail market.

CAFTA Membership

The China-ASEAN Free Trade Area (CAFTA), formally established in January 2010, is one of the world’s largest free trade area by population (1.9 billion), with a combined GDP of more than US$7.7 trillion and total trade value of US$4.8 trillion. Under CAFTA, Vietnam will eliminate 90% of its tariff lines for goods traded with China. The remaining 10%, including textiles, fall under the list of sensitive items and their import tariffs will be lowered more slowly.

Vietnam’s General Statistics Office announced in April 2011 that China was the country’s second biggest trading partner after the ASEAN during the first quarter in 2011, with US$7.9 billion, up by 42.3% YoY during that period.

Foreign Direct Investment (FDI)

According to Vietnam’s General Statistics Office, Vietnam attracted 969 licensed FDI projects in 2010 with total registered investment capital of US$17.2 billion. Singapore became the largest FDI source in the period, with a registered investment capital of US$4.3 billion, followed by the Netherlands, Japan and South Korea. 

In the first five months of 2011, the country attracted 313 FDI projects amounting to US$ 4.7 billion. The figure comprised new registered capital of US$3.5 billion, which was down by 57.3%, and additional registered capital of US$403 million. During the same period, realised FDI amounted to US$4.52 billion, up 0.4 % YoY.

Hong Kong's Trade with Vietnam

In the first four months of 2011, Vietnam was the 11th largest export market for Hong Kong. Hong Kong’s total exports grew by 23.5% YoY to US$1.6 billion. Major export items included other meat & edible meat offal (fresh, chilled or frozen) (12.6% share), telecommunications equipment & parts (8.5%), knitted or crocheted fabrics (7.9%), passenger motor cars (7.9%), and alcoholic beverages (5.0%).

Hong Kong’s imports from Vietnam gained 18.8% YoY to US$652 million in the first four months of 2011. Major import items included telecommunications equipment & parts (34.1% share), rotating electric plant & parts (7.1%), footwear (4.9%), semi-conductors, electronic valves& tubes (4.1%), miscellaneous non-ferrous base metals (3.6%), and office machines (2.9%).

Source: Census & Statistics Department, Hong Kong

Hong Kong-Vietnam bilateral economic relations

Hong Kong became the second largest FDI source to Vietnam in the first five months in 2011 with a registered capital of US$529 million compared to US$154 million in 2010. Vietnamese residents in Hong Kong reached 5,234 as at end-May 2011, according to Immigration Department of Hong Kong. In addition, Vietnamese visitors to Hong Kong totalled 24,173 in the first four months in 2011, down by 23.4% YoY.