Major Economic Indicators
- Vietnam’s GDP growth recorded at 5.0% year-on year (YoY) in the first quarter of 2014. The country’s economic expansion has been driven by the service sector, growing at 6.0% YoY during the same period.
- In line with the recent decline in international commodity prices, inflation eased to 6.6% 2013, down sharply from 9.1% in the previous year.
- Vietnam achieved a trade surplus for the second consecutive year in 2013, with exports increasing by 15.4% to US$132.2 billion. The expansion in exports was driven by the foreign-invested manufacturing sector.
- In the first four months of 2014, Hong Kong’s exports to Vietnam up by 10% YoY to US$2.6 billion, while imports increased by 18.6% YoY to US$1.6 billion during the same period.
Current Economic Situation
In the first quarter of 2014, Vietnam’s real GDP increased 5% YoY, slowing from the 6% growth in the fourth quarter of 2013. The IMF forecasts that the Vietnamese economy to grow at 5.6% in 2014, echoing the Vietnamese government’s GDP growth target of 5.8%. In 2013, Vietnam’s economic growth accelerated a tad to 5.4% from 5.2% in 2012 which was the slowest pace of expansion since 1999. The country’s economic growth in recent years has been mostly driven by the service sector, which accounted for 43% of its economy in 2013. During the year, the agriculture, industry and services sectors registered respective growth rates of 2.7%, 5.4% and 6.6%.
Vietnam’s inflation rate moderated to 6.6% in 2013, the lowest in a decade, down sharply from 9.2% in 2012 and 18.7% in 2011. Inflation further decelerated in 2014, with inflation averaging 4.8% in the first quarter of the year. Moderating inflation since 2013 reflects the impact of the government’s effort in credit tightening and the fall in international commodity prices. Following the subdued GDP growth and slower inflation in early 2013, Vietnam is pursuing a more accommodative monetary policy to support economic growth. The State Bank of Vietnam (SBV) lowered its benchmark interest rate in March 2014, the ninth since March 2012.
In February 2013, the master plan on economic restructure 2013-2020 was approved. The plan focuses on the restructuring of public investment, banks, and state-owned enterprises (SOEs). Through full or partial privatisation, it is hoped to reduce the number of SOEs by about half to 690 by 2015, and then to 200 by 2020. The government has approved the privatisation plans of 432 SOEs, which are expected to be completed by 2015. The SOEs under the 2014 privatisation plans include Vietnam Airlines, and Vietnam National Textile and Garment Group (Vinatex).
To accelerate the banking system restructuring, the Vietnamese government has allowed foreign investors to own a bigger share in local banks, in which the shareholding limit for foreign strategic investors has been lifted from 15% to 20% from February 2014.
In May 2014, rounds of anti-Chinese riots arose to have damaged foreign-invested factories, many of which were from Taiwan and the Chinese mainland. The Vietnamese government announced a series of remedial measures, including tax breaks and land rent exemption, to compensate the affected companies. It is reported that with security conditions enhanced in the industrial zones, most of the larger firms have resumed operations. Foreign investors’ confidence, however, has been negatively affected, with many indicating to shelve expansion plans amid scattered reports on disinvestment intentions. The Hong Kong government issued the Red Outbound Travel Alert on 15 May 2014.
Vietnam’s has been running a trade surplus since 2012. In 2013, exports surged by 15% to US$132 billion, while imports grew at the same rate to US$131 billion. The growth in exports continued in the first quarter of 2014, rising 14% YoY.
Exports of electronic items accounted for 24% of total merchandise exports in 2013, increasing from the 18% share in 2012. In particular, the exports of phones and components went up by 69%, driven by the foreign-invested manufacturing sector. Vietnam’s top export markets in 2013 were the EU, US, ASEAN, Japan, China and South Korea.
Major imported items in 2013 consisted of machinery, equipment and parts, electronics and accessories. A large part of its imported capital goods is related to assembling goods for export. China is the largest source of Vietnam’s imports, followed by ASEAN, South Korea, and Japan.
Foreign Direct Investment (FDI)
Vietnam’s impressive growth of exports was largely driven by FDI. According to the Ministry of Industry and Trade, the FDI sector accounted for over 90% of Vietnam’s exports of electronic products including mobile phones, cameras, computer and parts.
Vietnam attracted 1,275 licensed FDI projects in 2013 with a total registered investment capital of US$14.3 billion. South Korea was Vietnam’s largest FDI source in 2013, with a registered investment capital of US$3.8 billion, followed by Singapore, China and Japan.
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, Vietnam was committed to bound tariff rates on most products ranging from zero to 50%, although tariffs on textiles, 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.
The China-ASEAN Free Trade Area (CAFTA), formally established in January 2010, is 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 of US$4.8 trillion. Under CAFTA, Vietnam will eliminate 90% of its tariff lines for goods traded with China by 2015, with the remaining 10%, which cover items on the sensitive list such as textiles, seeing their import tariffs lowered more slowly. In 2013, bilateral trade between Vietnam and China reach US$65.5 billion, up 30% compared with 2012, also significantly higher than US$30.1 billion in 2010.
Hong Kong's Trade with Vietnam
In the first four months of 2014, Vietnam was the 8th largest export market for Hong Kong. Hong Kong’s total exports to Vietnam grew by 10.0% YoY to US$2.6 billion. Major export items included, other meat & edible meat offal (fresh, chilled or frozen) (11.9% share), telecom equipment & parts (10.2%), knitted or crocheted fabrics (5.6%).
Hong Kong’s imports from Vietnam gained 18.6% YoY to US$1.6 billion in the same period. Major import items included telecom equipment & parts (54.0% share), wood in the rough or roughly squared (4.9%) and footwear (3.2%).
Vietnam’s involvement in Hong Kong
Vietnamese residents in Hong Kong reached 5,507 as at end-Apr 2014, according to Immigration Department of Hong Kong. In addition, Vietnamese visitors to Hong Kong totalled 14,088 in the first three months in 2014, decreased by 12.8% YoY.