Books on Vietnam
Tran Duc Luong
Update No: 034 - (12/10/04)
Vietnam will continue to deepen its relations with fellow members of the
Association of South East Asian Nations (ASEAN) and its regional prominence will
increase in October 2004 when it hosts the Asia-Europe Meeting (ASEM, an
informal forum for dialogue between the EU member states and a number of Asian
Relations with some countries in the region, most notably China, will continue
to be tested by disputes over the sovereignty of the Spratly islands in the
South China Sea. The governments controversial decision recently to commence
tours to the Spratly islands and renovate an airport there is worrisome as it
has angered other nations that claim sovereignty over the islands. In addition
to China, the other nations with a sovereignty claim are Brunei, Malaysia, the
Philippines and Taiwan. Vietnam reasserted its claim to sovereignty when
criticising the decision by China and the Philippines in September 2004 to
cooperate in a three-year project to gather data on petroleum resources around
Economic policy outlook
According to official statistics, the government recorded a much smaller
deficit in the first half of 2004 than planned in its budget. Although revenue
collection remains on target to meet the full year budget, expenditure has been
slow, with only 44 per cent of the annual budget spent in the first half.
However, the rate of spending normally picks up in the second half of the year.
The disbursement of development funds has been particularly slow so far this
year, government ministries and agencies will come under increasing pressure to
meet development expenditure targets. Salaries for state workers were also set
to be raised in October. The full year deficit is therefore likely much closer
to the governments target of 5 per cent of GDP. In 2004-2005, tax revenue growth
will face some constraints owing to cuts in import tariffs and amendments to the
personal income tax regime.
The State Bank of Vietnam (SBV) has finally moved to tighten monetary policy in
an effort to curb domestic credit growth and ease inflationary pressures. In
late June, the SBV raised the compulsory reserve requirement for both dong and
US dollars deposits. However, the SBV has decided against raising interest
rates. In September, it left its annual lending rate unchanged at 7.5 per cent.
The SBV governor, Le Duc Thuy, has been intent on avoiding any upward movement
in interest rates in order to avoid jeopardizing the governments success in
achieving its economic expansion targets. However, this focus on loose monetary
policy and economic growth has raised some concerns and heightened the risk of
overheating, at end-2003 outstanding domestic credit had risen by 32 per cent
year-on-year, although the pace of annual credit growth slowed to around 26 per
cent in the first quarter of 2004. The SBV will probably be compelled to tighten
monetary policy further in 2005, probably by raising interest rates, if there
are insufficient signs of slowing demand for credit.
The economy is set to continue to perform well in 2004-2005, with real GDP
expanding by an annual rate of nearly 7 per cent. However, the rapid pace of
growth in domestic credit over the past year or so raises questions about
quality and sustainability of this impressive economic expansion. Much of this
credit is currently channelled to state owned enterprises (SOEs), some of which
have yet to embark on a much-needed restructuring programme. However, if the
government makes greater efforts to improve the efficiency with which the
resources are allocated (by reforming inefficient SOEs and permitting the
burgeoning private sector greater access to capital and land), the risk of the
economy overheating and suffering a severe slowdown will be greatly reduced.
Domestic business sentiment and foreign investor confidence have proved
resilient, and this is unlikely to change over the nest year or so. As a result,
fixed investment growth will remain robust. However, some upward pressure on
interest rates will temper consumer spending in 2005. Exporters will benefit
from a pick up of the economies of Vietnams main trading partners, the US and
Japan and will continue to record strong growth. However, rapid growth in
imports of mainly capital goods, will offset the impact of expanding exports on
overall GDP data.
In terms of sectoral trends, the governments efforts to promote agricultural and
fisheries products will help to boost the domestic agriculture in the next few
years, and there is little risk to continued industrial growth of around 10 per
cent annually in 2004-2005.
Consumer price inflation has accelerated markedly, reaching 9.9 per cent
year-on-year in September. The main factor driving up consumer prices has been a
surge in prices for food, which accounts for one-half of the basket of goods in
the consumer price index. The rice price is forecasted to record an annual rise
of 20 per cent averagely for all types of rice this year. Recent increases of
retail petroleum prices have also pushed up total prices. Higher wage payments
to government workers, buoyant consumer demand financed mainly by rampant credit
growth, and the rising level of general economic activity will contribute to
annual average inflation of 8 per cent this year. In response to an expected
tightening of monetary policy in addition to slower food price rises, inflation
should ease in 2005, dipping below 7 per cent.
Export revenue rose in the first seven months of 2004, expanding by around 22
per cent year-on-year, but revenue growth will slow over the remaining months of
2004 and in the whole of 2005, owing to factors inhibiting growth in the leading
two exports, crude oil and textiles and garments. Crude oil prices are
forecasted to contract by 12 per cent year-on-year next year and garment and
textile export growth will be limited by insufficient quotas this year and
greater competitive pressure next year. Offsetting some of these concerns is the
bright outlook for revenue from seafood (despite the US imposing anti-dumping
tariffs on Vietnams shrimps) and agricultural commodities exports, in addition
to impressive growth in some emerging exports, including wood products, and
electronic products and computers.
Vietnam-China trade set to reach US$5bn
Given the current rate of two-way trade between China and Vietnam, economic
officials say the two nations may reach US$5 billion in trade turnover this
year, a target initially set for 2005, Vietnam News Agency reported.
Vietnam's Deputy Prime Minister, Vu Khoan, announced the news at a September 23
workshop in Hanoi on the economic relationship between Vietnam and China.
Deputy Prime Minister, Khoan, also said he expects Vietnam and China to reach
$10 billion in bilateral trade turnover by 2010.
Khoan said leaders from both nations have conducted regular meetings to develop
comprehensive economic ties. The upcoming visit by Chinese Prime Minister, Wen
Jiabao, to Vietnam will mark a new milestone between the two countries'
Besides trade cooperation, China has helped Vietnam to recover, expand and
upgrade a series of metallurgy plants and chemical manufacturing factories.
Chinese businesses are helping to develop several infrastructure and electricity
projects as well as investing in nearly 300 projects throughout Vietnam.
Chinese ambassador to Vietnam, Qi Jianguo, said trade turnover this year to date
between the two countries stands at $3.7 billion. The ambassador noted that the
statistic is a firm foundation for reaching the targeted $10 billion two-way
trade turnover by 2010.
In addition, Chinese direct investment to Vietnam, including from Hong Kong,
reached $4 billion, with 600 registered projects by July.
Jianguo stressed that since the China-ASEAN (Association of Southeast Asian
Nations) Early Harvest Program, China's imports from Vietnam have increased
The trade turnover between the two countries has progressed rapidly in recent
years, increasing from $32 million in 1991 to $2.4 billion in 2000.
Last year, trade turnover posted $4.6 billion when China became Vietnam's
third-largest trade partner and its largest importer. Meanwhile, Vietnam is
China's 27th largest business partner, the ambassador said.
The seminar was co-hosted by the Vietnam Chamber of Commerce and Industry (VCCI)
and the Chinese Embassy in Vietnam with more than 400 participants from the
embassy and relevant government agencies.
The workshop provided comprehensive information about the Vietnamese-Chinese
trade dynamic, and created opportunities for businesses on both sides to
At the workshop, VCCI also launched a commerce website for Vietnam and China in
Vietnamese, Chinese and English.
The web page will provide up-to-date information on the two nations' laws,
policies, markets and prices.
Vietnam, Turkey sign trade, tourism agreements
Vietnam and Turkey have signed agreements on tourism co-operation,
developing small- and medium-sized enterprises (SMEs) and trade promotion during
a recent visit to Turkey by Trade Minister, Truong Dinh Tuyen.
During the visit, Minister Tuyen and Turkish Minister of the Interior,
Abdulkadir Aksu, co-chaired a session of the Vietnam-Turkey Committee for
Economic Co-operation. They said they were pleased at the development of
bilateral economic co-operation, with two-way trade values increasing from
US$47m in 2001 to nearly US$70m in 2002, US$80m in 2003 and more than US$43m in
the first half of this year.
Discussions focused on how to promote economic, trade and investment relations
as well as co-operation in science, agriculture, transport, the textile industry
and tourism. The ministers also agreed to give top priority to promoting
co-operation in construction, developing SMEs, shipbuilding, irrigation
development, telecommunication, farm produce, food processing and energy.
Minister Tuyen attended a Vietnam-Turkey business forum in Istanbul and visited
an international trade fair in Izmir.
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