LookAtVietnam – Vietnamese economists say the appreciation of the Chinese currency can lift Vietnam’s exports.
At Lao Cai international border gate
The Chinese Government has been prevailed on to upvalue the yuan against the dollar, a significant move for all nations that have deep trade relations with China. Vietnam typically imports much more from China than it exports to that country; in fact, the imbalance – some $5 billion in the first five months of 2010 – accounts for 70 to 80 percent of the nation’s total trade deficit.
On 29 June, the yuan traded at 6.79 to the dollar, a rise of about 0.5 percent since earlier in the month.
Trade deficit may shrink
Senior economist and consultant Nguyen Quang A comments that the Chinese yuan appreciation will slow the flood of Chinese goods into Vietnam by making Chinese goods more expensive and thus less competitive.
Dr. Vu Dinh Anh at the Market and Price Research Institute explains that both the Chinese yuan and Vietnam dong are pegged the dollar. Therefore, when the yuan is upvalued against the dollar, it also appreciates against the dong. In theory, Chinese goods will become more expensive, and this should be seen as the big opportunity for Vietnam to reduce its trade deficit with China.
However, reality may be different. Vietnam relies heavily on China as a source of equipment, machines and materials for processing. It cannot easily find other alternative supply sources. For such imports, when the yuan appreciates, Vietnam simply must pay more, and this will reinforce inflationary pressures.
Economist Bui Kien Thanh agrees. The appreciation of the yuan against the dollar will impact other economies in two ways, he says. On one hand, it will help reduce the trade deficit and create favorable conditions for countries to export goods to China. However, to the extent that Vietnam relies on Chinese materials to make products for export, Vietnamese goods will become more expensive. In this case, Vietnam will not be able to take full advantage of the appreciation of the yuan.
China’s move requires policy response
Economists emphasize that Vietnamese products will not only more easily penetrate the Chinese market, but they will also have better opportunities in the countries where Chinese goods’ market share may decrease. The opportunities will be especially big for garment products.
“This is the biggest adjustment of the yuan’s value in the last five years. The nation’s exports to China will increase if Vietnam can take full advantage of the opportunity. China is a vast market, not too choosy, and near Vietnam,” Dr. A said. “It’s up to our companies to take full advantage of the opportunity.”
Dr Anh says it will be a while before the impacts of the Chinese yuan appreciation on Vietnam’s economy are clear. In the near term, he said, it is necessary to keep a close watch over the situation in order to fine-tune policies.
Vietnam has attracted much investment capital from China, especially in bauxite and other mineral exploitation projects. When the Chinese yuan appreciates, Chinese investors will get more benefit, therefore, the currency appreciation ought to boost Chinese investment in Vietnam. Increased investment could lead to the increase of Chinese exports to Vietnam, thus making the trade balance deficit more serious.
If Vietnam maintains the dong’s peg to the dollar, Anh adds, it is necessary to consider setting up a fixed exchange rate regime for the dong and the yuan, based on the trade and investment relations between the two countries.
Source: Nguoi lao dong