TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S LECTURER: DR. TU THUY ANH FOR E IGN TR A DE UN IVE R SI T Y - HA NOI – SU M MER 20 11 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 1 Abstract Trade deficit in general and trade deficit with China is one of the highly concerned problems of Vietnam macro-economy because long-term trade deficit leads to the situation of being dependent on foreign economies, the imbalance of BOP, hence, the whole economy. Examining the severity of the situation and finding the solutions to the problem is necessary for our sustained economic development. In our research, firstly, we will analyze the real situation of trade deficit with China with related facts and figures. Secondly, we explained the reasons for the huge trade deficit with China. Finally, we will suggest some short-term and long-term solutions to the trade deficit problem. We do this research in order to give readers the insights, to some extent, into the trade deficit with China of Vietnam. TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 2 TABLE OF CONTENTS 1 The situation of Vietnam’s trade deficit with China 4 1.1 Trade deficit in Vietnam in general 4 1.2 trade deficit with China 7 2 Reasons for the situation of trade deficit with China in Vietnam 11 2.1 Exporting low-added value goods, importing high –value goods 11 2.2 The inefficiency and ineffectiveness of domestic productions and investments 13 2.3 Chinese various in kinds and low in price goods 14 2.4 The appreciation of Chinese currency 15 2.5 WTO and commitments 17 3 Solutions for the problem of trade deficit with China of Vietnam 18 3.1 Exchange Rate Tool 18 3.2 Capital in-flow and out-flow control 19 3.3 Exporting Spurs 20 3.4 Some other solutions 21 4 Conclusion 22 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 3 TR ADE D E F I CI T WIT H C HIN A OF VI ET NAM I N T HE LA T E 20 0 0S Student ID Ph ạ m Thanh H ả i 0851050064 Nguy ễ n Th ị Qu ỳ nh Mai 0851050049 Phan Th ị Di ệ u Linh 0851050046 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 4 1 THE SITUATION OF VIETNAM’S TRADE DEFICIT WITH CHINA 1.1 TRADE DEFICIT IN VIETNAM IN GENERAL Since opening the economy, Vietnam’s trade has increased rapidly. From 1995 to 2008, in average, the amount of export increased by 18.7%/year while import increased by 20.1% /year. Total amount of import from only 39.3% of GDP in 1995 increased to 99.31% of GDP in 2008. Along with that, the trade deficit increased from 0.27 billion USD in 1990 to 18.03 billion USD in 2008. The increase in the export-import turnover make Vietnam’s economy more and more widen. However, there are many potential risks. The sum of trade deficit in Vietnam from 1990 to 2009 was 84 billion USD, which was larger than GDP in 2008. The ratio trade deficit over GDP is much larger than other countries in the world. Year Export (mill USD) Import (mill USD) GDP (mill USD) 1995 5448.9 8155.4 20736.2 1996 7255.9 11143.6 24657.5 1997 9185.0 11592.3 26843.7 1998 9360.3 11499.6 27209.6 1999 11541.4 11742.1 28683.7 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 5 2000 14482.7 15636.5 31172.5 2001 15029.2 16218.0 32685.2 2002 16706.1 19745.6 35058.2 2003 20149.3 25255.8 38867.1 2004 26485.0 31968.8 45404.4 2005 32447.1 36761.1 52426.9 2006 39826.2 44891.1 59716.0 2007 48561.4 62764.7 68435.2 2008 62685.1 80713.8 81269.6 Sources: World Bank data, GSO Vietnam 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 19951996199719981999200020012002200320042005200620072008 Trade deficit in Vietnam (million USD) Trade deficit TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 6 Source : World Bank Import structure: Most of the imported goods of Vietnam are machinery and raw materials; consumer goods make up less than 10%. Since 2000, imported consumer goods make up 6-8%, while the number of raw materials is 60-67%. At the moment, because of being a developing country, the need of raw material as well as machinery is increasing year by year along with the raise of GDP. Total 2005 2006 2007 2008 Mill.USD % Mill.USD % Mill.USD % Mill.USD % Machinery, instrument, accessory 9285.3 25.3 11040.8 24.6 17966.2 28.6 22566.7 29.3 Fuels, raw material 23663.9 64.4 28463.3 63.4 38822.4 61.9 49149.2 60.9 -15000 -10000 -5000 0 5000 10000 15000 20000 France UK Malaysia Korea Thai Germany Taiwan Singapore Australia China USA Japan Vietnam France UK Malaysi a Korea Thai Germa ny Taiwan Singap ore Australi a China USA Japan Vietna m Trade deficit -56 934 -823 -4912 -3248 298 -5132 -2172 1227 -11532 8346 -1176 18028 Trade deficit in other countries in 2008 (million USD) TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 7 Consumer goods 2992.5 8.2 3508.4 7.8 4660.1 7.4 6269.9 7.8 Source: gso.gov.vn 1.2 TRADE DEFICIT WITH CHINA In recent years, the amount of imported goods has increased sharply from 329 million USD in 1995 to 15973 million USD in 2008. It made up more than 90% of the total amount of trade deficit of Vietnam. However, it is only official figure. If the amount of goods smuggled cross borders and goods imported by way of quota are counted, the number will be higher. The problem here is that the rate of the increase in imported goods from China is faster and faster while the amount of exported goods stays the same. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Export 361.9 340.2 474.1 440.1 746.4 1536.4 1417.4 1518.3 1883.1 2899.1 3228.1 3242.8 3646.1 4850.1 Import 329.7 329 404.4 515 673.1 1401.1 1606.2 2158.8 3138.6 4595.1 5899.7 7391.3 12710 15974 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 Amount of goods (mill USD) China Import and Export from 1995 to 2008 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 8 In 2007, the trade deficit with China of Vietnam is 9.145 billion USD, making up 64% of the total amount of trade deficit. In 2008, the figure is 11.16 billion USD and 61% respectively. In 2010, trade deficit with China was raise to red alert: 12.6 billion USD, which was equal 105% of the total amount of trade deficit in 2009. Therefore, Vietnam has failed to decrease the unbalance in trade balance between Vietnam and China. In 1991, Vietnam mainly traded with Soviet and the socialist countries of Eastern Europe, through SEV. After the socialist countries collapsed, Vietnam has diverted trade to other countries such as EU, USA, Australia, Canada, ASEAN, Japan, Korea, etc. A series of commitments such as FTA, WTO, and AFTA were signed. After the diversion, trade deficit has been increasing significantly. In 2000, trade surplus from China of Vietnam is 135 million USD. But in 2001, the trade balance switched to deficit of 200 million USD. From then on, the imports from China have increased sharply. Chinese goods flood Vietnamese market. Although Vietnam has trade relations with more than 200 countries and territories, China supplies ¼ raw materials for Vietnam economy. China USA Japan Germany ASEAN APEC EU 2006 7391.3 987 4702.1 914.5 12546.6 37467.7 3129.2 2007 12710 1700.5 6188.9 1308.5 15908.2 52637.9 5142.4 2008 15973.6 2646.6 8240.3 1479.9 19567.7 67232.2 5581.5 0 10000 20000 30000 40000 50000 60000 70000 80000 Amount of goods (mill USD) Imports of goods by country and group TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 9 In the late of 2009, according to the statistics of Ministry of Industry and Trade, Vietnam exported mineral materials such as coal, rubber and crude oil to China; making up 55% of the overall exports. However, the export of this commodity group has to be reduced to ensure the energy security. In 2009, crude oil was decreased 24% and in 2010 coal was decreased 50% compared to 2009. Types 2009 2010 Amount (Tons) Price (1000 USD) Amount (Tons) Price (1000 USD) Crude oil 1,032,921 462,623.331 593,997 367,631.9 Coal 20,453,501 935,843.407 14,644,571 961,855.12 Rubber 510,245 856,712.92 464,372 1,420,788.726 Mineral 1,670,233 103,632.823 1,399,846 101,915.301 Aquatic products 124,857.336 162,557.6 Coffee 17,396 24,885.623 26,499 39,361.779 Total 4,909,025.328 7,308,800.253 Main products exported to China [...]... countries of Vietnam Even the exclusively special fruits of Vietnam such as citrus fruits, water-melon, etc are now imported from China Some other goods such as garlic, ginger, carrots are half the price 14 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 of those from Vietnam’s origin In addition, these fruits, additives, vegetables can be preserved longer than those of Vietnam One of the... increased overtime The list of Chinese goods that Vietnam has been dependent is becoming more sensitive and has close ties to the deep veins of the economy For example, Vietnam has intention to increase the purchasing of electricity from China, with the ratio of 4% of total demand Overall, Chinese imported goods has been increasing year by year Vietnam is now more dependent on China than ever 2 REASONS... tools, spare parts Total Main products imported from China 10 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 Compensating for this decline, Vietnam has only agricultural, aquatic and industrial product Nevertheless, agricultural and aquatic product made up only 15% of exports to China Most Vietnamese exported product to China is raw materials and primary processing such as fruits, rubber,... goods in China in comparison with Vietnam is that in China, the input materials are available, labor is cheap At that time, we cannot supply input materials ourselves We have to import, instead Therefore, it is difficult for the equivalent or similar goods made in Vietnam to regain the domestic market, not to mention entering the Chinese market Another obstacle to Vietnam goods is the distribution channels... CNY is the increased foreign direct investment from China into Vietnam With this scenario, the flow of machines, tools, 16 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 input from China rises sharply, which obviously alleviates the huge trade deficit between two countries 2.5 WTO AND COMMITMENTS The participation of Vietnam into World Trade Organization (WTO) marks an important milestone... supporting goods competitive in prices 21 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 In conclusion, the issue of Vietnam trade deficit which caused by excess importing Chinese products needs a mixed solution to make it better Among them are exchange rate instrument, money flows control or the restructure in Vietnam industry This problem even requires the change in the thinking about... workshop of the world which offer the equivalent goods at very low price in comparison with most countries in the world, Vietnam included The lowprice is one of the most important competitiveness of Chinese goods For example, Chinese steels are 10% cheaper than domestic steels; Made-in-Vietnam clothes are up to 50% more expensive than those in China In the case of fresh fruits, vegetables, one of the main... goods has been increasing year by year Vietnam is now more dependent on China than ever 2 REASONS FOR THE SITUATION OF TRADE DEFICIT WITH CHINA IN VIETNAM 2.1 EXPORTING LOW-ADDED VALUE GOODS, IMPORTING HIGH –VALUE GOODS The main exported goods of Vietnam such as shoes, pepper, coffee bean, cashew, rice have low value added in the value chain; therefore, their contributions to the export value are comparatively... Moreover, the export of these goods has to depend on the equivalent input materials imported from China 11 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 Source: www.gso.gov.vn From the figures of main import and export goods in 2010 of the GSO of Vietnam, it can be inferred that most of the main exported goods into China have relatively low value in comparison with the necessary equivalents... distribution channels Chinese producers with the advantage of low price can offer a high discount for agents in Vietnam, thus, they easily dominate our market Moreover, Chinese goods are various in kinds, fitting most kinds of ages, tastes, purposes For example, clothes from China are saturated in Vietnam market with various kinds, size, attractive designs and reasonable price, targeted at and dominated the . Vietnam. TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 2 TABLE OF CONTENTS 1 The situation of Vietnam’s trade deficit with China 4 1.1 Trade deficit in Vietnam in. CHINA OF VIETNAM IN THE LATE 2000S 2011 4 1 THE SITUATION OF VIETNAM’S TRADE DEFICIT WITH CHINA 1.1 TRADE DEFICIT IN VIETNAM IN GENERAL Since opening the economy, Vietnam’s trade. amount of trade deficit in 2009. Therefore, Vietnam has failed to decrease the unbalance in trade balance between Vietnam and China. In 1991, Vietnam mainly traded with Soviet and the socialist