What opportunities will Vietnam’s entry into WTO bring to China?
China View, Guangxi News April 24, 2007:
China is Vietnam’s biggest trade partner. Vietnam’s entry into WTO is not only a big event for ASEAN countries, but also a new opportunity for Chinese enterprises to develop Sino-Vietnam economic trade. In this regard, Chinese enterprises should have a good command of Vietnam’s economic condition as well as Sino-Vietnam economic cooperation and lose no time to seize this opportunity.
2006: Vietnam ranked first in economic growth rate among Southeast Asian countries
According to the data provided by Vietnam Statistics Bureau, in 2006, Vietnam’s GDP increased by 8.17%, among which industry and building increased by 10.37%; service was up 8.29%; agriculture, forestry and fishery grew by 3.4%. The contribution rate of industry & building, service, agriculture-forestry-fishery to GDP is respectively 4.16 percent, 3.34 percent and 0.67 percent. In general, Vietnam’s economic structure is transforming positively showing that the proportion of secondary and tertiary industries is getting bigger while the proportion of the primary industry is getting smaller.
In 2006, Vietnam’s industrial output increased by 17%, exceeding 10% in the successive 16 years. The Industrial output in 2006 was 8 times more than that of 1990, an increase of 14.7% annually, including, state-owned enterprises increased by 9.1%; non state-owned enterprises increased by 23.9% and foreign-funded enterprises increased by 18.8%. The industrial output of non state-owned enterprises accounted for 30% of the gross industrial output of Vietnam, that of foreign-funded enterprises accounted for 38.2%, (37.6% for last year). In 2006, the provinces ranking the top three in industrial growth in Vietnam include Vinh Phuc (25.6%), Binh Duong (25.3%) and Ha Tay (23.3%). The fast-growth industrial products mainly include: coal (18.7%), aquatic products (17.2%) and assembled motorcycle (16.9%).
In 2002, Vietnams export volume was USD 39.6 billion, up by 22.1% than last year, being the maximum in history. Among the 25 categories of exported goods enlisted into statistics, the export volume of 20 categories increased dramatically while the export volume of 9 categories exceeded USD 1 billion.
In 2006, FDI exceeded USD 10 billion, breaking the FDI record of USD 8.6 billion in 1996. So far, there are 76 countries and areas invest in Vietnam. Of the total investment, Asia accounts for 67%, Europe 29% and America 4%. Among the investors in Vietnam, the top five investors are Taiwan, Japan, the Republic of Korea, Hong Kong and Singapore, which investment volume added up to account for 60.6% of total foreign investment in Vietnam. Industry and building are the two fields attracting most investment, accounting for 67.5% of foreign invested projects, 62% of total investment volume. Service, agriculture-forestry-fishery ranks the second and third. In terms of investment places, big cities and key economic areas attract most foreign investors. Computed by investment volume, the top three places are: Ho ChiMinh City, Hanoi City and Dong Nai Province. In terms of investment mode, sole investment accounts for 76% and joint venture accounts for 20.6%.
In November 2006, Vietnam Parliament approved the major economic indicators for 2007, GDP being expected to increase by 8.2%-8.5%. Total investment of the whole society accounts for 40% of GDP. Rapid economic growth and expanding investment will surely bring more opportunities for business.
Sino-Vietnam Economic Development
From January to November 2006, the bilateral trade volume reached USD 9 billion, an increase of 21% over the previous year, including China’s export to Vietnam amounted to USD 6.7 billion, an increase of 32% over the previous year. China’ import from Vietnam totaled USD 2.3 billion, up by 2.2% over the previous year. According to statistics provided by Vietnam Chamber of Commerce and Industry, there are more than 400 China’s enterprises investing in Vietnam, covering tourism, service, agriculture, forestry and high technology. According to Sino-Vietnam Joint Declaration issued in 2006, both parties will maintain the momentum of excessively rapid growth in bilateral trade and realize the target of bilateral trade volume of USD 15 billion.
In November 2006, China’s President Hu Jintao was invited to visit Vietnam and signed ten agreements with Vietnam, of which two had broken the record of Vietnam. One is that: China Southern Power Grid plans to invest by BOT in the first phase project of coal-burning thermal power plant in Binh Thuan in the south of Vietnam. The investment totals USD 900 million, being the largest joint venture project of Vietnam. Another is that: China Aluminum Corporation signed cooperation agreement with Vietnam National Coal Corporation for cooperatively develop bauxite in Dak Nong in Vietnam.
Vietnam’s Entry into WTO Will Bring Numerous Opportunities for Chinese Enterprises
Firstly, in 5 to 7 years after Vietnam’s entry into WTO, the average tariff of the commodities will drop from current 17.4% to 13.4%. The tariff of agricultural products will drop from 23.5% to 20.9% within 5 years; that of industrial products will drop from 16.8% to 12.6% within 5 to 7 years, which will be beneficial for Chinese commodities and enterprises to enter and open Vietnam’s markets.
For example, in electronic field, in 3 to 5 years after its entry into WTO, 330 categories of commodities in Vietnam including computer, mobile phones, video camera, digital camera will drop to zero tariff. The tariff of television, air conditioner, washing machine and other electrical appliance will drop from 40-50% to 38%-40% and further drop to 25% within 3 to 5 years. Vietnam will be a big market for Chinese electronic products.
In steel production field, Vietnam’s aluminum oxide production capacity can only satisfy 25% of the demands of domestic market. In 2006, 60% of aluminum oxide were imported from China. Since its entry into WTO, Vietnam will demand more aluminum oxide and steel. The steel for major construction project will be imported. Currently, the steel imported from China cost 400 dollars per ton, steel pipe 380 dollars per ton, which is 300,000 Vietnam Dong (equivalent to RMB 150) cheaper than those produced in Vietnam.
In automobile field, according to the development plan publicized by Ministry of Industry of Vietnam, the growth rate of total number of automobile will be 16% from 2005 to 2010 in Vietnam while the growth rate will be 8% from 2011 to 2020. Recently, China’s automobile enterprises have obviously accelerated its pace to occupy Vietnam’s market. In order to implement the rules of WTO, Ministry of Finance of Vietnam has formulated new preferential tariff for import and export. From January 11, 2007, the import tariff for original automobile shall be reduced from 90% to 80%. In the views of some experts, Chinese commercial vehicles have great advantages in Vietnamese market and can be fully challengeable against the international automobile giants.
Secondly, Vietnam enjoys the relevant preferential policy of WTO members, and so the import from Vietnam to China will be more convenient and beneficial. With the development of the domestic economy and the demand of China, plus the geographical convenience between two countries, the crude oil and rubber exportation of Vietnam to China will also increase. In order to enlarge the exportation to China, Vietnam is now gradually adjusting its commodity structure to adapt to the import requirement of China. In this regard, Vietnam has established the commodity export mechanism for the purpose of increasing the competitiveness and developing new products. Currently, Vietnam is making efforts to encourage all enterprises to strengthen the promotion of agricultural production, aquatic products, processing enterprises and marketing agents. At the same time, in order to let Chinese consumers have better knowledge of Vietnamese products, many Vietnamese enterprises have set up exhibition and marketing stations in some large cities of China, such as Kunming, Nanning, Guangzhou and Shanghai.
Thirdly, after accession to WTO, Vietnam must follow the rules in participating in the international economy. Such will help to expedite the construction and optimization of the policy and legal system of Vietnam, create favorable investment environment, and ultimately good for Chinese enterprise to enter Vietnam. In the aspect of investment policy, in order to attract foreign investment, Vietnamese government has formulated a series of preferential policy for priority development, such as the encouragement on herbal production and utilization of herbal medicine. In this regard, Chinese medical enterprises can take the opportunity to enlarge the export to Vietnam. Further, they can consider to invest on factory and undertake processing through using the local resources. Another example is that, the state bank of Vietnam is formulating the plan for opening financing and leasing fields, which will be fully opened by 2010. Accordingly, Chinese financial institution can cooperate with the relevant organization of Vietnam.
In addition, after entering the WTO, Vietnamese economy will undergo a new growth. In the field of infrastructure, during the period of 2006-2010, Vietnam will make a total investment of 315.65 trillion Dong (equivalent to USD 19.618 billion) on construction. As announced by ADB in last December, ADB will issue a total soft loan of USD 60 million to Vietnam to upgrade the Vietnam – China railway. This project will be completed by 2012. In this regard, Chinese enterprises may have many opportunities in contracting projects.
Lastly, after Vietnamese accession to WTO, the trade disputes between China and Vietnam shall be settled within the framework of WTO according to the specified procedure and methods. Such complete and healthy mechanism for dispute settlement of WTO will serve as a guarantee for promoting Sino-Vietnam economic cooperation and trade.
How can Chinese enterprise grasp this new business opportunity?
China and Vietnam are connected by mountains and rivers. Chinese enterprises must take the opportunity of Vietnam’s accession to WTO and actively promote the economic cooperation and trade.
Firstly, grasp the opportunity of tariff reduction of Vietnam. After accession to WTO, Vietnam will reduce the tariff of 3800 kinds of goods to different extents according to the varieties. In this regard, Chinese enterprises must know the actual tariff reduction of their own products first and formulate effective market strategies corresponding to Vietnamese market. In addition, In December 2006, the State Council of America passed the PNTR act for Vietnam, and thus the anticipated Vietnam-US trade volume will reach 17.5 billion U.D dollars by 2010. In this regard, Chinese enterprises may cooperate with Vietnamese enterprises in production and further jointly develop the US market.
Secondary, it is acquire the knowledge of investment environment of Vietnam and actively conduct Vientam-oriented investment. Vietnam has become one of the most vigorous countries in Asia. With accession to WTO, it will become a new Hotpoint for investment in Asia. However, the investment in Vietnam by China is still at the initial stage. In recent years, Vietnamese government has adjusted the trading policy for China to encourage Chinese investment. As stipulated by Vietnamese government, under the same conditions, Vietnam will choose Chinese enterprises. The measures are: (i) Chinese enterprises may establish factories in the port economic zone, while the Vietnamese government will offer more preferential policy as the support. (ii) Chinese goods that exported to other countries of the South East Asia via Vietnam will enjoy equal treatment as given to Vietnamese enterprises. (iii) Chinese enterprises are encouraged to invest on factory in the inland of Vietnam to manufacture products to export to ASEAN countries. At the same time, Chinese government also encourage its enterprise to “go out”. With the Vietnamese accession to WTO and the improvement of its investment environment, Chinese enterprises must take this opportunity to make investments on more fields. Thirdly, the economic cooperation and trade should be conducted strictly pursuant to Vietnamese laws and international practices. In July 2006, Enterprise Law of Vietnam and Investment Law of Vietnam became effective. Before entering Vietnamese market, Chinese enterprises must have full knowledge of the Vietnamese laws and the relevant regulations of WTO, choose right cooperating partners and undertake trading and investment strictly following the lawful procedures. In case there may arise any disputes, they should be settled according to the international practices.