What is a suitable growth rate of foreign trade for Vietnam?

  • 05:33 - 2018/03/29

Vietnam has one of the highest proportions of import/export turnover to GDP in the region, over 180 percent.

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The growth of import/export turnover is considered an important target

Analysts and policymakers point to the close relations between foreign trade and economic growth, saying that the growth of import/export turnover is considered one of the most important targets by the National Assembly. The National Assembly, for example, has decided that import/export turnover in 2018 should grow by 7-8 percent, higher than the targeted growth rate of 6-7 percent.

However, some analysts argue that foreign trade is not a good economic indicator to use for assessing development or economic potential. Vietnam’s proportion of import/export turnover to GDP is higher than the 120 percent of Thailand and Malaysia, and higher than the 40 percent of China, which has been the fastest growing economy in the world in the last four decades.

Vietnam’s proportion of import/export turnover to GDP is higher than the 120 percent of Thailand and Malaysia, and higher than the 40 percent of China, which has been the fastest growing economy in the world in the last four decades.

Pham Van Dai, an analyst, in his article in Thoi Bao Kinh Te Sai Gon, pointed out that Vietnam is an outsourcing economy with limited domestic input materials (mostly natural resources such as land, water sources, minerals and cheap labor force).

In the global production chain, Vietnam can only undertake the simplest works of assembling and packaging products.  With a low production level, Vietnam’s foreign trade growth is different from that of China.  Foreign trade doesn’t offer Vietnam a trade surplus and forex reserves big enough to increase the stability of the economy while Vietnam just exports to third countries what it imports.

The value added to export products created in Vietnam remains modest as well. More and more FTAs have been signed recently with important partners such as the EU, Japan and CPTPP. Vietnam hopes the trade agreements will help boost foreign trade activities.

However, an analyst who declined to be named, said with Vietnam’s current low position in the global production chain, the FTAs won’t bring many benefits.  He said that the preferential tariffs Vietnam enjoy as a member of the FTAs may help attract FDI, because foreign investors would think of setting up their production workshops in Vietnam to be able to enjoy the low tariffs.

However, he cited reports as affirming that FDI has not brought benefits as big as Vietnam has expected, and that foreign investors may leave Vietnam in the future once they find other countries offering more tax incentives. He also warned that Vietnam may become a place for other countries to transit their products before shipping to third countries.

Kim Chi

Source: VietNamNet

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