Since the implementation of the reform and opening up (Doi Moi) in 1986, riding on the tide of globalization, Vietnam has successfully transformed from one of the poorest countries in the world to a middle-income country. Vietnam's development process has inevitably been significantly influenced by China, and its policies have also followed China's reform path step by step. Therefore, some foreign voices believe that Vietnam may become a supplement or substitute for China's manufacturing industry to a certain extent.
The team of Huang Wentao, chief economist of CITIC Securities , launched the "Vietnam Economic Observation" series of three in-depth reports: reviews Vietnam's economic development process, analyzes the current economic structure of Vietnam, and compares it with China. click on the blue font to enter the hyperlink to view the full text.
Vietnam Economy: The Young Eagle Spreads Its Wings—Vietnam Economic Observation Series One
The Transfer and Enlightenment of Labor-Intensive Industries—Vietnam Economic Observation Series Two
China-Vietnam Export Comparison: Real Outflow or False Substitution? ——Vietnam Economic Observation Series 3
Vietnam’s Economy: The Young Eagle Spreads Its Wings ——Vietnam Economic Observation Series 1
Since the implementation of the reform and opening up (Doi Moi) in 1986, riding on the tide of globalization, Vietnam has successfully transformed from the poorest country in the world to one of the poorest in the world. One of the countries moving towards a middle-income country. Vietnam's development process has inevitably been significantly influenced by China, and its policies have also followed China's reform path step by step. Therefore, some foreign voices believe that Vietnam may become a supplement or substitute for China's manufacturing industry to a certain extent. This report is the first in our "Vietnam Economic Observation" series. It mainly reviews Vietnam's economic development process, analyzes Vietnam's current economic structure, and compares it with China.
From 1975 to 1986, Vietnam was in the ten-year exploration period of socialist construction . mainly imitated the Soviet model , concentrated on the development of heavy industry, and was committed to socialist transformation of the south and the abolition of market-based prices. Mechanism , the nationalization of trade and private enterprises has led to an increase in economic structural imbalances and is on the verge of a political and economic crisis.
The Sixth National Congress of the Communist Party of Vietnam in 1986 became a strategic turning point in Vietnam's economic policy, marking Vietnam's entry into a new period of reform and opening up. agriculture has implemented household responsibility for production, and Vietnam has become an important grain exporter. In terms of industry, the important role of multiple ownership structures is recognized, priority is given to the development of modern industrial sectors, and key industries are continuously adjusted according to the stage of economic development. Vietnam's economy has taken off, with an average annual growth rate of 7.6% between 1991 and 2007.
In 2007, Vietnam officially joined WTO, opening up to the outside world was further expanded, and exports became Vietnam's most important growth driver. The private sector continues to develop. Solid fundamentals and rapidly growing trade cushioned the impact of the global financial crisis. These have helped Vietnam maintain rapid growth in the second decade of the 21st century.
Since the COVID-19 epidemic in 2020, Vietnam's economy has performed steadily, and the current social and economic blockade has been lifted. During the epidemic, the Vietnamese government introduced multiple rounds of stimulus policies to mitigate the impact. In terms of monetary policy, the Bank of Vietnam maintained interest rates at a low of 2.5% in 2021 after three rounds of interest rate cuts in 2020. In terms of fiscal policy, the government has launched two rounds of fiscal stimulus packages from 2020 to 2021, totaling 280 trillion Vietnamese dong, to expand public expenditures, postpone and cut taxes, and reduce administrative expenses.
Vietnam’s capital market has performed well in recent years. The Ho Chi Minh Index rose by 55% from 2020 to 2021, and the Hanoi Index rose by 360%, becoming the best-performing Asia-Pacific economy during the epidemic. The rise in stock prices is mainly due to solid fundamentals, easy monetary policy, and attractive market valuations. Since the outbreak of the Russia-Ukraine conflict, Vietnam's stock and bond markets have fallen under the impact of capital outflows and market sentiment.
Vietnam's development experience is highly consistent with China's reform and opening up, but as a small open economy, it is difficult to replace China's position in the global value chain. Compared with China, Vietnam is mainly concentrated in the mid-stream and downstream parts with low added value. Its infrastructure is relatively weak, its economic scale and market depth are limited, and it is vulnerable to external shocks. In the long run, it will be more complementary than competitive with my country. relation.
The transfer and enlightenment of labor-intensive industries - Vietnam Economic Observation Series 2
Since the industrial revolution , labor-intensive industries represented by textiles and clothing have experienced five migrations. (1) From the second half of the 19th century to the beginning of the 20th century, the first industrial revolution , inventions such as the spinning machine, steam engine helped Britain become the world's manufacturing center. Then the first industrial revolution spread to the European continent, and Germany began to replace Britain as the world's manufacturing center. (2) From the 1930s to the 1950s, the second industrial revolution emerged in the United States. The United States replaced Germany as the global manufacturing center. With the end of World War II, some labor-intensive industries were transferred to Japan and Germany. (3) From the 1950s to the 1970s, Japan experienced rapid development and economic recovery; in the late 1970s, textile and other processing industries moved to regions with rich human resources and low costs. (4) From the 1970s to the 1990s, the Four Asian Tigers took over the transfer of industries and their economies took off; in the late 1990s, low-end manufacturing industries moved to developing countries (mainly China). (5) From the 1990s to the early 21st century (after the financial crisis), with China's reform and opening up, economic development, labor costs rising, labor-intensive industries shifted again; in 2010, Vietnam replaced China and became the world's largest producer of Nike. country, marking the initial formation of the fifth transfer.
There are many factors that affect industrial relocation, mainly due to changes in market, cost, technology, policy and other factors, which in turn trigger industry relocation. Labor costs are an important factor in the relocation of the textile and apparel industry.
In 2009, after thirty years of my country's reform and opening up, residents' income has increased significantly. Domestic labor-intensive industries have begun to face the problem of rising labor costs. Some textile and garment industries have begun to move to Southeast Asia and other countries with lower labor costs. In 2010, Vietnam surpassed China to become Nike's largest OEM in the world. In 2014, my country's total textile and apparel exports reached a stage peak, and then the total textile and apparel exports began to decline.
my country's textile and apparel industry has moved up the smile curve, extending to raw material production and brand sales, and the textile and apparel industry chain has been transformed and upgraded. The total export volume and proportion of my country's textile yarns and products have continued to rise, from 33% in 2006 to more than 50% in 2020, with total exports exceeding US$150 billion. At the same time, the textile and garment industries of China and Vietnam are increasingly closely connected. Vietnam's textile and garment industry still relies heavily on my country for raw material imports.
With the signing of RCEP, the trade scale and advantages brought about by the complementary industries between China and Vietnam will be further enhanced. Vietnam is also actively promoting industrial upgrading, and the complementary relationship between China and Vietnam is still dominant in the short term. Domestic response to industrial transfer needs to focus mainly on the upgrading of industrial structure.
Risk warning: Policies exceed expectations, geopolitics exceeds expectations
Comparison of exports from China and Vietnam: Real outflow, or false substitution? ——Vietnam Economic Observation Series 3
1. Total export volume and structure: Vietnam has made partial efforts, and China has adjusted its total volume
In terms of total volume, the substitution relationship between China and Vietnam is not obvious. China has obvious advantages, Vietnam has the advantage in growth rate but has declined significantly in recent years, and both sides are showing signs of convergence. In terms of global share, Vietnam has not yet entered the stage of cannibalizing China. Both sides are sharing the global incremental cake. Especially in the sensitive period of 2018-2019, China's share is relatively stable compared to Vietnam.
In terms of structure, China takes the initiative to adjust and Vietnam responds passively. In the context of the reshaping of the global trade pattern, China has an obvious trend of diversification, reducing its exports to the United States and increasing its connections with Europe and Africa. Vietnam has seized the opportunity of reduced orders from the United States to China. Exports to the United States are the main way for its trade growth. The shrinking share of other regions such as Europe shows that it does not have the competitiveness to compete with China in the global market.It is probably no coincidence that China’s exports to Vietnam increased significantly during the same period.
In terms of industry, the biggest driver of Vietnam's exports is not clothing, but electronic products. Domestically, the country is relatively diversified, with chemicals, machinery, and electronics standing on top of each other.
After the epidemic, China's exports surged, but there was no obvious run on Vietnam. On the one hand, electronic products, Vietnam's dominant sector, are still driving overall trade; on the other hand, although China has resumed exports to the United States, the upward trend of Vietnam's trade with the United States has not been affected.
2. Order transfer: Vietnam attracts foreign investment, and Chinese enterprises layout
Vietnam’s advantages include low labor costs, active coordination of regional arrangements, and benefits from the reshaping of trade patterns. Famous examples of transfer include Nike and Samsung . Currently, Nike has nearly Half of the production capacity is in Vietnam, and almost all Samsung mobile phone factories have been relocated.
Vietnam is attracting a large amount of overseas investment, including the proactive layout of Chinese companies. Clothing and shoe industry giants such as Nike, Uniqlo , Hasbro , Jiansheng, and Intel , Google , Samsung, Sharp and other chip mobile phone technology companies have invested in building factories in Vietnam. It is worth noting that many well-known Chinese companies, such as Goertek, Luxshare Precision, Lutai Textile, etc., have also invested heavily in production capacity layout in Vietnam.
3. Substitution is not the core contradiction in the short term, but the decline in external demand is the systemic risk
Since this year, Vietnam has relaxed entry restrictions and disrupted the domestic supply chain, which is indeed beneficial to the acceptance of orders from Vietnam. However, Vietnam’s total volume and structure, as well as its industrial chain and supply chain, are difficult to pose a fundamental challenge to my country’s exports. The phenomenon of high growth in its electronic products and exports to the United States needs to be placed in the context of my country’s trade structure adjustment. observe.
On the contrary, the core risk for exports this year lies in the decline in global external demand rather than the outflow of orders. At present, the European and American economies have passed their high point. High inflation and collective tightening by central banks have further caused negative feedback on demand. External demand may drive the economy into a period of trough. The third article in the Vietnam research series analyzes the market concerns about the outflow of Chinese export orders and Vietnam's encroachment on China's share. We believe that the competitiveness of China's industrial chain and supply chain is still far greater than that of Vietnam. Orders are indeed flowing out, but this is more of a structural adjustment in the global trade pattern. Vietnam will be difficult to form a substantial substitute in the short term.
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