Vietnam - The Rising Star of Southeast Asia

Vietnam is a member of UN, ASEAN, APEC, and WTO. According to the Asian Development Bank (ADB), Vietnam’s economy has shown strong growth in 2019, as a result of high domestic demand, a strong manufacturing and processing industry, and high Foreign Direct Investment.

The second outbreak of COVID-19 in March 2020 started a new phase in the fight against the pandemic, severely affecting all of Vietnam’s major trading and investment partners. As a result, Vietnam’s GDP fell to 3.8 percent in the first quarter of 2020 compared to 6.8 percent in the same period in 2019 as per the General Statistics Office of Vietnam (GSO). ADB’s prediction of Vietnam GDP Growth in 2020 is still one of the fastest-growing economies in Southeast Asia, despite the impact of COVID-19.

 

ADB’s Asian Development Outlook 2020 Report published on April 3, 2020

Decoupling of supply chains away from China

In 2019, Vietnam exported almost $47 billion more than it imported from the US. Vietnamese exports to the US have rapidly risen in recent years precisely because of the trade war, which has prompted factories and supply chains to relocate from China to Vietnam because of its better trade privileges with the US.

 

US President Donald Trump listens to Vietnam’s Prime Minister Nguyen Xuan Phuc at the G20 summit in Osaka, Japan, June 28, 2019. Photo: Iliya Pitalev/Sputnik

The “decoupling” of supply chains away from China was one of the latent intentions of the trade war. Indeed, major multinationals like Apple, Nintendo and Google partially relocated their operations from China to Vietnam last year.

 

New Data Shows U.S. Companies Are Definitely Leaving China (Forbes | 04-07)

 

In the first 11 months of 2019, Vietnam’s electronics exports to the US rose 76% as a direct result of tariff pressure put on Chinese-made goods. Even the pandemic hit in January 2020, forecasts suggested that Vietnam’s economic growth would be higher in 2020 than 2019 because of a steady uptick of production relocations from China (Source: Asia Times by David Hutt – October 1, 2020).

 

Strengthening strategic relationship globally

Other countries such as Japan has paid a big part in encouraging this supply chain shift. The Japan government has set aside more than US$2 billion in its coronavirus recovery package to help firms shift production out of China. Some industry giants and rising companies are interested to expand their manufacturing and business operations, and pick Vietnam as a ready alternative.

In addition, the upcoming EU-Vietnam FTA (EVFTA) will also bring further opportunities for both sides to expand their economic development.

 

An employee counts Vietnamese banknote at a branch of Vietinbank in Hanoi. Photo: Twitter

 

Government’s efforts to bolster business activities and infrastructure development

Under the pandemic, there was a forecast made by the World Bank in July that Vietnam’s GDP is likely to grow by just 1.5% this year, compared to around 7% mark in previous years. The government launched a US$10.8 billion credit support package in March 2020 to combat the crisis. Vietnam is one of the first in the region to lift social isolation measures and reopen the economy, allow businesses to resume.

In the meantime, the government plays an important role in the infrastructure system development with a strong project pipeline in public services, roads, rails, bridges, and urban transportation such as MRT. Empirical studies show that Vietnam will need an investment of approximately $38 billion per annum for various socio-economic infrastructure projects.

The government’s infrastructure investment at key economic and industrial zones such as Ho Chi Minh City, Hanoi and the northern port city of Hai Phong has helped to modernize the country and to contribute the social mobility. More recent private forecasts therefore put growth potentially higher at 4% in 2020, one of the few positive-growth forecasts in the region.

 

A clothing boutique in downtown Hanoi. Photo: AFP/Hoang Dinh Nam

 

Conclusion

Vietnam is seen as one of the few winners of the US-China trade war and is the first country to rebound after the COVID-19 pandemic, with investment potential ahead of other Asian cities. With Vietnam’s strong market fundamentals such as the significant domestic consumption, strong manufacturing and processing industry, and high Foreign Direct Investment, the economy is raring to go impressively. According to the ADB, the economy is expected to rebound at a growth rate of 6.8 percent in 2021 with continued strong growth.

 

Vietnam’s economic growth from 4.8 percent in 2020 to 6.8 percent in 2021, according to ADB’s Asian Development Outlook 2020 Report published on April 3, 2020