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Vietnam: Market Profile

Major Economic Indicators

Table: Major Economic Indicators
Table: Major Economic Indicators

Latest Development

  • Vietnam’s GDP growth rose 6.3% year-on-year (YoY) in the first half year of 2015, with expansion driven by the industry and service sectors, which grew 9.1% and 5.9% respectively.
  • Average consumer price inflation in Vietnam edged up by 0.8% during the first eight months of 2015. In line with the decline in international commodity prices, inflation is projected to decelerate to 2.5% in 2015.
  • Imports grew much faster than exports in the first half of 2015, resulting in a trade deficit of US$ 3.7 billion, with exports rising 9.3% to US$ 77.7 billion while imports surging by 17.7% at US$ 81.5 billion. 
  • Hong Kong’s exports to Vietnam went up by 21% YoY to US$5.5 billion in the first seven months of 2015, while imports increased by 31.2% YoY to US$ 3.5 billion during the same period.

Current Economic Situation

In the second quarter of 2015, Vietnam’s GDP increased by 6.4% YoY, slightly higher than the 6.1% growth in the first quarter of 2015. The IMF forecasts that the Vietnamese economy will grow at 6.0% in 2015, largely in line with the Vietnamese government’s GDP growth target of 6.2%. The country’s economic growth in recent years has been mostly driven by the service sector, Vietnam’s largest GDP contributor, which accounted for nearly 40% of its economy in the first half of 2015. During the same period, the agriculture, industry and services sectors registered respective growth rates of 2.4%, 9.1% and 5.9%.

Continuing the recent downtrend, Vietnam’s average consumer price inflation rate eased further to 0.8% in the first eight months of 2015, down sharply from the peak of 18.7% in 2011. Diminished pressure on Inflation reflects the impact of the government’s effort in credit tightening and the fall in international commodity prices. Following the subdued GDP growth and slower inflation in 2013, Vietnam is pursuing a more accommodative monetary policy to support economic growth. The State Bank of Vietnam (SBV) lowered its benchmark interest rate nine times between February 2012 and March 2014 before keeping the rate at current level of 6.5%.

The Vietnamese government has increased minimum wage in the past few years, resulting in a compound annual growth rate of 18% in between 2010 and 2015. In September 2015 minimum wage will be raised by 12.4% from January 2016, making the new rate at approximately US$ 155 per month in Hanoi and Ho Chi Minh City. According to the official Minimum Wage Adjustment Road Map to 2020, released by the Ministry of Labour, it was suggested that the minimum wage in 2020 will be around VND 4.8 million (US$213) in Region One covering Hanoi and Ho Chi Minh City.

In 2013, the Master Plan on Economic Restructuring in 2013-2020 was approved. The Plan focuses on the restructuring of public investment, banks, and state-owned enterprises (SOEs). Through full or partial privatisation, it aims to reduce the number of SOEs by about half to 690 by 2015, and then to 200 by 2020. Regarding the privatisation plans of 432 SOEs, a total of 143 SOEs were privatised in 2014, with another 289 SOEs privatisation plans due for completion by end-2015. One of the country’s largest mobile carriers, MobiFone, is expected to undergo privatisation in 2015, following Vietnam Airlines and Vietnam National Textile and Garment Group (Vinatex).

To accelerate the banking system restructuring, the Vietnamese government has allowed foreign investors to own a bigger share in local banks, in which the shareholding limit for foreign strategic investors has been lifted from 15% to 20% from 2014. In June 2015, it was announced that Vietnam will further loosen its restriction on foreign ownership in public companies by allowing foreign investors to increase their share holdings to 100% in most public Vietnamese companies, with the exception of a few sensitive industries such as banking and defense starting from September 2015.

In the wake of the anti-Chinese riots which damaged foreign-invested factories in May 2014, the Vietnamese government announced a series of remedial measures, including tax breaks and land rent exemption, to compensate the affected companies. It is reported that with security conditions enhanced in the industrial zones, firms have resumed operations. Foreign investors’ confidence, once badly affected, has gradually recovered with investors remaining positive on Vietnam’s business environment and economic potential.

External Trade

In the first half of 2015, there was a shift in Vietnam’s terms of trade, with imports exceeding exports for the first time in three years. Exports rose 9.3% YoY to US$77.7 billion while imports surged by 17.7% YoY at US$81.5 billion, resulting a trade deficit of US$3.7 billion. The surge in imports was mostly caused by the rise in demand of machinery and production equipment.
Exports of electronic items accounted for 28% of total merchandise exports in the first half of 2015. In particular, exports of telephones and components went up to US$14.7 billion, up 27% increase from same period in 2014, driven by the foreign-invested manufacturing sector. Vietnam’s top export markets in first sixth months of 2015 were the US, the EU, ASEAN, China, Japan and South Korea. 

Major imported items in first half of 2015 consisted of machinery, equipment and parts, and means of transport and components. A large part of its imported capital goods is related to assembling goods for export. China is the largest source of Vietnam’s imports, followed by South Korea, ASEAN, Japan, the EU and the US.

Foreign Direct Investment (FDI)

Vietnam’s impressive growth of exports is largely driven by FDI. According to the Ministry of Industry and Trade, the FDI sector accounted for 68% of Vietnam’s total exports and nearly all of its telephones, electronics and computers and components’ exports in 2014.

Vietnam attracted over 750 licensed FDI projects in first half of 2015 with a total registered investment capital of US$3.84 billion, a 21.0% drop from the similar period last year. South Korea was Vietnam’s largest FDI source in the same period, with a registered investment capital of US$1.1 billion, followed by Turkey, Virgin Islands and Hong Kong.

Table: Major sources of FDI
Table: Major sources of FDI

WTO Accession

Vietnam became a World Trade Organisation (WTO) member in 2007. While facing fewer restrictions and lower tariffs in export markets, Vietnamese manufacturers also benefit from the improving access to imports of cheaper raw materials and semi-processed inputs as Vietnam's import tariffs drop.

Upon its WTO accession, Vietnam was committed to bound tariff rates on most products ranging from zero to 50%, although tariffs on textiles, cars and motorbikes remain high, with certain sensitive products (such as eggs, tobacco, sugar and salt) subject to tariff quotas (higher duties for quantities exceeding the quotas).

Among other benefits, WTO accession allows Vietnam to take advantage of the phase-out of the Agreement on Textiles and Clothing, which eliminated quotas on textiles and clothing for WTO partners in 2005.

In 2009, Vietnam allowed foreign investors to operate 100% foreign-owned retail business as per its WTO commitments. Previously, foreign companies had to form joint ventures with local companies if they wanted to enter the retail market.

CAFTA Membership

The China-ASEAN Free Trade Area (CAFTA), formally established in 2010, is the world’s largest free trade area by population (1.9 billion), with a combined GDP of more than US$7.7 trillion and total trade of US$4.8 trillion. Under CAFTA, Vietnam will eliminate 90% of its tariff lines for goods traded with China by 2015, with the remaining 10%, which cover items on the sensitive list such as textiles, seeing their import tariffs lowered more slowly. Following a surge of 27.6% in 2014, bilateral trade between Vietnam and China grew by 16.9% to reach US$ 42.3 billion in the first half of 2015.

Trade Policy Development

Vietnam actively pursues regional economic integration through its ASEAN membership, in particular adopting measures in the lead up to the formal launch of the ASEAN Economic Community (AEC) by end-2015. It signed free trade agreements (FTAs) with the South Korea and the Eurasian Economic Union (EEU) in May 2015 and reached an FTA agreement with the EU in August 2015. Vietnam is among the four ASEAN member countries participating in negotiations of the Trans-Pacific Partnership (TPP), a proposed trade agreement among 12 Pacific Rim countries now in its final discussion stage.

Hong Kong's Trade with Vietnam

In the first seven months of 2015, Vietnam was the 5th largest export market for Hong Kong. Hong Kong’s total exports to Vietnam grew by 21.0% YoY to US$5.5 billion. Major export items included telecom equipment & parts (17.0% share), other meat & edible meat offal (fresh, chilled or frozen) (14.6%) and knitted or crocheted fabrics (6.0%).

Hong Kong’s imports from Vietnam gained 31.2% YoY to US$3.5 billion in the same period. Major import items included telecom equipment & parts (32.9% share), semi-conductors, electronic valves & tubes, etc (30.4%) and footwear (4.0%).

Table: Hong Kong Trade with Vietnam
Table: Hong Kong Trade with Vietnam

Vietnam’s involvement in Hong Kong

Vietnamese residents in Hong Kong reached 5,521 as at July 2015, according to Immigration Department of Hong Kong. In addition, Vietnamese visitors to Hong Kong totalled 28,489 in the first six months of 2015, decreased by 8.5% YoY.

Content provided by Picture: Winnie Tsui