Trade deficit-exchange rate formidable problem

According to the Vietnam General Statistics Office (GSO), trade deficit escalated to US$3 billion in the first four months this year, a three year record high. Especially, the trade gap from China approximated US$10.7 billion.

Refrigeration appliances are imported in large volume to Vietnam from China (Photo: SGGP)

The State Bank of Vietnam has recently lifted the foreign exchange rate between the Vietnamese dong and US dollar, which is said to limit the trade deficit. However experts said it unlikely to work much because the foreign exchange rate is just a part of the problem.

In the first four months, export turnover reached US$50.1 billion, up 8.2 percent over the same period last year. Meantime, import turnover hit US$53.1 billion, up 19.9 percent, creating a trade deficit of US$3 billion. Vietnam enjoyed a trade surplus of US$0.68 billion in the same period last year.

Imports from China continued surging to touch US$15.6 billion, a year on year rise of 26 percent while exports to this market brought only US$4.9 billion, down 1.2 percent. Trade gap from this neighbor reached US$10.7 billion accounting for 37 percent of that last year.

The trade deficit has been mounting for the last few years. It was US$11.6 billion, US$13.8 billion, US$16.7 billion and US$23.7 billion in 2010-2013. The number hit a record high of US$29 billion last year.

The most imported items from China have been machines, equipment, chemicals, materials for industry and electronics. Meantime Vietnam has just exported some primarily processed farm produce.

Vietnam has mainly supplied China with materials and raw farm produce while China has exported industrial products of low-medium technologies in large volume to Vietnam, said Dr. Tran Dinh Thien, head of Vietnam Economics Institute.

Exchange rate increase

The State Bank of Vietnam (SBV) on May 7 lifted the interbank foreign exchange rate between the Vietnamese dong and US dollar by 1 percent to reach VND21,673 per dollar.

It was the second change this year making the dong devaluate 2 percent against the greenback, meaning SBV has no more room left to increase the foreign exchange rate from now until the end of this year.

Ban Viet Security Company said that the exchange rate hike this time together with the previous in January aimed to increase competitiveness for export commodities of Vietnam.

Ho Chi Minh City Security Company said increasing trade deficit seemed to be the main drive for the exchange rate adjustment.

An unnamed financial expert said that in theory, foreign trade was usually affected by currency valuation. Many countries devalue their moneys when they want to boost exports and reduce imports.

When a currency loses value, the competitiveness of locally made goods will increase because of lower costs. However it will lessen for imported items because of high import price.

This expert said that some studies have showed that the dong devaluation positively affect exports.

Hard to solve problem

This expert said that the trade deficit was partly affected by the real exchange rate (RER) between the Vietnamese dong and Chinese Renminbi. Still it is not too much. Difference in the competitiveness of commodities from the two countries is the main cause.
This fact shows that the trade shortfall from China is too large and unable to be solved by the exchange rate adjustment. However SBV can not help paying attention to the trade deficit from China in the rate’s management.

At present, SBV seems to be confident in keeping the exchange rate between the dong and the dollar not fluctuate more than 2 percent this year because official statistics showed that Vietnam gained a surplus in the balance of trade and the balance of payments for the last three years.

However it is wondered if data provided by GOS is correct because of wide difference between trade deficit data of China and Vietnam.

The Vietnam Economics Institution has recently said that according to the National Bureau of Statistics of China, trade deficit of Vietnam from China was US$43.8 billion last year, US$20 billion higher the number provided by Vietnam’s GSO.

The bureau’s website also showed big differences in data of 2013. Specifically, China’s export and import turnover to Vietnam were US$48 billion and US$16.89 billion while the GOS announced them at only US$38 billion and 17.34 billion.

Dr. Le Xuan Nghia said the issue was because China counted the small-value trade of goods across the border of the two countries and smuggling also.

Besides geographic factor, many Vietnamese businesses are just affordable for low-cost materials from the neighboring nation. They then produce low-cost products for exports to easy markets.

In addition, Chinese contractors have somehow won bids of most investment projects in Vietnam such as production plants and infrastructure works. This has permitted Chinese machines and commodities to enter Vietnam easily. The border-across smuggling is also a headache issue without any effective measure to deal with it.

Reducing Vietnam’s trade deficit requires a long term overall project comprising technology, management and other factors. Therefore, Vietnam is unlikely to get the target soon.

By Xuan Anh – Translated by Hai Mien

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