Trade deficit rate may increase in Vietnam

The Vietnam trade balance in the first eight months of 2018 showed a surplus of $2.8 billion. Yet, if counted only the export turnover in August, there is a trade deficit of nearly $100 million, which is a worrisome warning.

The textile industry is going to import material at the end of the year. Photo by Cao Thang
The textile industry is going to import material at the end of the year. Photo by Cao Thang

An increase of material import

According to the General Statistics Office of Vietnam, in the first 8 months of 2018, the export turnover reached $155.41 billion, a rise of 14.5 percent compared to this time last year. The one of this August was around $20.9 billion, an increase of 2.9 percent in comparison with the previous month.

The import value of the first 8 month of this year was approximately $152.6 billion, a growth of 11.6 percent compared to this time last year. That of this August was $21 billion, a rise of 0.2 percent in comparison with the previous month.

Reports from Ho Chi Minh City (HCMC) has also displayed a serious trade deficit. Particularly, the total import value of the city in August was about $24.66 billion, a growth of 6 percent against this time last year. Except for raw oil, the export turnover of the city was $22.97 billion, an increase of 16.2 percent in comparison with 12.9 percent of last year, while the import value was $30.68 billion in the first 8 months, a rise of 9.6 percent compared to this time last year.

The signal of a trade deficit was clearer when the export turnover kept stable and then reduced from the first quarter of 2018. In particular, the export development rate started at a very high level of 22 percent in the first quarter. But it then decreased to 19 percent and under 16 percent in April and the end of the second quarter, respectively. Until the end of July, the export development rate remained steady at around 15 percent.

According to Mr. Pham Xuan Hong, Chairman of the HCMC Textile and Garment - Embroidery Association, the trade deficit came back, especially strongly in August, because this is the usual time when many businesses begin their material import to prepare for next year’s manufacturing season. It is not at all an abnormal situation, but a regular need of enterprises in order to minimize potential risks of price instability while ensuring to fulfill production goals of the following year after a long Tet holiday.

He demonstrated the data of the key export products which witnessed a turnover increase in August, including oil, phones and their parts, chemicals, rubber, all having a rise of 41.5 percent, 13.9 percent, 13.1 percent, and 8.1 percent, accordingly. In contrast, certain key import products that experienced a strong growth were material to manufacture phones and their parts, rubber, textile, fertilizer, and automobiles, with an increase of 35.3 percent, 14.8 percent, 12.5 percent, 11.1 percent, and 10.3 percent, respectively.

A solution for more active material supply

Nevertheless, economic experts worry that the trade war between the USA and China has somehow affected the export development rate of Vietnam.

At the moment, China is the largest export market of Vietnam regarding produce, marine products. However, this market has been quite gloomy lately. Many businesses concern that the deadlock in trade discussion between the two above countries might increase the value of the US dollar, which means a price rise of various kinds of merchandise. This in turn temporarily halt commercial activities of those enterprises.

Meanwhile, the pressure of a tax rise on Chinese imported goods also leads to bankruptcy of several Chinese businesses, especially the middle- and small-scale ones, resulting in a dip of demand to import manufacturing material from Vietnam.

The Department of Import and Export Control (under the Ministry of Industry and Trade) said that until the end of August 2018, the export status of produce as well as marine products to not only the Chinese but also the USA, European, Australian markets experienced a reduction on both quantity and value. Particularly, the export of marine products reached 1.282 million tonne with a value of $5.526 billion, a decrease of 1.1 percent on quantity. The figures of August were 177.7 tonne and $800 million, a drop of 10.2 percent on quantity and 4.2 percent on value compared to this time last year. The most troublesome was shrimp.

It is worth mentioning that the export development rate largely depends on activities of enterprises with foreign investment, especially Samsung Corporation. Therefore, this rate is not sustainable.

This is clearly displayed when Samsung increased its export turnover of smart phones in the first quarter of 2018, leading to a significant growth of the national export turnover as well. Yet, in the next two quarters, when Samsung focused more on importing parts for manufacturing activities, that rate saw a decrease.

Mr. Pham Xuan Hong affirmed that to reduce the risk of trade deficit and increase the stability of the national export turnover, it is high time that businesses actively seek domestic material suppliers. Simultaneously, related ministries and agencies when attracting foreign investment should put more effort on material and accessories manufacturing industries in order to meet the demands of the key industries of Vietnam. There must also be an effective supporting policy to improve the ability of enterprises in these fields so that they can enter the global supply chain of businesses with foreign investment successfully.