INTRODUCTION
The necessity of the research
Economic integration is an essential and prevalent trend across all sectors today Vietnam's developing economy has embraced this shift, leading to significant achievements This integration is viewed as a strategic direction that plays a crucial role in enhancing Vietnam's standing in the global arena.
The economic development driven by integration has led to significant trade interdependence, where both exports and imports play a crucial role in GDP growth A persistent trade deficit can jeopardize national financial security, while a trade surplus not rooted in genuine domestic economic efforts raises concerns as well This duality has characterized Vietnam's trade balance since 1986, highlighting the need for greater attention to this issue Consequently, I have dedicated my time and enthusiasm to examining Vietnam's trade balance and am eager to propose suggestions aimed at fostering the sustainability of the country's trade surplus.
Objectives of study
This article evaluates Vietnam's trade balance from 1986 to the present, with a detailed analysis of the period between 2007 and 2014 It also explores future prospects and offers practical recommendations to achieve a sustainable trade surplus for Vietnam.
Research questions
Three significant questions were drawn to answer in this writing They include
1 How is the situation of Vietnam balance of trade at the present?
2 What is the future of Vietnam trade balance?
3 Which are solutions for a sustainable trade balance of Vietnam
Research Methodologies
For my study, I gathered primary and secondary information through personal knowledge and evaluation, utilizing data, statistics, and theoretical frameworks from a variety of reliable sources This comprehensive approach enabled me to conduct both qualitative and quantitative analyses to draw meaningful conclusions for my thesis.
Scope and Focus
This research examines Vietnam's current trade balance and its historical trends, offering insights into the future outlook of the country's trade dynamics Additionally, it proposes strategic solutions to ensure the sustainability of Vietnam's trade balance moving forward.
Structure of the thesis
The main content of the paper is organized as following:
Chapter II, “Literature review”, mentions the concepts related to balance of trade and factors influencing it to provide general knowledge of this issue
Chapter III, “The situation of Vietnam trade balance”, is to provide detailed data and analysis of the current situation of Vietnam balance of trade, then forecast the future trend
Chapter IV, “Solutions for Vietnam sustainable surplus trade balance” suggests solutions for the improvement of Vietnam trade surplus
LITERATURE REVIEW
The concept of balance of trade
As we know, the balance of trade plays a crucial role in all economies in the world
The balance of trade refers to the difference between a country's exports and imports, playing a crucial role in the balance of payments It is a key component of the current account, which records all transactions related to trade in goods and services Understanding the balance of trade is essential for assessing a nation's economic health, as it directly impacts currency valuation and international relations By analyzing imports and exports, one can gain insights into a country's economic performance and trade policies.
The balance of payments (BOP) is a comprehensive system that records all economic transactions between a nation's residents and the rest of the world over a specific period, typically a month, quarter, or year It encompasses transactions by individuals, companies, and government entities, reflecting the country's current demand and supply of foreign currency claims BOP includes debit items such as imports, foreign aid, domestic spending abroad, and investments made overseas, which represent claims by foreigners on residents Conversely, credit items consist of exports, foreign spending within the domestic economy, and foreign investments in the country, indicating claims by residents on foreigners The BOP is structured into key components: the current account, the capital account, net errors and omissions, and the official financing balance, with the balance of trade being a crucial element of the current account.
The current account reflects the transactions of goods, services, and financial transfers between two nations, serving as a key indicator of a country's economic health It represents the difference between national savings and investments and encompasses the balance of trade, net income from abroad, and net current transfers.
Imports refer to goods and services produced outside a country and acquired by its domestic market, encompassing both physical products shipped from abroad and services purchased by residents while traveling internationally Together with exports, imports are fundamental to foreign trade, representing the exchange of goods and services between citizens of different nations.
Exports involve selling goods to foreign countries, including products sent from a Vietnamese company's headquarters to its overseas offices Domestic producers and their employees often welcome the opportunity to sell internationally, as it increases the number of buyers, raises prices, and boosts profits However, this higher pricing can negatively impact domestic consumers.
The Balance of Trade (BOT) measures the difference between a country's exports and imports of goods and services It is an essential component of the current account, often referred to as trade balance Nations typically maintain two separate balances of trade: one for goods and another for services, reflecting their overall economic performance in international trade.
The trade balance, which includes the merchandise trade balance and services, is a crucial indicator of a country's economic health It significantly impacts the overall balance of payments, highlighting the importance of trade in a nation's financial stability.
Positions of BOT
The Balance of Trade (BOT) consists of debit items such as imports, foreign aid, and domestic spending abroad, alongside credit items like exports, foreign spending in the domestic economy, and foreign investments A balanced BOT occurs when total debits equal total credits A surplus arises when total credits exceed total debits, indicating a favorable BOT, while a deficit occurs when debits surpass credits Additionally, a deficit in BOT correlates with negative net exports or trade surplus, commonly referred to as a trade deficit.
The evaluation of a nation's trade deficit or surplus is influenced by its business cycle position, the duration of the trade imbalance, and the fundamental reasons driving this situation.
Many countries aim to achieve a trade surplus, viewing it as a favorable balance of trade (BOT) that indicates profitability When exports exceed imports, it suggests that the country generates higher income and capital influx into its economy This scenario often stems from domestic production outpacing international competition, leading to increased hiring by local manufacturers, which in turn reduces unemployment and boosts overall economic income.
While a trade deficit is often perceived as a negative balance of trade (BOT), it can be advantageous under certain conditions, such as in Hong Kong, where a significant portion of imports are re-exported Additionally, negative net exports allow residents to access a broader range of goods and services at competitive prices, thereby enhancing their living standards However, when a country imports significantly more finished consumer products than it exports raw materials, it can harm domestic consumer goods industries by limiting their growth and potential for producing higher value-added products Furthermore, an over-reliance on exporting raw materials can lead to the depletion of natural resources and increased vulnerability to fluctuations in international commodity prices.
A trade surplus is not always advantageous, as evidenced by China and Japan's reliance on exports for economic growth To sustain positive net exports, these nations must keep their currencies undervalued, which they achieve by consistently purchasing U.S Treasuries to support a high value of the USD.
Factors affecting the balance of trade
Numerous factors significantly influence BOT, both directly and indirectly, often interacting with one another, which complicates the task of identifying the most impactful elements.
Exports and imports are two only components of BOT Therefore, if they experience changes, that BOT fluctuates is inevitable
As GDP rises, imports tend to increase, often at an even higher rate, influenced by the Marginal Propensity to Import (MPM) MPM, as defined by Keynesian macroeconomic theory, measures how much imports change in response to income fluctuations.
The Marginal Propensity to Import (MPM) demonstrates how imports fluctuate with changes in disposable income; for instance, an MPM of 0.4 indicates that a $1 increase in income results in a $0.4 rise in imports Typically, MPM is positive, reflecting that a portion of consumer spending is directed towards imported goods and services Additionally, the volume of imports is influenced by the relative pricing of domestic versus foreign products; when domestic prices rise while international prices remain stable, imports are likely to increase, and the opposite holds true as well.
An instance to take into consideration is all international markets import
7 increasingly Chinese products due to their relative lower price in comparison with those of domestic goods
The value of a country's exports is primarily influenced by the conditions and characteristics of external markets, as exports from one nation serve as imports for others This means that the export value is significantly affected by the production levels and national income of trade partners While many economic models treat exports as fixed under specific circumstances, it's important to recognize that exports also rely on domestic factors, including manufacturing costs, product quality, and design.
The foreign exchange rate represents the cost in VND for Vietnamese residents to acquire a unit of foreign currency, influenced by the dynamic interplay of supply and demand for currencies Just as product prices fluctuate based on market demand, the value of money shifts in response to changes in foreign currency demand, reflecting the ever-changing landscape of the currency market.
The foreign exchange rate significantly influences economies by affecting the relative prices of domestically produced goods in the global market When a domestic currency appreciates, imports become cheaper while exports become more expensive for foreign buyers, potentially harming the competitiveness of exporters and leading to a decrease in net exports Conversely, a devalued domestic currency benefits exporters by making their goods more affordable abroad, while increasing costs for importers, which can result in a rise in net exports.
Inflation, as defined by Karl Marx, occurs when the supply of paper currency surpasses real economic demand, leading to a decline in currency value over time This results in decreased purchasing power and a loss of real value in the economy's medium of exchange When inflation rates in one country exceed those of its trade partners, it causes an increase in input material prices, raising production costs and making exports less competitive in the international market Consequently, this rise in domestic prices also incentivizes import activities, further impacting the balance of trade.
High inflation reduces the purchasing power of money, leading residents to buy fewer goods and services with the same amount of money This decline in purchasing power contributes to increased consumer spending and a decrease in national savings According to macroeconomic theory in an open economy, national savings can be represented by a specific formula.
EX – IM: BOT or net exports
The relationship between the balance of trade (BOT) and national savings is evident, as a decline in national savings directly impacts BOT negatively Additionally, a sharp increase in the inflation rate adversely affects economic growth, particularly through aggressive supply challenges.
Trade policies consist of principles and measures implemented by a government to regulate its foreign economic activities These policies are generally categorized into two main types: protectionism, which aims to shield domestic industries from foreign competition, and liberalization, which promotes free trade and open markets.
Trade protectionism policies aim to control imports, support domestic production, and improve the balance of trade (BOT) Governments typically implement these measures by imposing taxes on imported goods or limiting the quantity of items allowed for customs clearance, which helps reduce trade deficits However, in a floating exchange rate system, such policies can lead to an appreciation of the national currency, as reduced imports create excess demand for goods, increasing general price levels and money demand This appreciation can subsequently decrease the value of exports Conversely, in a fixed exchange rate system, these protectionist measures may prompt the central bank to increase the money supply to manage excess demand for money and maintain the fixed exchange rate, resulting in heightened demand and income levels.
Rising imports can hinder the goal of improving the Balance of Trade (BOT), as the implementation of trade protectionism measures may provoke retaliatory actions from trading partners, such as imposing taxes and quotas on exports This can lead to a decline in both exports and imports, adversely impacting economic production and consumption Additionally, protectionist policies may weaken the international competitiveness of domestic manufacturers, posing a long-term risk to the economy.
Liberalization policies are increasingly popular as they enable nations to specialize in producing efficient products, reduce costs, and offer a diverse range of goods Unlike protectionism, trade liberalization focuses on gradually eliminating trade barriers, which enhances the volume of exports and imports through the free exchange of goods among countries.
3.5 Political and economic situation in the country and in the world
The political stability is the solid and fundamental base for economic development
A politically stable nation typically implements consistent long-term policies that promote growth across all economic sectors, serving as a foundation for fostering economic ties and attracting trade partners from other countries Additionally, in an open and integrative environment, an effective foreign policy acts as a crucial factor for the development of various other elements.
Globalization has intensified the interdependence of economies, making the repercussions of economic crises more pronounced and concerning The recent financial crisis impacted various business sectors globally, pushing nearly all markets into depression, resulting in a significant decline in global demand for goods and obstructing trade activities.
THE SITUATION OF VIETNAM TRADE BALANCE
Review of the period 1986 - 2006
In 1986, Vietnam transitioned from a centrally planned economy to a market economy, implementing long-term economic policies that significantly expanded its export-import market and trade partnerships This shift has led to remarkable improvements in market share, as well as an increase in the number of exporters, importers, and trade partners Over the past two decades, Vietnam has achieved substantial progress in the volume, growth rate, and diversity of its exports and imports.
Table 1 - Development indicators of exporting and importing through periods
Export value in comparison with total turnover (%)
Export value in comparison with GDP (%)
Import value in comparison with total turnover (%)
Import value in comparison with GDP (%)
The table illustrates the total volume of merchandise trade and the annual average growth rate of Vietnam's export and import values, measured in millions of USD, over a five-year period from 1986 to 2005.
From 1986 to 2006, the export sector experienced an impressive annual growth rate of 21.66%, with export value skyrocketing from 789 million USD in 1986 to 39,826 million USD in 2006—a staggering 50-fold increase The share of export value in total turnover increased steadily from 35.7% to 46% During the period from 1986 to 1990, the average annual export value was 1.4 billion USD, which surged by 1600% to significantly higher levels from 2001 to 2005 Additionally, the export value as a percentage of GDP nearly doubled in this timeframe, reaching approximately 55%, a notable figure compared to other countries during that era.
Over the past five years, the export portfolio has shifted from a heavy reliance on crude and primarily processed goods to a focus on highly sophisticated processed products In 1990-1995, crude goods made up 74.6% of exports due to limited competitiveness in product sales This percentage decreased to 54.8% from 1996-2000 and further declined to 45.3% in the period of 2001-2005.
Between 1986 and 2006, Vietnam experienced a remarkable 21-fold increase in import value, with an impressive annual growth rate of 16.4% Throughout this period, import value consistently rose in relation to GDP, averaging 50.9% This growth reflects the expansion of both Vietnamese import markets and trading partners, as government management of imports was effectively aligned with the actual demand for domestic consumption and production.
Table 2 - Imports by commodity composition in State Plan (%)
During this period, the import portfolio shifted significantly, with an increase in production materials and a decrease in consumption goods Notably, the share of consumption goods in the total import value fell dramatically from 12.7% in 1986 to just 6.4%.
In 2006, the Vietnamese government implemented strict controls on certain imports, while simultaneously increasing the importation of capital and intermediate goods This shift aimed to replace outdated equipment with modern, efficient technology from advanced countries, which was essential for the growth and productivity enhancement of Vietnamese industries.
It is noticeable that from 1986 to 2006, Vietnam continuously recorded a trade deficit (only 1992 saw a extremely small surplus BOT) During the period between
Between 1986 and 1995, the trade surplus was a modest 5.6 billion USD, with a particularly low trade deficit from 1989 to 1991 attributed to a surge in oil exports, resulting in a trade surplus in 1992 However, the following periods saw a substantial increase in trade deficits, with the balance of trade from 2001 to 2005 reaching -9.8 billion USD, which was double the deficit recorded from 1996 to 2000 and four times greater than previous figures.
Between 1986 and 1995, Vietnam began to open its economy to foreign investors, leading to a significant increase in import value despite still having a relatively small export volume The surge in foreign direct investment projects licensed during this period resulted in a dramatic rise in annual registered capital, particularly between 1999 and 2002, which was 3.6 times higher than the figures from the previous years.
The situation of the period 2007 - 2011
In 2007, Vietnam's accession to the WTO marked a pivotal moment for its economy, transforming it from a nation reliant on aid and food imports to one of the top five global exporters of rice, pepper, coffee beans, cashews, and rubber This growth solidified Vietnam's status as a leading agricultural exporter, with bilateral trade relations expanding from 181 to 230 countries and territories By 2011, nine countries, including the USA, Germany, and Singapore, imported over $1 billion worth of Vietnamese goods Vietnam emerged as a net exporter to 159 nations, particularly in advanced technology markets, while primarily importing from 47 countries, including Korea and China, indicating a trend of net imports in nearby markets and net exports in more distant ones.
As Ministry of Industry and Trade stated, in 2011 there have been more than 45,000 Vietnamese businesses operating in direct export and direct import, approximately
Since 1986, the number of export items has surged from just four basic categories—crude oil, seafood, rice, and textiles—to over 40 diverse groups, reflecting a significant increase of 1,200 times The implementation of protectionist policies, coupled with the elimination of foreign trade monopolies, has enabled businesses across all economic sectors to participate in exporting activities.
During the analyzed period, Vietnam achieved an impressive annual export value growth rate of 14.8% Even amidst the international financial crisis, when many countries faced a decline of 20 to 30% in export values, Vietnam's exports only decreased by 9 to 10%.
In 2008, Vietnam's total export value increased by 29.1% compared to 2007, reaching 62.7%, according to GSO data The share of light industrial goods and handicrafts, along with agricultural and forest products, saw a slight rise of 2%, while the proportion of heavy industrial products and minerals decreased from 34% to 31% Overall, the total export value for nearly all products rose in 2008 due to the increase in international market prices.
In 2009, Vietnam experienced an 8.9% decline in total export value compared to 2008, despite a 10% increase in export volume across all items This paradoxical situation was primarily attributed to a significant 40% drop in international price levels, which resulted in a loss of approximately 4 billion USD for the country.
In 2010, Vietnam experienced a significant economic transition from recession to recovery, leading to a rise in commodity prices and global demand, which boosted export activities The total export value reached 71.6 billion USD, a remarkable increase of 25.5%, surpassing initial targets Agricultural products accounted for 21% of total exports, growing by 22.9% compared to 2009, despite a reduction in export volume for some items due to higher international prices Additionally, heavy and light processing industries represented 53% of Vietnam's total export value, nearly doubling from the previous year, establishing themselves as key sectors in the country's export portfolio.
In 2011, the upward trend in Vietnam total export value continued with a 34.2% rise compared to the last year’s data In general, the export value of nearly all
In recent data, agricultural products and minerals experienced a modest increase of 4%, while the seafood sector surged by an impressive 21.8% Notably, since 2011, Vietnam's export value of mobile phones and components has skyrocketed by 198.4%, driven by significant foreign direct investments, particularly from companies like SAMSUNG establishing operations in the country.
In 2007, Vietnam's accession to the WTO marked a pivotal moment, leading to a remarkable 40% increase in total import value compared to previous years, signaling the country's deeper integration into the global economy Although 2009 saw a decline in total imports to 69.9 billion USD, a 14.7% drop from 2008, this decrease was largely influenced by international price fluctuations rather than a true reduction in import volume Following this dip, Vietnam experienced a robust recovery, with total import values growing steadily at approximately 22% in both 2010 and 2011, mirroring the growth trends of 2007 and 2008.
Chart 1: The trend of Vietnam trade balance in 2007-2011
From 2007 to 2011, production materials represented the majority of Vietnam's import portfolio, starting at 90.4% in 2007 However, this figure decreased by 3% in 2008, reflecting a slowdown in the production sector due to the financial crisis's impact on the Vietnamese economy Consequently, the import volume of these essential materials continued to decline.
2009 but the rising import price made its value increase a little Coming to 2010 and
In 2011, the global economic recovery led to a resurgence in the import value of production materials, with an 18% growth rate in 2010 followed by a 16% increase in 2011 Notably, there was a steady rise in the import value of consumer goods, highlighted by a record import of cars in 2008, which totaled 2.4 billion USD for 50.4 thousand units This trend continued into 2009, with nearly a 50% increase in car imports, showcasing a robust demand for consumer goods in the market.
19 other luxury consumer goods was a little smaller or even negative, 2011’s import value of them backed to the upward trend with considerable soar of 31.3% in completely built car units
Since joining the WTO in 2007, Vietnam has experienced a stable export growth rate of 20-30% annually, despite facing a persistent negative trade surplus Notably, this period also saw improvements in Vietnam's balance of trade (BOT), with the trade deficit decreasing significantly; by 2011, the BOT had narrowed to -$9.8 billion, which is half of the deficit recorded in 2008.
Between 2007 and 2011, the export and import values, along with the trade deficit, were analyzed for two key sectors: FDI and non-FDI enterprises During this period, investments in FDI and non-state enterprises saw substantial growth, while state-owned enterprises experienced a decline FDI enterprises accounted for over 4% of total export value annually, reaching 50% by 2011, a 10% increase from 2007 Similarly, non-FDI sectors increased from 43% to 50% in export value during the same timeframe Initially, the FDI sector witnessed a consistent decrease in import value, leading to a trade surplus; however, the global financial crisis in 2009 negatively impacted FDI flows, resulting in a 6.6% drop in import value and a 30% decline in export value for that sector In contrast, non-FDI enterprises continued to grow their exports, effectively halving the trade deficit.
Table 3 - Trade deficit in sectors in 2006 - 2011
In 2010, the steady economic recovery had positive impacts on both export and import values In detail, both export and import values increased through the
Over the past 21 years, both sectors have seen improvements in their BOT (Balance of Trade), with a resurgence in Foreign Direct Investment (FDI) flows into Vietnam contributing to enhanced domestic production This increase in production has led to a rise in import values, particularly as FDI enterprises often import technology, equipment, and raw materials from their parent companies Consequently, the surge in total imports during the early stages of industrialization and modernization is understandable, despite resulting in a prolonged trade deficit Notably, the export value of FDI enterprises has grown significantly, dominating exports of key staples, especially processed industrial products In contrast, the share of non-FDI enterprises in total exports has gradually declined, raising concerns about the health of domestic production.
Vietnam's participation in the WTO has significantly expanded its export markets, but heavy reliance on global exports led to a sharp decline in 2009 due to the financial crisis, with a 47.2% drop in exports to Ocean markets and a 13% decrease to Asia and Europe The only exception was a rise in rice exports to Africa As the international economy recovered, Vietnam's exports surged, increasing by 21% in the EU and 24% in the Americas By 2011, exports to the US had risen by 68% to $17 billion, accounting for 17% of total exports, while exports to the EU grew by 81.22%, making up 7.6% of total export value Despite these fluctuations in export markets, Vietnam's import markets remained stable, with approximately 80% of imports coming from Asia due to distance and price advantages, while imports from Europe constituted only 11-12%.
China has emerged as a crucial trade partner for Vietnam, with both the volume and value of imports consistently increasing over the years By 2011, China accounted for a significant share of Vietnam's top ten import items, including 33.8% of machinery and equipment, 27.6% of textiles, and a striking 67.3% of telephones and mobile phone parts Notably, Vietnam has maintained a trade deficit with China, highlighting its growing dependence on this leading economy.
Before 2012, there were many reasons, both objective and subjective that led to Vietnam continuously having a negative BOT They includes:
The reality of the period 2012 - 2014
Over the past three years, Vietnam has witnessed a significant transformation in its Balance of Trade (BOT), marking the first continuous period of trade surplus Notably, it took nearly two decades, from 1993, for Vietnam to regain this surplus position.
Chart 2 - The trend of Vietnam trade balance in 2010-2014
In 2012, despite the ongoing challenges of the global economy following the international financial crisis, Vietnam's trade performance showed resilience, with total export value reaching $114.53 billion, an 18.2% increase from 2011 Although total import value rose by only 6.6% to $106.75 billion, both exports and imports exceeded planned growth rates A significant factor in this success was the contribution of foreign direct investment (FDI) enterprises, which played a crucial role in enhancing Vietnam's trade dynamics.
Chart 3 - Exports and imports growth in sectors in 2011-2012
The charts illustrate the export and import value growth of both FDI and non-FDI sectors in 2011 and 2012 Notably, FDI enterprises experienced an impressive import growth rate of 18.57%, surpassing the overall import growth rate, while non-FDI enterprises faced a decline in import value In terms of exports, the FDI sector's export value surged by 33.75%, significantly outpacing the mere 2.9% growth observed in the non-FDI sector.
In 2012, textiles remained Vietnam's leading export sector, valued at 11.8 million USD, reflecting a 5.8% increase Despite being the world's largest rice exporter, rice exports equaled textiles, contributing 10.3% of total exports The electronic equipment sector, including computers and mobile phones, experienced significant growth in both export value and volume Meanwhile, total imports fell sharply, with motor vehicle imports decreasing by 40.2% and petroleum product imports down by 9.3% The import of machinery and equipment saw a modest rise of 3.2% Notably, imports of image and video cameras, as well as mobile phones and parts, surged by over 80% Overall, Vietnam's balance of trade improved dramatically from a deficit of USD 9.8 billion in 2011 to a surplus of USD 0.75 billion in 2012, marking a significant achievement.
In 2013, Vietnam experienced a positive trend in its export and import situation, with merchandise trade value reaching USD 264.07 billion, a 15.7% increase from 2012 Despite challenges such as declining prices and quantities of agricultural products, fuel, and minerals, the total export value rose by 15.3% A significant contributor to this growth was the processing goods sector, particularly telephones and mobile phones, where the FDI sector played a crucial role, increasing its share of exports from 55.9% in 2012 to 61.9% in 2013 In contrast, non-FDI enterprises, which primarily exported agricultural commodities, fishery products, and textiles, saw a modest growth rate of only 4.2% in export value.
In 2013, Vietnam experienced a significant recovery in import value, growing by 16% compared to the previous year, with notable increases in restricted imports such as luxury items—precious stones surged by 51.6%, built-in cars by 17.4%, and machinery and equipment by 16.5% This growth reflects a positive trend in the country’s production and consumption China remained Vietnam's largest export market, with imports from China making up nearly one-third of the total import value, rising by 28.3% Despite total exports reaching USD 132.139 billion and imports at USD 132.13 billion, resulting in a modest trade surplus of USD 9.4 million, Vietnam's trade balance deteriorated compared to a surplus of USD 750 million in 2012.
In 2014, despite facing unexpected challenges such as the East Sea dispute that negatively impacted the Vietnamese economy, the country achieved a remarkable trade surplus of USD 2.14 billion, the highest recorded to date Vietnam's total exports reached USD 150.19 billion, marking a 13.7% increase, while total imports rose to USD 148.05 billion, up by 12.1% Notably, non-FDI enterprises experienced a significant growth of 10.4% in total import and export turnover, a substantial rise compared to the modest 4.2% increase in 2013.
Table 4 - Export value of 8 key export items of Vietnam in 2014
The table highlights the changes in the share of eight key export items between 2013 and 2014, revealing that textiles and mobile phones were the leading commodities in overall value Despite a significant increase in the share of telephones and mobile phones from 7.1% in 2007 to 16.1% in 2013, growth in this sector began to slow due to its heavy reliance on SAMSUNG GROUP’s investments and sales In contrast, non-FDI sectors experienced solid growth, with the export values of textiles, footwear, handbags, and yarn rising between 12% and 32%.
In 2014, Vietnam's export market experienced significant growth, with the US emerging as the largest market, showing an impressive increase of 19.6% compared to 2013 This surge contributed substantially to the overall export turnover Korea followed as the second-largest export destination, with an 18.1% rise in total value However, exports to Japan and China saw slower growth rates, leading to a slight decrease in their share of export value Despite challenges such as the East Sea dispute and economic crises in traditional markets, Vietnam's export situation remained positive.
Russia and Ukraine, our export price still kept rather stable, which meant the real high growth rate in export volume
Chart 4 - Annual export growth rate in 2011-2014
The line graph illustrates the export value growth rate over four years, highlighting a consistent decline since 2011 despite an overall increase in Vietnam's total export value Notably, in the last three years, the growth rate has roughly halved compared to 2011, indicating a slowdown in export activity development Additionally, the country's export portfolio has shifted slowly from primarily low-value processed goods, such as footwear, handbags, and textiles, to more complex machinery and tools.
In 2014, Vietnam's import value experienced a growth rate of 12.1%, showing significant recovery compared to 2012, despite being lower than the 2013 figure This increase occurred against a backdrop of low international inflation and a 1.02% decline in the import price index, indicating a positive trend in domestic demand The import portfolio remained largely unchanged from 2013, with substantial increases in the value of key imports, particularly a 20.2% rise in machinery and equipment and a 25.6% increase in textile materials.
In 2014, despite ongoing disputes in the East Sea, China's import value growth remained robust, increasing by 18.2% and accounting for nearly one-third of total imports In contrast, imports from ASEAN, Korea, and Japan saw modest growth rates of 8.2%, 4.9%, and 9.4%, respectively, leading to a decline in their overall share of the import market.
In 2014, Vietnam achieved a significant trade surplus of approximately USD 2 billion, with export growth outpacing imports The trade surplus was primarily driven by foreign direct investment (FDI) sectors, which contributed USD 17 billion, while non-FDI sectors faced a deficit of USD 15 billion When excluding imported consumer goods and exported crude oil, the trade deficit for domestic enterprises was reduced to USD 2.9 billion, indicating that FDI companies focused on export markets, whereas domestic firms catered to local demand despite the acceptable trade deficit Additionally, Vietnam saw a notable increase in imports from China, with a growth rate of 21.8% in 2014.
In 2014, the country experienced a positive trend in international trade, characterized by moderate export growth and a significant surplus in the balance of trade (BOT) This was largely due to the nation's role as a net exporter to the EU and the US, primarily importing machinery, equipment, and materials from China to facilitate these exports Additionally, non-FDI sectors showed improved export performance, further contributing to the overall favorable trade situation.
The increase in exports compared to imports is viewed positively by many as a sign of economic growth, alleviating concerns over limited foreign currency supply When a country's earnings from exports exceed its spending on imports, it results in a surplus of dollars, thereby mitigating the risk of currency depreciation.
31 reasons below this positive BOT are more crucial to decide whether this situation is positive or not Those include:
Forecast for the trends of the coming years
In a regular session in November 2014, Vietnam Assembly set a target of the growth in export and import in 2015 In particular, the year’s total export turnover
In 2015, Vietnam's export value is projected to reach USD 166 billion, while the trade deficit is expected to range between USD 5 billion and USD 8 billion, marking a significant shift after three years of positive balance of trade (BOT) The first quarter of 2015 saw export turnover at USD 36.3 billion, an 8.8% increase from the previous period, contrasted by a sharp 20.1% rise in imports to USD 38.7 billion, resulting in a trade deficit of USD 2.4 billion Contributing factors to this deficit include a surge in imports driven by trade agreements like the Trans-Pacific Trade Pact, which attracts multinational companies to invest in Vietnam Additionally, falling crude oil prices have negatively impacted both exports and imports, with crude oil export volumes increasing by 24.7% to 2.2 million tons, but revenue declining by 38.8% compared to the same quarter in 2014 The decrease in oil prices has also led to lower material costs, prompting Vietnamese companies to boost imports for domestic production, while luxury imports, particularly vehicles, have surged due to reduced tariffs Dr Vo Tri Thanh of the Central Institute of Economic Management highlights that increased foreign investment, declining crude oil prices, and heightened import demand are key factors contributing to Vietnam's trade deficit.
Nevertheless, according to ANZ Bank’s analysts, returning to trade deficit is not a completely unfavorable sign for Vietnam economy That is because Vietnam
Thirty-three production industries lack a competitive edge in manufacturing machines, materials, and oil products, making imports essential for business expansion and productivity enhancement According to the General Statistics Office, there has been a notable increase in the value of traditional exports, particularly textiles, which rose by 10.1%, and footwear, which surged by 21.7% However, if imports are primarily for consumption, domestic enterprises producing consumer goods may struggle to compete on price and quality Currently, the import landscape remains favorable, as indicated by the latest statistics from the General Statistics Office.
Chart 5 - Growth of major imports in Q1/2015
In the first quarter of 2015, the graph illustrates the significant growth in import values of six key items, with the exception of gas and oil products, which did not experience an increase Notably, the majority of these items were capital goods essential for production rather than consumption, particularly highlighting a 34% rise in imports of machines, equipment, and tools.
From 2015 to 2020, the Vietnamese government anticipates a persistent trade deficit, although it is expected to gradually decline By 2021, Vietnam's balance of trade (BOT) is projected to stabilize, leading towards a sustainable trade surplus Specifically, the annual export growth rate is targeted to reach 11%, while the annual import growth rate must remain lower than that of exports Additionally, the trade deficit is expected to remain under 10% of the total export turnover by 2015.
Vietnam's import portfolio is closely linked to its export portfolio, as imports primarily support domestic consumption and production for export The government aims to enhance industries such as footwear, textiles, agricultural processing, and mechanical engineering to transition from exporting raw materials and minimally processed agricultural products to finished goods, thereby increasing export value HSBC Bank forecasts a significant decline in the share of exported food, animals, and mineral fuels, predicting these categories will represent only 15% of total exports by 2020, down from about 30% While the proportion of raw materials is expected to decrease gradually, by 2030, key export items are projected to be machinery and transport at 35%, and manufactured goods at 20%, both of which offer substantial added value and contribute significantly to the economy.
Chart 6 - Vietnam’s projected sector contribution increase in merchandise exports
In details, the prospects of some commodities groups can be described below:
The textile industry remains a crucial component of Vietnam's economy and export portfolio, with an estimated annual growth rate of 15% from 2016 to 2020, reaching a projected export value of USD 25 billion by 2020 To support this growth, it is essential for the domestic market to fulfill the demand for textile materials, such as thread and buttons, while gradually decreasing reliance on imports from China.
- Footwear will move towards increasingly using domestic materials from 48% in 2014 to 80% in 2020
Mechanical engineering is set to focus on car manufacturing, with an ambitious goal of increasing the domestic production of mechanical components to 85% in both finished truck and passenger car models.
In 2020, the primary goal for the automotive industry is to establish a domestic car manufacturing capability, moving beyond mere assembly to enhance vehicle and component exports However, achieving this objective will be challenging, especially as Vietnam plans to reduce import tariffs on assembled vehicles.
SOLUTIONS FOR VIETNAM SUSTAINABLE SURPLUS TRADE
Vietnam should actively integrate into the global economy to expand its export markets, moving away from currently strained markets with strict import controls Promoting bilateral and multilateral trade agreements is essential for establishing free trade zones, such as the Economic Partnership Agreement with Japan and Free Trade Agreements with ASEAN, India, and Australia As a WTO member, Vietnam can negotiate for trade balance with net importing countries like China, ASEAN, and Korea, aiming to reduce imports and enhance exports.
Vietnam must diversify its markets by not only maintaining relationships with traditional partners but also seeking new opportunities Our market share in American and European markets, particularly for seafood, faces instability due to trade protectionism and high-quality requirements To strengthen our position, it is essential to focus on potential markets like ASEAN, China, and Japan, while also exploring new export environments in Africa, Latin America, and the Middle East.
1.1.2 Improvement of the quality and the efficiency of export
Vietnam's recent export performance has relied heavily on its comparative advantages, but it has struggled to leverage competitive advantages due to insufficient connections between industries, which hampers the creation of a robust export value chain To enhance export value, it is recommended that Vietnam focus on economic restructuring by promoting the development of services and industries.
Vietnam is focusing on enhancing its export portfolio by promoting the production of competitively advantageous goods and gradually substituting imported materials to establish a stable supply chain for exports To achieve this, significant investment in domestic manufacturing and the attraction of foreign investments are essential, particularly in the ancillary sectors of textiles, footwear, and electronics The government should engage foreign experts to improve technology and management practices in these industries, while also encouraging private companies through targeted capital and tax incentives Furthermore, strict controls should be implemented on imports that can be produced domestically, alongside research to reduce reliance on global price fluctuations and address trade barriers, such as anti-dumping cases that have impacted the seafood sector Lastly, the adoption of E-customs procedures is crucial for streamlining customs clearance, aiming to reduce processing times to meet or exceed ASEAN averages, ultimately benefiting exporters.
Vietnam should implement a system for the immediate taxation of restricted imported goods prior to customs clearance, while ensuring customs officers conduct thorough inspections of import quality The government needs to establish stringent regulations for the control of imported chemicals and additives Additionally, lawmakers should promote research aimed at developing quality standards for domestic industrial products to safeguard national industries from unfair competition, in line with WTO rules and international agreements Enhancing and enforcing these standards for both domestic and imported goods will positively affect manufacturers, consumers, public health, and environmental protection.
The Vietnamese government should reassess and enhance its import tax policies, focusing on tax cuts and extensions Increasing tariff barriers beyond committed levels is permissible and necessary under WTO guidelines and various international agreements if rising import values threaten the domestic economy Tax reductions should only be implemented when they effectively stimulate investment and consumption.
1.2 Improvement of BOT with China
Vietnam's negative trade surplus is an unavoidable consequence of its status as a developing economy, with a particularly troubling trade deficit with China that continues to escalate annually This deficit accounts for approximately 90% of Vietnam's total trade deficit, leading to an increasing economic dependence on China To address this critical issue, it is essential to implement various measures aimed at improving the trade balance and reducing reliance on Chinese imports.
1.2.1 Restrictions on importing from China
Prohibiting imports without origins is the first important action Currently, in Vietnamese domestic market there exist many products having no origins, most of
To combat fraudulent practices by Vietnamese traders, it is essential to implement stricter market surveillance measures This includes seizing and destroying all inspected products lacking clear origins, especially those imported from China Such actions should be prioritized while awaiting the issuance of new regulations.
To ensure the safety and quality of Chinese imports, it is essential to establish quality standards that align with WTO regulations and other international agreements Currently, Vietnam lacks effective measures to assess product quality and safety, resulting in an inability to provide evidence of potential harm This gap allows substandard products to bypass customs and enter the domestic market with ease To address this issue, Vietnam can draw on the experiences of countries with established global trade practices or develop a quality standard system inspired by their frameworks.
1.2.2 Boost in exporting to China
Vietnam should focus on developing a robust export portfolio for trade with China, emphasizing three primary commodity groups: raw materials and minerals, agricultural products, and industrial goods like textiles, footwear, and electronic components Moving forward, it is essential to decrease the share of raw materials in total exports, enhance the processing of agricultural products to increase their value, and recognize industrial goods as key export items The government must actively monitor exports to China to prevent issues such as farmers selling agricultural products at low prices due to oversupply during bountiful harvests Additionally, delays in customs clearance can lead to cargo congestion at borders, necessitating legislative action to streamline export processes and mitigate losses for Vietnamese farmers Establishing official distribution channels, particularly leveraging the Hong Kong market to access inland China, can further optimize export strategies.
The authority is facilitating direct exports at the border, encouraging large distribution groups to establish trade contracts with farmers This initiative aims to prevent the issue of farmers selling their surplus crops at significantly low prices during bumper harvests Subsequently, these distribution groups will market the products through their established distribution networks in China.
2.1 Produce under national and global quality standards
In today's global market, Vietnamese exporters face increasingly stringent requirements from developed countries, emphasizing not only competitive pricing and appealing design but also product quality and environmental safety To align with these expectations, it is essential for Vietnamese manufacturers and farmers to adopt international quality standards, including ISO 9000 for quality management, ISO 14000 for environmental management, and HACCP/ISO 22000 for food hygiene Producers across all sectors must focus on efficient resource utilization, implement green technologies, and establish effective waste management systems By documenting and practicing these procedures, businesses can achieve sustainable development, benefiting both enterprises and society as a whole.
2.2 Build market strategies towards economic integration
Integration in Vietnam necessitates welcoming international enterprises, providing domestic customers access to high-quality imports while challenging local businesses to enhance their capabilities Vietnamese enterprises must proactively assess their business plans, invest wisely, and develop tailored strategies to boost productivity and competitiveness Each phase of economic integration demands distinct strategies informed by market trends, competitor analysis, and customer insights Consequently, producers need to adapt their product portfolios and business methods to align with market changes Successfully navigating these adjustments can lead to success in both domestic and international markets, ultimately resulting in increased profits from exports.
2.3 Enhance the application of modern technologies
Modern technologies are not exclusive to developed countries; they can be cultivated within individual enterprises In Western economies, most businesses have dedicated research and development departments focused on enhancing products and technologies to lower costs and optimize resource and workforce utilization This approach represents a long-term, efficient investment strategy, reducing reliance on external expertise In contrast, Vietnamese firms often lack such departments By establishing their own R&D units, they can independently acquire technologies, mitigate risks related to product information leaks, boost competitiveness, and build a sustainable brand.
Since 1986, Vietnam's shift from a centrally planned economy to a market economy has led to significant growth in international trade relations Despite achieving a trade surplus in the last three years, concerns about the underlying motivations of the economy persist, particularly regarding the foreign direct investment (FDI) sector, which boasts high export values In contrast, domestic manufacturers struggle with low competitiveness, outdated processing technologies, and limited production capacity, resulting in low added value exports This thesis proposes solutions for the Vietnamese government and enterprises to address these challenges and work towards a sustainable trade balance in the future.