TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S LECTURER: DR TU THUY ANH FO R E IGN TR A D E UN IV E RS IT Y - H A NO I – S U M M ER 1 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 Abstract Trade deficit in general and trade deficit with China is one of the highly concerned problems of Vietnam macro-economy because long-term trade deficit leads to the situation of being dependent on foreign economies, the imbalance of BOP, hence, the whole economy Examining the severity of the situation and finding the solutions to the problem is necessary for our sustained economic development In our research, firstly, we will analyze the real situation of trade deficit with China with related facts and figures Secondly, we explained the reasons for the huge trade deficit with China Finally, we will suggest some short-term and long-term solutions to the trade deficit problem We this research in order to give readers the insights, to some extent, into the trade deficit with China of Vietnam TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 TABLE OF CONTENTS The situation of Vietnam’s trade deficit with China 1.1 Trade deficit in Vietnam in general 1.2 trade deficit with China Reasons for the situation of trade deficit with China in Vietnam 11 2.1 Exporting low-added value goods, importing high –value goods 11 2.2 The inefficiency and ineffectiveness of domestic productions and investments 13 2.3 Chinese various in kinds and low in price goods 14 2.4 The appreciation of Chinese currency 15 2.5 WTO and commitments 17 Solutions for the problem of trade deficit with China of Vietnam 18 3.1 Exchange Rate Tool 18 3.2 Capital in-flow and out-flow control 19 3.3 Exporting Spurs 20 3.4 Some other solutions 21 Conclusion 22 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S Student Phạm Thanh Hải Nguyễn Thị Quỳnh Mai Phan Thị Diệu Linh ID 0851050064 0851050049 0851050046 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 THE SITUATION OF VIETNAM’S TRADE DEFICIT WITH CHINA 1.1 TRADE DEFICIT IN VIETNAM IN GENERAL Since opening the economy, Vietnam’s trade has increased rapidly From 1995 to 2008, in average, the amount of export increased by 18.7%/year while import increased by 20.1% /year Total amount of import from only 39.3% of GDP in 1995 increased to 99.31% of GDP in 2008 Along with that, the trade deficit increased from 0.27 billion USD in 1990 to 18.03 billion USD in 2008 The increase in the export-import turnover make Vietnam’s economy more and more widen However, there are many potential risks The sum of trade deficit in Vietnam from 1990 to 2009 was 84 billion USD, which was larger than GDP in 2008 The ratio trade deficit over GDP is much larger than other countries in the world Year Export (mill USD) Import (mill USD) GDP (mill USD) 1995 5448.9 8155.4 20736.2 1996 7255.9 11143.6 24657.5 1997 9185.0 11592.3 26843.7 1998 9360.3 11499.6 27209.6 1999 11541.4 11742.1 28683.7 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2000 14482.7 15636.5 31172.5 2001 15029.2 16218.0 32685.2 2002 16706.1 19745.6 35058.2 2003 20149.3 25255.8 38867.1 2004 26485.0 31968.8 45404.4 2005 32447.1 36761.1 52426.9 2006 39826.2 44891.1 59716.0 2007 48561.4 62764.7 68435.2 2008 62685.1 80713.8 81269.6 2011 Sources: World Bank data, GSO Vietnam Trade deficit in Vietnam (million USD) 20000 18000 16000 14000 12000 10000 Trade deficit 8000 6000 4000 2000 19951996199719981999200020012002200320042005200620072008 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 Trade deficit in other countries in 2008 (million USD) Vietnam Japan USA China Australia Singapore Taiwan Germany Thai Korea Malaysia UK France -15000 France Trade deficit -56 -10000 -5000 5000 10000 15000 Malaysi Germa Singap Australi Korea Thai Taiwan China USA a ny ore a 934 -823 -4912 -3248 298 -5132 -2172 1227 -11532 8346 UK Vietna m -1176 18028 Japan Source : World Bank Import structure: Most of the imported goods of Vietnam are machinery and raw materials; consumer goods make up less than 10% Since 2000, imported consumer goods make up 6-8%, while the number of raw materials is 60-67% At the moment, because of being a developing country, the need of raw material as well as machinery is increasing year by year along with the raise of GDP Total 2005 2006 2007 2008 Mill.USD % Mill.USD % Mill.USD % Mill.USD % 25.3 11040.8 24.6 17966.2 28.6 22566.7 29.3 64.4 28463.3 63.4 38822.4 61.9 49149.2 60.9 Machinery, 9285.3 instrument, accessory Fuels, raw 23663.9 20000 material TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2992.5 Consumer 8.2 3508.4 7.8 4660.1 7.4 2011 6269.9 7.8 goods Source: gso.gov.vn 1.2 TRADE DEFICIT WITH CHINA In recent years, the amount of imported goods has increased sharply from 329 million USD in 1995 to 15973 million USD in 2008 It made up more than 90% of the total amount of trade deficit of Vietnam However, it is only official figure If the amount of goods smuggled cross borders and goods imported by way of quota are counted, the number will be higher The problem here is that the rate of the increase in imported goods from China is faster and faster while the amount of exported goods stays the same China Import and Export from 1995 to 2008 18000 Amount of goods (mill USD) 16000 14000 12000 10000 8000 6000 4000 2000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Export 361.9 340.2 474.1 440.1 746.4 1536.4 1417.4 1518.3 1883.1 2899.1 3228.1 3242.8 3646.1 4850.1 Import 329.7 329 404.4 515 673.1 1401.1 1606.2 2158.8 3138.6 4595.1 5899.7 7391.3 12710 15974 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 Imports of goods by country and group Amount of goods (mill USD) 80000 70000 60000 50000 40000 30000 20000 10000 China USA Japan Germany ASEAN APEC EU 2006 7391.3 987 4702.1 914.5 12546.6 37467.7 3129.2 2007 12710 1700.5 6188.9 1308.5 15908.2 52637.9 5142.4 2008 15973.6 2646.6 8240.3 1479.9 19567.7 67232.2 5581.5 In 2007, the trade deficit with China of Vietnam is 9.145 billion USD, making up 64% of the total amount of trade deficit In 2008, the figure is 11.16 billion USD and 61% respectively In 2010, trade deficit with China was raise to red alert: 12.6 billion USD, which was equal 105% of the total amount of trade deficit in 2009 Therefore, Vietnam has failed to decrease the unbalance in trade balance between Vietnam and China In 1991, Vietnam mainly traded with Soviet and the socialist countries of Eastern Europe, through SEV After the socialist countries collapsed, Vietnam has diverted trade to other countries such as EU, USA, Australia, Canada, ASEAN, Japan, Korea, etc A series of commitments such as FTA, WTO, and AFTA were signed After the diversion, trade deficit has been increasing significantly In 2000, trade surplus from China of Vietnam is 135 million USD But in 2001, the trade balance switched to deficit of 200 million USD From then on, the imports from China have increased sharply Chinese goods flood Vietnamese market Although Vietnam has trade relations with more than 200 countries and territories, China supplies ¼ raw materials for Vietnam economy TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S 2011 In the late of 2009, according to the statistics of Ministry of Industry and Trade, Vietnam exported mineral materials such as coal, rubber and crude oil to China; making up 55% of the overall exports However, the export of this commodity group has to be reduced to ensure the energy security In 2009, crude oil was decreased 24% and in 2010 coal was decreased 50% compared to 2009 Types 2009 Amount (Tons) 2010 Price (1000 Amount (Tons) USD) Price (1000 USD) Crude oil 1,032,921 462,623.331 593,997 367,631.9 Coal 20,453,501 935,843.407 14,644,571 961,855.12 Rubber 510,245 856,712.92 464,372 1,420,788.726 Mineral 1,670,233 103,632.823 1,399,846 101,915.301 124,857.336 Aquatic 162,557.6 products Coffee 17,396 Total 24,885.623 4,909,025.328 26,499 39,361.779 7,308,800.253 Main products exported to China