What are the consequences of China’s reduced investments in VN?
What are the consequences of China’s reduced investments in VN?
Vietnamese economists are trying to calculate the damage to the national economy in case China stops trade and investment activities with Vietnam.
Many Vietnamese have expressed their concerns about the possibility of China suspending its trade and investment activities if Vietnam sues China in the international arbitration court.
They have reasons to worry about this after the Philippine’s case. On January 22, 2013, the Philippines officially filed in the UN’s Arbitration Court against China for its violations of the 1982 Law on the Sea Convention, of which both the Philippines and China are members.
However, China, not the Philippines, took action first, in the battle. In early 2012, Chinese enterprises unanimously complained that Filipino banana and fruit imports contained high pesticide residue.
This has been repeatedly denied by the Philippines. However, thousands of containers of bananas imported from the Philippines at that time rotted at ports in China, which consumes 30 percent of Filipino bananas. The same situation occurred with other Filipino fruits.
The Philippines Minister of Trade and Industry, Gregory Domingo, who met the Vietnamese Minister of Agriculture and Rural Development at the 2014 World Economic Forum held in Manila recently, said China did not prohibit the banana imports, but it imposed a ban for a time, and then lifted the ban at other times.
As a result, Filipino farmers protested against the government’s policy as they could not export bananas, which have created problems in internal agencies.
A question has been raised about how China would be affected if China temporarily suspends some bilateral programs, as was threatened by the Chinese Ministry of Foreign Affairs spokesperson Hong Lei in May.
Thoi bao Kinh te Saigon has quoted several economists as saying that if Vietnam’s exports to China fall by 10 percent, it would suffer a one percent GDP decrease.
VEPR, an economic policy research center, in a report released last week, predicted that the GDP of Vietnam would be between 4.15 percent and 4.88 percent this year.
If the forecast comes true, i.e., the GDP growth rate becomes much lower than the World Bank and ADB projected rate of 5.5-5.6 percent, this would be a major worry for Vietnam.
Nevertheless, Dr. Vo Tri Thanh, Deputy Head of the Central Institute for Economic Management (CIEM), one of the critics of the VEPR’s report, is not pessimistic.
“These (the scenarios drawn up by VEPR) would come true only if the warnings (about trade and investment freezing) occur,” he said.
According to Thanh, of the total imports from China, finished consumer products account for 10 percent, equipment and machines 30 percent, and intermediate products (parts, accessories, input materials) 60 percent.
Meanwhile, half of the 60 percent of the imports are made by foreign invested enterprises in Vietnam in their global production value chains.
Thanh believes that the production and supply chains must not be broken even if China unilaterally closes its border gates.
In the worst case scenario, if China really stops exporting goods, Vietnam would be able to seek input materials from ASEAN or other countries, though at higher prices.
“I believe that China will still have to implement its commitments as a member of WTO and ASEAN + China free trade agreements. It will not be easy for it to do all that it wants,” Thanh said.
Dang Kim Son, a well known economist, also said that China would not be foolish enough to close the border gates because it still needs rice to feed its high population.
vietnamnet
