TRADE DEFICIT
WITH CHINA
OF VIETNAM IN
THE LATE
2000S

LECTURER: DR. TU THUY ANHFOR E IGN TR A DE UN IVE R
SI T Y
-

HA NOI
–

SU M MER 20 11

TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
1
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
3 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
4 Conclusion 22 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
3
TR ADE D E F I CI T WIT H C HIN A OF
VI ET NAM I N T HE LA T E 20 0 0S


0851050046 TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
4

1 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,

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
Sources: World Bank data, GSO Vietnam 0
2000
4000
6000
8000
10000
12000
14000
16000
18000

Machinery,
instrument,
accessory
9285.3 25.3 11040.8 24.6 17966.2 28.6 22566.7 29.3
Fuels, raw
material
23663.9 64.4 28463.3 63.4 38822.4 61.9 49149.2 60.9
-15000 -10000 -5000 0 5000 10000 15000 20000
France
UK
Malaysia
Korea
Thai
Germany
Taiwan
Singapore
Australia
China
USA
Japan
Vietnam
France UK
Malaysi
a
Korea Thai
Germa
ny
Taiwan
Singap
ore

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. 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
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
Amount of goods (mill USD)
China Import and Export from 1995 to 2008
TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
8
70000
80000
Amount of goods (mill USD)
Imports of goods by country and group
TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
9In 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 2010
Amount (Tons) Price (1000
USD)
Amount (Tons) 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


Amount
(Tons)
Price (1000
USD)
Petroleum
2,431,836 1,290,162.315

1,523,028 1,060,887.897
Gas
348,938 201,283.937 318,375 246,794.803
Fertilizer
1,951,305 596,025.776 1,712,004 603,399.522
Textile
1,565,975.737

2,218,368.109
Iron and steel
1,309,888 815,662.347 2,188,545 1,519,043.538
Computers, electronic
products and spare
parts
1,463,551.047

1,682,616.402
Machinery,
equipment,
tools, spare parts
4,155,283.341

4,477,616.444

The main exported goods of Vietnam such as shoes, pepper, coffee bean, cashew, rice
have low value added in the value chain; therefore, their contributions to the export value
are comparatively low. Moreover, the export of these goods has to depend on the
equivalent input materials imported from China.
TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
12
Source: www.gso.gov.vn
From the figures of main import and export goods in 2010 of the GSO of Vietnam, it can
be inferred that most of the main exported goods into China have relatively low value in
comparison with the necessary equivalents inputs imported from China. For example, we
export crude oil for more than 350 million USD but at the same time import refined oil
for more than 1 billion USD. Similarly, we export shoes for more than 3 million but
import shoes and shoes’ materials for 671 million. Worse still, in garment and textile, we
export for about 93 million USD but import for 2,218 million USD.
TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
2008
TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
14situation becomes worse when the domestic demand for goods is increasing sharply
ranging from necessary goods such as daily foods, vegetable, clothes to durable and
luxurious goods such as cars, cosmetics. However, the domestic production is not enough
to supply all needed goods and services. The domestic insufficient supply ranges from
iron and steels, input material for garment and textiles, fertilizers to motor and
automobile spare parts.
On the other hand, domestic producers cannot self-supply some kinds of high-tech inputs,
primary materials for our goods and services because of the complex skills, knowledge
and know-hows required. For example, in the case of production of automobile and
motors, the main value added is from the assembly of spare parts imported from China,
which add up relatively low value. In this sector, import takes up two-thirds of exported
value.
Worse still, some kinds of products those can be domestically supplied do not meet
requirement or tastes of consumers. At that time, the domestic products which meet the
quantitative demand only cannot be consumed. All in all, our domestic production cannot
meet domestic demand in both quantitative and qualitative aspects of the goods and
services.
2.3 CHINESE VARIOUS IN KINDS AND LOW IN PRICE GOODS
Chinese is said to be the workshop of the world which offer the equivalent goods at very
low price in comparison with most countries in the world, Vietnam included. The low-

2.4 THE APPRECIATION OF CHINESE CURRENCY
On June, 2010, People’s Bank of China (PBC) formally revalued its official exchange
rate against USD about 0.45%, from 6.827 to 6.7980, marking the first revaluation from
July, 2008. 3 weeks after the coming into force of the decision, CNY appreciated by
0.8% at 6.7746 CNY/USD and are expected to be at 6.5 CNY/USD at the end of the year
2011.
According to the Government of China, domestic investment decreased, limited import
and promoted export. Considering the table below, it can be referred that the revaluation
increased trade deficit with China dramatically.
TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
16
Source: extracted from figures of www.gso.gov.vn
From the table above, trade deficit with China rose three months continuously by 1.5%
from June, 2010 to September, 2010 and the trade deficit of the first 9 months of 2010
increased by 46.17% in comparison with trade deficit of the same periods in 2009.

Source: extracted from figures of www.gso.gov.vn
Chinese official currency (CNY) was adjusted to increase 279 basis points during the
year 2010, or 0.45% against the U.S. dollar. The adjustment often imply the more
balanced BOP but in case of Vietnam, the modest increase in export turnover is eaten up
by the huge increase in import turnover caused by the appreciation of CNY against VND.
The appreciation of CNY, to some extent, discourages the trade flow into Vietnam but

and Hong Ha Beer Company in Phu Tho Province. These two companies cannot compete
with the low price Sugar from China in around the year 2000 and had to declare
bankrupt. After these collapses, the sugar price increased sharply by 100% within 1 year,
from about 280 USD/ton to 565 USD/ton.
In fact, according to Mr. Nguyen Ba Dinh, vice-director of Cat Lai Customs Department,
many Chinese agricultural products are treating at the 0%-tariff. Therefore, the import
limitations by tariff are not applicable. Moreover, technical barriers to trade (TBTs) and
Sanitary & Phyto-sanitary measures (SPs) have not been created and applied yet. Thus,
Chinese goods freely move into and out of our countries just as the domestic goods and
services.
TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
183 SOLUTIONS FOR THE PROBLEM OF TRADE DEFICIT WITH
CHINA OF VIETNAM
The imbalance of trade, especially the trade deficit, which refers to the excess of import
over export, is often considered a big issue to a national economy. Generally, persistent
trade deficit is harmful to the economy while it leads to the foreign exchange gap and
foreign exchange scarcity. As a result, the country’s position in international payment
will be reduced. So, improving trade balance or reducing the trade deficit takes a lot of
concern of policy makers.
3.1 EXCHANGE RATE TOOL
There is a bund of factors that take effect on the trade balance, for constant, domestic
GDP, foreign income, commodity prices and exchange rate. Among them, exchange rate

payment balance. By that way, we should continue to promote investment, attract FDI,
especially for the large-scale projects; tighten the control and supervision over project
implementation aiming at ensuring transparency and reducing corruption. However, this
is only short-term solution while the foreign loans are always accommodated with some
special conditions, which can affect other sides of the country such as the politics, social
or environment.
It is also encouraged to push up the overseas transfer to have a stable capital resource.
However, transferring domestic currency abroad encounters some obstacles, while there
are not many of business that have a large of capital budget to take risk.
Moreover, the authorities should rein in credit growth and enhance prudential oversight
of banks, especially of the joint stock banks that have extended credit at a particularly
high pace.
The authorities could direct the central bank to increase interest rates for the loans of
foreign currency, reduce foreign currency sales or offer exporters above-market rates for
foreign currencies to ensure an adequate supply of foreign currencies in the domestic
economy. This helps to increase Foreign Currency Reserve to encourage and guarantee
for foreign investors.

TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
203.3 EXPORTING SPURS

Vietnam Government must establish more incentive policy for exporting production
3.4 SOME OTHER SOLUTIONS

a. Importing and exporting structure diversification
The structure of our importing and exporting market concentrates on some of the markets
which have suffered deeply from the world financial crisis. Thus, it is needed to provide
incentives for transnational companies as long as with the net of Vietnamese business to
penetrate in other markets such as East Middle, Africa, and NAFTA and develop the
market share in the old market known as Eastern Europe.
b. Domestic market developing
It is important to exploit all the potential capacity of the domestic market to slow down
the speed of our importing, reducing the addiction of Vietnam in importing raw material
and resources from other countries. Investing in R & D, updating high technology and
increase the value added rate in products. Some of our exporting business in cotton
manufactures or foot wear industry, who has met the demand of big markets such as
America, Europe and Japan, should have exploited more the domestic market to deal with
the financial crisis.
c. Supporting industries developing
The supporting industries take a very important role in improving our situation of over
importing. Supporting industries will be the solution to the problem of our importing raw
materials and resources from other countries. It is helpful to increase our competitiveness
of our market on the international market and makes ease for the supply chain
management. Supporting industries investments could also create a lot of jobs, attracting
abundant labors, reducing the stress of unemployment. To help with development of
supporting industries, the government is said to provide more incentives for domestic
firms to produce supporting goods competitive in prices.
TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011


TRADE DEFICIT WITH CHINA OF VIETNAM IN THE LATE 2000S

2011
23 References:
 General Statistics Office of Vietnam gso.gov.vn
 World Bank worldbank.org
 International Monetary Fund imf.org