Will Vietnam's economy rise like other countries such as China and USA?

Many companies are moving from China to Vietnam due to its cheaper labor force. China's middle class is becoming richer and Vietnamese workers are cheaper.





Will Vietnam become an economic superpower? Will China's economy crash?

Will Vietnam's economy rise like other countries such as China and USA?
You are right. And, what you are saying has already been happening. Vietnamese economy has been grwing at the rate of 7% or more during each of the last 7 years and the unemplyment level has come down sharply, though like many Asian economiese, Vietnam is chracterised by bureacratic highhendedness, inefficiencies and corruption As the Chinese economy becomes stronger economically and the Chinese upper middle class expands, Chinese will start importing finished goods from abroad. And as the wage costs rise in cHINA, newer cheaper locations to meet US consumer demand for low technology products will develop. And, in this context, Vietnam is becoming an attractive location for low cost goods sourcing because of relatively lower wages there. This will spur both investment and employment growth in Vietnam. However, while Vietnam may see faster growth, the size of the economy and its population is not large enough and Chinese will continue to be an important source of low technology products for many advances countries including the US.


Over the past 20 years, Vietnam has made the shift from a central command-based economy to one with significant market elements. Over that period, the economy has experienced rapid growth. While Vietnam is far from a rich country, high foreign investment has helped it to become richer. S the following economic information on Vietnam show, the Vietnamese economy has become strong.


Vietnam is now the world's largest robusta coffee, cashew nuts and pepper exporter, and the second largest rice exporter worldwide. Vietnam has the highest percent of land use for permanent crops, 6.93%, of any nation in the Greater Mekong Subregion. [1] [2]. Besides rice, key exports are coffee, tea, rubber, crude oil, pepper, garments and fishery products. However, agriculture's share of economic output has declined, falling as a share of GDP from 42% in 1989 to 26% in 1999, as production in other sectors of the economy has risen.


Paralleling its efforts to increase agricultural output, Vietnam has sought with some success to invigorate industrial production. Industry contributed 32.5% of GDP in 1999. However, most branches of heavy industry -- cement, phosphate, steel, etc. -- have stagnated or declined. Nevertheless, foreign direct investment (FDI) -- much of it gravitating to the new industrial zones in the south -- has gone some way towards transforming the industrial landscape of Vietnam.


In addition, Vietnam has achieved some success in increasing exports of some labor-intensive manufactured goods in recent years. Mining is a key industry in Vietnam, with coal as a main export, and the chemical plants in Vietnam show promising developments.


Vietnamese exports in 2004From the late 1970s until the 1990s, Vietnam was a member of the Comecon, and therefore heavily dependent on trade with the Soviet Union and its allies. Following the dissolution of the Comecon and the loss of its traditional trading partners, Vietnam was forced to liberalize trade, devalue its exchange rate to increase exports, and embark on a policy of regional and international economic capitalization.


Throughout the 1990s, exports expanded significantly, growing by as much as 20%-30% in some years. In 1999, exports accounted for 40% of GDP, an impressive performance in a recovering Asia. Efforts to control Vietnam's import growth have been fairly successful. In the last 4 years, import levels have remained fairly stable. For the second consecutive year, Vietnam had a balance-of-payments surplus in 1999. The country's balance-of-payments surplus has been due not only to robust trade performance but also to official development assistance and remittances from overseas Vietnamese. Vietnam's total external debt, accounting for 37.1% of GDP in 1999, is $10.6 billion.


By 2006, Vietnam had reduced the percentage of its people living in abject poverty — less than $1 a day — to 8 percent from 51 percent in 1990. The percent of the population living in abject poverty is now smaller than that of China, India, and the Philippines. Vietnam is working to promote job creation to keep up with the country's high population growth rate.


The accession to WTO, among other benefits, will allow Vietnam to take advantage of the phase out of the Agreement on Textiles and Clothing, which eliminated quotas on textiles and clothing for WTO partners on 1 January 2005.


Purchasing power parity: $280.2 B (2006 est.)


Real growth rate: 8.2% (2006 est.)


Per capita: purchasing power parity - $3,300 (2006 est.)


Composition by sector:


agriculture: 20.1%


industry: 41.8% services: 38.1% (2006 est.)


Population below national poverty line: 18.7% (2006 est.)


Household income or consumption by percentage share:


Lowest 10%: 3.6%


Highest 10%: 29.9% (1998)


Labour force: 44.58 million (2006 est.) occupation distribution: Agriculture 56.8%


Industry 37% Services 6.2% (July 2005)


Unemployment rate: 2% (2006 est.) (CIA fact book)


Budget:


Revenues: $8.689 billion


Expenditures: $9.718 billion, including capital expenditures of $1.8 billion (2003 est.)


Industrial production: Products: food processing, garments, shoes, machine building, mining, cement, chemical fertilizer, glass, tires, oil, coal, steel, paper Growth rate: 16% Electricity:


Production: 29,800 GWh (2001) - sourcewise:


Fossil fuel: 12.95% Hydro: 87.05% Nuclear: 0% Other: 0% )


Consumption: 27,710 GWh (2001)


Exports: 0 kWh (2001)


Imports: 0 kWh (2001)


Agriculture:


Products: paddy rice, corn, potatoes, rubber, soybeans, coffee, tea, bananas, poultry, pigs, fish


Exports: $19.88 billion (f.o.b., 2003 est.)


Commodities: crude oil, marine products, rice, coffee, rubber, tea, garments, shoes , pepper


Partners: Japan, Germany, Singapore, Taiwan, Hong Kong, France, South Korea, U.S., People's Republic of China


Imports: $22.5 billion (f.o.b., 2003 est.)


Commodities: machinery and equipment, petroleum products, fertilizer, steel products, raw cotton, grain, cement, motorcycles


Partners: Singapore, South Korea, Japan, France, Hong Kong, Taiwan, Thailand, Sweden


Debt: External: $14.69 billion (2003)


Recipient: $2.8 billion in credits and grants pledged by international donors for 2000 (2004)


Inflation rate (consumer prices): 4% (1999 est.)


Exchange rates: new đong (D) per US$1 - 16,050 (December 2006), 15,788 (January 2005), 14,020 (January 2000), 13,900 (December 1998), 11,100 (December 1996), 11,193 (1995 average), 11,000 (October 1994), 10,800 (November 1993)


Vietnam, one of Asia's Newly Emerging Economies, has turned its economy around dramatically after several years of macroeconomic instability, stagnation, and isolation from the world economy. With its Soviet style ministerial system and Communist Party leadership, Vietnam is moving from a commodities based economy heavily reliant on ever diminishing supplies of natural resources, through a phase of 'strategic retreat', to one of conscious and determined development of uniquely Vietnamese market-oriented ideologies.


Some suggest the recent changes in policy are attributable in part to generational changes in leadership, where 'new blood' has been allowed in to the decision-making process. Vietnam's adjustment and political, administrative and economic reform programs have restored stability, accelerated growth to 8% - 9% per year in the 1990’s, and attracted public and private foreign capital commitments unprecedented in Vietnam’s history. What is even more impressive is that throughout this transition phase, unlike so many of its Asian neighbours, Vietnam has maintained relatively strong political, economic and social cohesion.


Vietnam began its transition from a centrally planned system toward a market economy by implementing a wide range of macroeconomic and structural reforms to create a vibrant economy with several features of a free-market system.


The Vietnam Government has significantly relaxed regulation policy since the Vietnam Communist Party (VCP) formally endorsed a program of "renovation", also known as Doi Moi, at its Sixth National Congress in 1986. Central planning was relaxed, prices were freed, public sector spending declined, and restraints were loosened on business activity. Agricultural co-operatives were disbanded; farmers were given land-use rights and - in a similar way to China's transitional period - were allowed to market whatever output was left after they had fulfilled state contracts


Liberalisation measures and the creation of incentives worked toward the effective utilisation of resources and induced a large and relatively smooth transition of labour from the State Operated Entities (SOEs) to the newly sanctioned private sector. Furthermore, the currency has stabilised, direct subsidies have been withdrawn from the SOEs, the banking system has been overhauled and commercial laws have been enacted. The comprehensive Foreign Direct Investment (FDI) legislation and regulations undertaken have been put forward primarily to allay the fears of foreign investors, while at the same time developing a stronger pool of FDI in the economy. Despite these changes, however, Vietnam remains overall a centrally planned economy, with the Law on Foreign Investment in Vietnam regulating all direct foreign investment.


The direct result of these changes was a fall in inflation to less than 10% per year, by the early 1990's, from extraordinary rates as high as 400% per year in preceding periods. There was an increase in annual GDP growth rates to around 10% per year, and growth in export volume by about 25% per year. The World Bank ranks Vietnam, alongside China, as the best performer among transitional economies, and recent reports state that Vietnam has been very aggressive with reforms over the last few years.


It is worth remembering that the Vietnam government introduced Doi Moi reforms not out of altruism, but because its 'hand was forced'. Political reforms instigated previously had not worked, and indeed had brought the economy to the brink of collapse. By 1984, the Central Committee realised that fundamental reforms had to be undertaken to deal with a weakened economy that had not met established targets - albeit those targets were unrealistic.


The primary concern was the inefficient production of food. By the early 1980's, food production was just 69% of the States target as outlined in the VCP's fifth five-year plan, and the standard of living was deteriorating. The economy was stagnating and was heavily reliant on Eastern Bloc trading partners. Relations with China were poor and with the advent of globalisation, the State had to implement a strategy that would allow development of an effective competition position with surrounding economies. That is, Vietnam had to look to developing 'comparative advantage' through effective support to its significant labour base.


Then, as now, the party's legitimacy was eroding. The people were put off by the government's expensive foreign adventures in Cambodia and China, its dictatorial style and its mishandling of the economy. The role of the State had to change. The Party realised it must reorganise the overall structure of the economy and consider what areas should be under state ownership and control, and what areas would be most effectively 'privatised'.


During the early years of transition, and in comparison to other economies in a similar stage of transition, the growth in employment in Vietnam was significant at around 4% per year - adjusted for special factors. Unemployment has, on the one hand, increased in certain sectors of the economy, due to rationalisation of the SOEs and other inefficient industries. However, overall it appears that total unemployment has been reduced through development of other business and diversification and expansion of industry, and remains under control despite the shedding of over 1 million public sector jobs. The real GPD growth rate rose from 5.1% in 1990 to 8.6% in 1992 and 8.8% in 1994, while inflation stabilised to around 10% in 1993. By controlling public sector deficits through reduced support of the SOEs, inflation has been brought under control.


Through acceptance by ASEAN in 1995, Vietnam showed foreign investors and other countries that it wanted to become part of the free-market mechanism. It also displays a commitment to local industry that free-market reforms are on the agenda of the VCP.


If Vietnam is serious about achieving "tiger economy" status, it will require a large, dynamic private sector competing on an even footing, as well as having ready access to investment finance. Overall, the growth in FDI to date has been very solid, and the announcement in July 1995 that the US would open diplomatic relations with Vietnam initiated further commitment to international backing of and direct involvement in projects.


The Vietnam Government understood the need for foreign capital, and estimated requirements at US$40-$50 billion in investment funds for 1995-2000. Yet at the same time, the Central Committee wanted to allay the fears of conservatives within the leadership - who had complained that the country risked surrendering its destiny if it was too reliant on foreign investors - by claiming the decisive source of capital must be from domestic accumulation.


Limitations of private enterprise development indicate that much remains to be done to establish a policy framework under which private enterprises can contribute more fully to growth, income, and employment. Key constraints include lengthy and complicated business registration and investment approval processes, and an uneven playing field between private companies and state-owned enterprises, especially in the areas of trade and access to land and credit.


The government recognises that the impetus for industrialisation and growth will need to come primarily from an efficient and internationally competitive manufacturing sector and therefore plans further regulatory and legal reforms in its policy framework to encourage growth and diversification of the sector.


Signs are beginning to show, however, that the resolve of the State apparatus is waning. A comparison could be drawn between this weakening resolve in Vietnam, and the emergence of the 'iron triangle' in Japan. As with the weakening resolve of the bureaucrats in Japan in the early 1970's to the ideals of self-sacrifice for the betterment of the State, so to in Vietnam has a similar psyche evolved. The slow-down of the mechanism for change was two pronged. From one perspective, the leaders of the VCP 'put on the breaks' of reform, and secondly bureaucrats and party officials began to abuse their positions of power for self-gain.


Corruption has been one of the biggest problems facing continuing development of a free-market system in Vietnam. The Communist Party has launched several campaigns against corruption. The primary problem seems to be, however, that officials expected to implement party reforms have lost much of their earlier revolutionary zeal. They now refuse to accept an ideology of frugality that requires them to struggle to feed their families on meagre wages 'while people around them get rich'.


In Vietnam, and in the context of a socialist regime, abuse by bureaucrats and party officials has been far more blatant than in Japan. And, unlike the 'iron triangle' of Japan, it is difficult to argue that the form of cronyism that has developed in Vietnam has assisted the economy to grow. It has been more a situation of 'rent seekers' and communist party contacts draining State resources - in a similar fashion to the 'princelings' in China - than creation of wealth.


Given similar political and economic weaknesses in the neighbouring economies that have suffered severe downturn from the current Asian financial crisis, that of primarily a similarly weak banking system, there is considerable risk that Vietnam will also suffer from the economic fallout of the region. First and foremost the root problem of improper banking practices due to lax supervision and inadequate regulations, apparent in Vietnam's financial sector will, if exposed to free international capital mobility, expose the economy to the similar mechanisms which have resulted in the 'Asian meltdown'. The negative spill-over effect from devaluation of currencies in the region will be in the form of increased competition for markets for Vietnam's exports, and also in the local markets in competition with imports - both legal and smuggled - from the crisis-stricken countries of the region. On the whole Vietnam has to date faired well, but high tariffs in Vietnam mean that many investors are unable to take advantage of the fall in the currencies of neighbouring economies.


Many in the financial market feel that overall Vietnam's future looks promising. There are several conditions that must continue to be met, however, to ensure Vietnam passes successfully into a phase of secondary export-oriented industrialisation. It is imperative, that the country's Communist party leaders complete and maintain the reform process it began in 1986 and avoid becoming entrenched in a 'grey zone' somewhere between central planning and a uniquely Vietnamese market-oriented system. The country has only limited supplies of natural resources and has already embarked on a 'strategic retreat' through Doi Moi. There has been continued implementation of reforms that should see Vietnam emerge as the regions next economic powerhouse. Greater collaboration and centralisation undertaken by other ASEAN countries has been a target for Vietnam's leaders, and this should continue to be a goal while assimilating the necessary controls to avoid the pitfalls experienced by those countries.


Vietnam must continue with further and faster reforms, and in order to develop and sustain a comparative advantage must continue to focus on labour-intensive manufacturing, at least in the short-term. It must continue to restructure SOEs, liberalise trade and continue to attract FDI. At the same time, however, the State must make these decisions with regard to strategies for long-term development, the role of the State in a market economy, the balance between economic growth and social equity, and natural resources and the environment.


Vietnam must be wary of the pitfalls that could occur in continuing on the path of reform without proper management of the liberalisation and deregulation of the financial market. Total liberalisation of the financial sector resulted in chaos. Indonesia, for example, suffered a 70% effective devaluation of the Rupiah - to June 1998 - once it moved to float after a period of having pegged its currency. After relaxation of FDI regulations and by allowing offshore borrowing, many enterprises became heavily over-exposed and debt-equity ratios increased to dangerous levels. What Vietnam must avoid is the 'moral hazard' and cronyism that has afflicted other countries in the region.


Without trade liberalisation, the removal of bias toward direct foreign investment applications over labour intensive manufacturing, and by not continuing to implement a transition to a free-market economy, Vietnam will lose the ability to compete in the region over the long-term. The economy is plagued by bureaucratic procedures, arbitrary interference creates long delays, and public servants lack the skills to manage a market economy. The welfare system is virtually non-existent and education levels are poor.


Vietnam's economy has strengthened significantly over the past decade since instigation of reforms under the banner of Doi Moi. The State has steadily developed stronger relations with countries in the region, and throughout the world, focusing upon expansion of FDI and growth projects. Over the past two years, however, the resolve of the State to continue on the 'road to a market economy' has weakened.


The reform process must proceed and continue to be supported by the VCP so that Vietnam's long-term position in the region is assured. Without further reform the country's fledgling private enterprise community will flounder, unemployment will increase, inflation will once again rise to unmanageable levels, and inefficiency that once afflicted the SOEs will once again stall growth. Reforms must continue in Vietnam, but perhaps with a greater degree of caution than was applied to expansion of the economies of some of its neighbours.
Reply:Thanx. It was so kind of you to give me three stars and the points. I am fortunate that I could find out what you were looking for. Sorry, I did not edit and make the material look as if my own. Report It

Reply:I don't think so. since the rule of communism could never help the economy to rise.