Vietnam Set to Become China’s Largest ASEAN Trading Partner

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A customer is attracted by a Chinese-made television in a shopping mall in Ho Chi Minh City, Vietnam, in May 2015.

By Xu Changwen

In recent years, frequent high-level and people-to-people exchanges have been the driving force behind sustained trade cooperation between China and Vietnam. This year, bilateral trade looks set to reach a new level as experts anticipate Vietnam to become China’s largest ASEAN trade partner.

The year 2015 was the 11th consecutive year that China was Vietnam’s largest trade partner. In that same year, Vietnam became China’s seventh largest trade partner. From January to May 2016, trade volume increased further still, eclipsing that of Malaysia, China’s largest ASEAN trade partner in recent years, by US$3.82 billion.

Trade in Comparison

China and Vietnam are highly complementary in economic terms, with tremendous potential for economic and trade cooperation. According to China Customs, the 2014 China-Vietnam trade volume totalled US$84 billion, an increase of 27.7 percent over the previous year, far exceeding the 3.4 percent increase in China’s overall foreign trade in the same year. In 2015, in light of China’s economic slowdown, its overall foreign trade volume decreased by 8 percent, and trade between China and its major trade partners saw a general drop in volume. Vietnam and China, however, maintained their momentum in trade, with overall volume increasing by 14.6 percent. Total bilateral trade volume reached US$96 billion, a new record.

Over the years, Chinese goods have made up one-third of Vietnam’s total imports, making China Vietnam’s largest source of foreign products. It is expected that trade volume between the two countries will reach or exceed US$100 billion in 2016, realizing the development goal previously set by the countries’ leaders one year ahead of schedule.

China-Vietnam trade volume in 2011 was US$40 billion, according to China Customs. In that same year, China’s trade with Malaysia exceeded US$90 billion. However, in the ensuing years, trade between China and Vietnam continued to grow rapidly, reaching an average annual growth rate of 26.2 percent. China-Malaysia trade saw a slowdown, leading China-Vietnam trade to catch up rapidly. The US$50 billion gap seen in 2011 was reduced to US$18.4 billion by 2014. In 2015, it dropped further still, to US$1.3 billion. Trends over the past few years as well as strong 2016 first quarter trade data indicate that Vietnam is set to become China’s largest ASEAN trade partner this year.

In recent years, Vietnam has promoted cooperation between Chinese and Vietnamese companies, resulting in both expanded trade with China and accelerated economic growth.

Vietnam’s Competitive Advantages

In recent years, Vietnam has promoted cooperation between Chinese and Vietnamese companies, resulting in both expanded trade with China and accelerated economic growth.

Vietnam has made full use of advantages in geography and infrastructure, such as convenient transportation links that already exist between the two countries, to attract Chinese enterprises’ investment. Chinese investment in Vietnamese companies has grown steadily. By 2015, Chinese companies had invested in 1,284 projects in Vietnam, with total investment amounting to around US$10 billion, according to Chinese government statistics. China has become a world leader in investment in Vietnam.

In addition, Vietnam’s exports have become the driving force behind its rapid economic growth. According to Vietnamese government statistics, exports make up more than 80 percent of the country’s GDP. Increases in export volume, which grew by 8.1 percent in 2015 to US$162 billion, have led to rapid economic growth in Vietnam. Growth reached 6.7 percent in 2015, higher than the previous year (6 percent), and close to China’s growth rate (6.9 percent). Promoting bilateral trade will only increase the pace with which the Vietnamese economy grows.

Of Vietnam’s exports, textiles are the most competitive. China has contributed much to Vietnam’s export of textile products by providing most of the raw materials used by its textiles industry, such as cloth and yarn. Texhong Textile Group, China’s largest textiles company, has invested US$500 million in a burgeoning Vietnamese textile company, bringing both capital and expertise into Vietnam’s textiles industry. Hong Kong-based groups such as Pacific Textiles Holdings Limited and the Crystal Group have followed in Texhong’s footsteps, investing more than US$500 million in similar Vietnamese enterprises. Investment projects like Texhong’s have laid a solid foundation for future economic and trade cooperation between the two countries.

Low labor costs have proved an advantage for Vietnam in export markets. In 2014-2015, the average monthly wage of a Vietnamese manufacturing worker was US$165, the lowest among the 12 members of the Trans-Pacific Partnership (TPP), a trade agreement among Pacific Rim countries. Vietnam’s average monthly wage was less than half of Mexico’s, the second lowest among TPP countries. It was also less than half of average wages in China, Thailand and Malaysia, and lower than averages in Indonesia, the Philippines and India. This gives Vietnam a crucial competitive edge in the Asia-Pacific region.

At present, the Vietnamese government is speeding up the construction of industrial parks in the country’s north, as well as infrastructure projects such as airports and highways, to prepare for an influx of foreign-invested firms transferring operations from China, Thailand and other manufacturing hubs. Therefore, Vietnam’s low labor costs are highly attractive to Chinese firms interested in investing abroad.

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