Vietnam’s Out-of-Balance Trade Balance

Vietnam’s love-hate relationship with China has been centuries in the making, and now is embodied by fierce tempers over disputed islands and soaring trade between the two countries.

Vietnam and China announced this month they aim to achieve $100 billion in two-way trade by 2017 and $60 billion in 2015.  Voice of Vietnam reports $36 billion so far this year in China-Vietnam trade — which has increased more than 20% annually in recent years.

There are at least two problems with this phenomenal growth: (1) Vietnamese consumers tend to be skeptical of Chinese products, and (2) The trade is increasingly one-way — China-to Vietnam.  

In the first nine months of this year, 80% of the trade was China exports to Vietnam.  Moreover, Vietnam’s  imports from China increased 25% over the previous year while Vietnam exports to China rose less than 3%.  

The products traded aren’t favorable to Vietnam either.  Vietnam imported more than $1 billion each in machinery, telephones, computers, electronics, cotton, and steel — while Vietnam’s exports to China are mostly raw materials.

Even even though Vietnam is a major exporter of agricultural products (mostly to Europe and the US), China’s domination in Vietnam’s domestic market is growing in export of potatoes, ginger, lemon, grapefruit, pear, apple and garlic.  Because some retailers know their Vietnamese customers don’t trust Chinese products, they’re often disguised as grown in Vietnam, Thailand, the US and Australia.

Overall, Vietnam has achieved a reasonably healthy trade balance in recent years.   How did it accomplish that?  By trade with Europe and the Americas that is as imbalanced as China’s trade with Vietnam — in reverse.  So far this year, for example, the value of US-Vietnam trade was nearly $25 billion, 82% of which was Vietnamese exports to the US.  

The out-of-balance trade balances may not be sustainable.  If nothing else, it creates a diplomatic challenge for Vietnam, which wants the West’s help in fending off China’s most aggressive export of all: military might in the South China Sea.  

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