National Focus

Vietnamese currency improvised from US-China tit-for-tat trade war

By Quynh Nhu August 02, 2018 | 03:50 PM GMT+7

The Vietnamese government will have appropriate improvisation instead of floating the exchange rate under the context of escalating trade war between the U.S. and China, according to economic experts.

Speakers at discussion forum titled “Building the best policies for business development”

Speakers at the discussion forum titled “Building the best policies for business development” recently organized by Forbes Vietnam also argued that the U.S.-China trade war will not have great impacts on Vietnam’s economy in case of no increasing escalation.

Vietnam’s economic growth in the last six months of 2018 will be entirely dependent on the government's institutional – administrative reforms as well as businesses’ ability to seize opportunities.

Nguyen Xuan Thanh, Lecturer of Public Policy, Fulbright University Vietnam said that the U.S.-China trade war will lead to risks of exchange rate. However, the Government will have the appropriate improvisation instead of floating the exchange rate like in 2016.

The U.S.’s additional tariff of 10-per cent on $34 billion worth of Chinese goods is not high. China has not intervened but proactively let its local currency Yuan sink in order to facilitate its exports. 

To date, the Yuan has dropped by eight per cent against the U.S. dollar as in 2016. Accordingly, the State Bank of Vietnam has slightly devaluated the Vietnamese Dong currency, commonly known as "the dong" by one per cent against the U.S. dollar.

Even though the Yuan might be further devaluated in the near future, Vietnam’s Government only needs to lower the dong’s value by less than three per cent against the U.S. dollar.

If the U.S. continues to slap additional 10-per cent tariff on China's export goods valued at $200 billion, it will greatly affect Vietnam’s economy.

Currently, the U.S.'s list of Chinese goods worth of $34 billion imposed with tariffs includes steel, machinery and electrical equipment; The list of $200 billion valued goods targeted for tariffs will include furniture and seafood.

Looking on the bright side, Vietnam's products including furniture, seafood, garment and footwear will be less competitive in terms of exports to the United States.

Conversely, more and more Chinese goods will enter Vietnam, fueling the competition in the domestic market.

Pham Hong Hai, CEO of HSBC Vietnam acknowledged that China’s Yuan is one of the world’s anchor currencies. In 2016, in case of any currency collapsed, the market would return to the starting point. The Government will never devaluate the dong by from 5 per cent to 10 per cent against the U.S. dollar.

Besides, Vietnam’s economic growth should not depend on export other than the domestic demand stimulus. The market should develop by itself under the Government’s supervision and rational adjustment to stabilize the market.

"The point is the reform implementation at ministries and departments. Small and medium-sized enterprises (SMEs) which account for 95 per cent of Vietnam's corporate structure - the main subject of the economy, is completely ignored. All of them have to manage to grow on their own without being financially and technologically supported. Therefore, they fail to join in the global supply chain or supporting supply chain for FDI groups," analyzed Hai.

Vu Tien Loc, Chairman of Vietnam Chamber of Commerce and Industry (VCCI), Vietnam’s Government and enterprises need to change for good growth in the current context of the U.S. – China trade war.

In addition, the reorganization of the world’s market will offer opportunities for Vietnamese private businesses. The point is whether they will strive to seize these opportunities or not.

The government is still endeavoring to implement institutional - administrative reforms to create a more attractive business environment. The greatest risk for economic growth is that the Government and businesses are unwilling to change.

At present, Vietnam’s competitiveness only ranks fifth and sixth in ASEAN, which has not met the international standards. It is institutional - administrative reforms that will boost the country’s economy.

Experts said that in the current disturbance, there exist both risks and opportunities. Pressure sometimes helps businesses grow faster. Therefore, businesses should set out different scenarios to cope with the risks and make the best use of opportunities.

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