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Standing with Japan shoulder-to-shoulder
In this report, Ken Arakawa, senior investment advisor at the Japan External Trade Organization (Jetro)'s Hanoi office takes an optimistic look at the Vietnamese economic performance and believes the South East Asian country is fit to stand on an equal ground with Japan for mutual benefits.
There have been pessimistic reports on the Vietnamese economy with such wordings as “an uncertain economy”, “many ongoing changes” and “people are facing severe difficulties”. However, there are now no signs of such serious things. and Vietnam is well on course during its transition into a market economy.
A minor part the financial crisis plays in the real economy.
According to analyses by the media, Vietnam’s economy is getting worse with the falling stock market, widening trade deficit and galloping inflation.
It is true that Vietnam’s stock market capitalisation has plummeted by 30 per cent compared to its peak in October 2007. However, considering its size with around 300 stocks traded on both Hanoi Securities Trading Centre and Ho Chi Minh Stock Exchanges, which combined no more than $4.4 billion in market value by November 19, 2008, Vietnam’s stock market is not comparable to huge ones in developed countries.
As far the trade deficit is concerned, Vietnam saw a fast widening gap from January to September 2008. Yet, a major cause was the imports of machinery, equipment and materials, which are absolutely necessary for a developing economy. Furthermore, the trade gap should not be seen as a major problem considering Vietnam’s foreign currency reserves of $21.2 billion.
Vietnam’s headline yearly inflation was recorded at 26.7 per cent in October, but it was chiefly due to the soaring food prices. In Hanoi and Ho Chi Minh City, the country’s two largest cities, a distribution revolution has commenced with the inception of modern wholesalers and retailers in the market. This is the very cause driving prices up, which are now easier to make statistics than previously, when people mainly bargained for their purchases in traditional markets.
On one hand, price rise adds difficulties to people’ daily lives.
But on the other hand, it marks a new development stage in the distribution industry. And since October, the high inflationary pace has started to be controlled with a 0.2 per cent drop compared to the previous month. In Hanoi, young people are still seen riding their motorbikes around or gathering in Karaoke bars. Families still flock to hotel for buffet dinners.
In small lanes, children go on filling up night classes while their parents parking outside to take them home. These popular scenes appear to point to no big negative changes in people’ lives. Notably, despite the US subprime loan crisis, Vietnam’s export earnings from the American market in the first three quarters of 2008 still rose by almost $8.8 billion, or 19.3 per cent over the same period of 2007.
Although Vietnam is moving toward a market economy, it is still under a socialist governance with the state’s regulation. The market economy, or in other words, the financial economy, is gradually affecting all rounds of lives. However, the ongoing economic crisis in developed countries and the monetary crisis have not taken their toll on Vietnam.
Given that context and among information about an uncertain Vietnamese economy, I myself as a foreigner who live and work here in Vietnam do not feel much like that. One may be reminded that Vietnam’s economic growth would slow down to 6-7 per cent this year, but it is important to bear in mind that the economy continues to grow.
Remittances exceed $6 billion
In order to accurately comprehend the situation, it is necessary to understand the Vietnamese country and people. On April 30, 1975, the Saigon regime collapsed. Since 1976, the [united] Socialist Republic of Vietnam, under the guidance of the Vietnam Communist Party, had adopted a planned economy managed by the state. The Vietnamese government then judged that the planned economy alone could not facilitate robust development.
In December 1986, Vietnam initiated the doi moi (reform) policy, starting to build a market economy and opening for foreign investment. This market economy is put under the socialist institution, with for example, costs for electricity and water supplies, education and medical expenses are only born partially by people. The state is meanwhile provides a bid subsidy.
During the 30 years to the collapse of the Saigon regime in 1975, many Vietnamese capitalists and talented people with a rich knowledge of a market economy left the country for overseas. The total number of Vietnamese people residing overseas now amount to over three millions, with two-thirds living in the US.
Overseas Vietnamese, also known as Viet Kieu, has now entered their third generation. Even the third generation has a strong patriotism. According to Vietnam’s official statistics, Viet Kieu remitted home $4 billion in 2006 and $6 billion in 2007 for business or family supporting purposes. Indeed, the amounts might be doubled if the money carried by Viet Kieu themselves to their homeland was taken into calculation. Such remittances have play an important role in supporting Vietnam’s economic development.
WTO accession - Vietnam’s Minh Tri Revolution
On January 11, 2007, Vietnam officially became the 150th member of the World Trade Organization (WTO). It may be said that the WTO accession brings Vietnam a clear awareness of the global economy like Japan’s Minh Tri reform. It is possibly too early to say Vietnam will become a developed country.
But like Japan, which has undergone a miracle development to become a modernised country thanks to its Minh Tri reform, Vietnam has also steered its economy toward integrating into the global market. In 2007, Vietnam’s gross domestic product (GDP) per capita just reached $800, which, according to a British economist, was just comparable to Japan by the end of Edo time according to the current purchasing power parity. Certainly, it is unlikely to simply compare Japan at that time with Vietnam today, but it is true that Vietnam has so far not developed a steel manufacturing industry and a refinery. The country’s north-south railway system is now only consists of a mono-route which enable an average speed of 40kmh.
Japan’s next partner
In September 2008, the year that marked the 35th anniversary of Japan-Vietnam diplomatic relationship, the two countries reached a consensus for the signing of an Economic Partnership Agreement (EPA). The Japan-Vietnam EPA does not simply cover tariff reduction provisions, but also strengthens bilateral cooperation by liberalising trade and services. The EPA will also facilitate human movement, immigration and residence, providing more conditions for bilateral exchanges.
Vietnamese and Japanese people have many similarities in ways of thinking. Thus they would see no problems working and living together. Given that, Vietnam is quite suitable to be Japan’s next partner, meaning the two countries can stand on the equal ground on a mutual respect basis and “share the same road”.
VIR
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