Vietnam eases reliance on Chinese products, but imports more from ROK

According to the General Statistics Office (GSO), Vietnam’s export turnover to the ROK in the first half of 2016 reached US$6.6 billion, an increase of 29% over the same period last year. 

Meanwhile, Vietnam imported US$22.5 billion worth of products, an increase of 51.2%, a trade deficit of US$15.9 billion. 

“This is unprecedented in our trade history,” said Nguyen Duc Thanh, director of the Vietnam Institute for Economic & Policy Research (VEPR).

Thanh said his research team discovered an increase in imports from the ROK two to three years ago.

One year ago, a VEPR report said, “There is a growing tendency of shifting to import products from the ROK”. 

At that time, VEPR attributed this to several reasons. Vietnamese businesses did not want low-quality Chinese machines anymore, but wanted products with higher quality from more developed countries.

In addition, the ROK became the biggest foreign direct investor in Vietnam and South Korean investors tended to bring Korean machines and equipment to their factories in Vietnam.

“This will continue in the time to come,” Thanh said.

However, the economist emphasized the difference between the trade deficit with China and with the ROK. The imports from China are mostly common products because China is a global production base.

China is not a big foreign direct investor in Vietnam, but Chinese machines and equipment are still imported to Vietnam in large quantities, as 80% of EPC contracts are assigned to Chinese contractors.

Meanwhile, the trade deficit is associated with the South Korean strong investment in Vietnam. 

A report from KOTRA (Korea Trade Investment Promotion Agency released in early June showed that since 1988, South Korean businesses had invested US$50.5 billion in Vietnam, which accounts for 30.8% of total FDI (foreign direct investment) capital. 

At least 71% of the capital has been poured into the manufacturing sector.

Thanh emphasized the role of Samsung, the ups and downs of which can change important indexes of the Vietnamese economy.

Pham Chi Lan, an economist, while commenting that the increased imports from the ROK will help ease reliance on Chinese imports, has expressed concern that this could be a hurdle to the development of Vietnamese businesses.

“China could only make products with lower or equal quality with Vietnam’s. South Korean products are better,” Lan said, adding that the trade deficit with the ROK needs thorough consideration.