Highest risks doing business with China

Dr. Nguyen Dinh Cung and Dr. Tran Toan Thang from the Central Institute of Economic Management (CIEM) Vietnam's growth rate heavily depends on trade. 

The trade openness has been increasing rapidly, from 115% of GDP in 2003 to 160% in 2013.

Meanwhile, the figure is on the decrease for ASEAN, from 143% to 140%. 

China is among the countries with low trade openness, about 50% of GDP. 

If international trade risks occur, Vietnam would be more vulnerable than other economies.

High risks for wooden furniture, farm produce, food

CIEM has found there is heaviest reliance in some business fields, including farm produce and food, especially processed food and vegetables.

The high risk in exporting food and vegetables to China is due to exports going across the border gates through unofficial channels.

 It is difficult for Vietnamese exporters to predict Chinese demand and they usually are at a disadvantage when negotiating with Chinese importers.

With farm produce exports to China increasing from 11.9% of total farm export turnover in 2010 to 24% in 2014, economists have every reason to warn that the continued reliance on Chinese market will lead to weaker competitiveness of Vietnamese goods in the market.

Wooden furniture is also a business sector which shows heavy reliance on China. The problem is even more serious, if noting that Vietnam needs to import 70-80% of total materials needed.

Under the Trans Pacific Partnership Agreement, Vietnam’s wooden furniture products must be made by no more than 45% of materials from non-TPP countries. 

Meanwhile, a large proportion of wood for exports is from Laos and China, which hinders Vietnam from conquering potential markets like the US.

CIEM’s researchers also pointed out that industrial products, such as machines, equipment, electric & electronic components make up for increasingly high proportions in exports to China, from less than 10% in 2005 to 20% in 2015.

The business sectors which reduce reliance on China

Plastics and rubber products, unlike wooden furniture, have seen the reliance decrease.

In principle, the higher the trade concentration level, the higher risks export products will bear when problems occur with import countries.

Materials remain Vietnam’s export items which once accounted for 35-50% of total exports.

However, the figure has fallen sharply to 10%. Vegetable products are also a major export item, about 35%.