Vietnam Industry and Trade News Bulletin for January 4, 2016

A. GENERAL ECONOMIC HIGHLIGHTS

1. Anxious Wait for Tet Bonuses Despite reports from the Ministry of Labor, Invalids and Social Affairs (MOLISA) suggesting that the 2016 Lunar New Year (Tet) bonuses might exceed the previous year’s average of 5 million VND due to GDP growth, workers remain anxious. As of January 3, the Ministry had not yet fully summarized the bonus situation as local reports were incomplete. MOLISA officials noted that while bonuses are not mandatory, they are encouraged to boost morale.

2. Ministry of Finance Rejects Delay in BOT Fee Hikes The Ministry of Finance has rejected a proposal by the Ministry of Transport to delay fee increases at several Build-Operate-Transfer (BOT) toll stations. The Finance Ministry argued that delaying fees for existing stations while new stations charge higher rates (35,000 VND/turn) from January 1, 2016, would be unfair to investors.

3. Concerns Over “Domestic” Capital in FDI Projects Reports indicate a trend where projects registered as Foreign Direct Investment (FDI) are actually raising capital domestically. Investors reportedly use land incentives to mortgage assets at local banks to fund infrastructure, rather than bringing in foreign currency. Experts warn this crowds out capital for domestic firms and calls for stricter financial capacity verification for foreign investors.

4. 2016: The Year of Institutional Breakthroughs Prime Minister Nguyen Tan Dung has emphasized that 2016 must achieve higher results than 2015, with institutional reform being the most critical breakthrough. Ministers are expected to lead these reforms to remove obstacles for businesses and improve national competitiveness for integration.

5. Banking System Restructuring Following the 2011-2015 restructuring phase, the State Bank of Vietnam (SBV) plans to further consolidate the system to approximately 15 healthy banks, a number deemed sufficient for the economy’s scale.

6. Transition to Chip Cards by 2020 The SBV has released a plan to convert all magnetic bank cards to chip-based cards by 2020 to enhance security and prevent fraud, aligning with global trends.

7. FDI Highlights in 2015 Vietnam attracted nearly $23 billion in registered FDI in 2015, a 12.5% increase and the highest since 2008. Notable “billion-dollar” projects include Samsung Display ($3 billion, Bac Ninh), Duyen Hai 2 Power Plant ($2.4 billion, Tra Vinh), Empire City ($1.2 billion, HCMC), and Cheng Loong Paper ($1 billion, Binh Duong).

8. Manufacturing PMI Returns to Growth The Nikkei Purchasing Managers’ Index (PMI) for Vietnam rose to 51.3 in December from 49.4 in November, signaling a return to growth. This was supported by a rise in new export orders, though firms remain cautious.

9. World Bank: 6 Key Points on Vietnam’s Economy The World Bank highlighted Vietnam’s resilience to external shocks, supported by domestic demand and export-oriented manufacturing. Key positives include low inflation (0.7%), flexible exchange rate management, and sustained export growth. However, SOE restructuring remains slow.

10. Vietnam: Top Asian Destination for Expats An HSBC survey of 22,000 expatriates ranks Vietnam as the most attractive destination in Asia for foreign workers looking to improve their personal finances and save money.

11. Economic Growth Forecasts

• Fulbright Economics Teaching Program: Vietnam’s GDP growth could reach 6.8-7% in 2016, potentially surpassing China’s growth rate for the first time since the “Doi Moi” reforms.
• National Financial Supervisory Commission: Forecasts 2016 GDP growth at 6.7-6.8%, driven by FDI, private investment, and new trade agreements.

B. INDUSTRY AND TRADE NEWS

I. OIL & GAS

• Profit Threshold: PetroVietnam (PVN) states that oil prices must remain above $45/barrel for the group to be profitable in 2016. The average extraction cost is projected at $27.4/barrel, with the Cuu Long basin being the cheapest ($12.7) and Song Doc the most expensive ($58).
• Refinery Hub: Quang Ngai province is proposing to develop the Dung Quat Economic Zone into a National Oil Refining and Petrochemical Center.

II. HEAVY INDUSTRY

• Formosa Steel: The Formosa Ha Tinh Steel plant produced its first hot-rolled coil on December 24, 2015. Formosa representatives state they will focus on steel inputs (hot-rolled coils, wire rods) for industries like automotive and shipbuilding, rather than competing directly with domestic construction steel producers. This could reduce Vietnam’s reliance on imported raw materials.

III. IMPORTS & EXPORTS

• Trade Deficit with China: Vietnam’s trade deficit with China hit a record $32.3 billion in 2015. Imports range from machinery and steel to agricultural products like vegetables and onions.
• Catfish Struggles: Tra fish exports face difficulties due to anti-dumping taxes and new inspection programs in the US. Exports are forecast to drop 5% in 2016 to $1.5 billion.
• Trade Surplus with US: The US remains Vietnam’s largest export market with $33.5 billion in turnover (up 17%), resulting in a $25.5 billion trade surplus.

IV. DOMESTIC MARKET

• Competition from ASEAN: With tariffs dropping to 0%, Vietnam faces an influx of cheap goods from ASEAN, posing a challenge for domestic manufacturers with lower competitiveness.
• Sluggish Holiday Sales: Despite promotions, purchasing power in HCMC remained average during the New Year holidays, as many residents traveled out of the city.

V. MARKET MANAGEMENT

• Origin Fraud: VCCI has confirmed cases of origin fraud where companies used fake customs declarations to obtain Certificates of Origin (C/O), likely to evade anti-dumping duties on Chinese steel.

VI. TRADE PROMOTION

• EU Distribution Goals: The government aims for Vietnamese goods to be directly available in major distribution systems across Europe, North America, and Asia by 2020.

VII. INTERNATIONAL INTEGRATION

Agricultural Risks: Agriculture faces a “survival” test under new FTAs. The sector must restructure towards high-value products like rice, coffee, and pepper to compete.

SME Readiness: Experts warn that Vietnamese SMEs lack knowledge about the ASEAN Economic Community (AEC). A survey showed 76% of SMEs were unaware of the AEC.

Enterprise Target: Minister of Planning and Investment Bui Quang Vinh stated that 600,000 enterprises is “not enough,” aiming for 2 million businesses post-2020.