Vietnam Industry and Trade News Bulletin for January 5, 2016

A. GENERAL ECONOMIC HIGHLIGHTS

1. 2016 Economic Outlook: Inflation and Exchange Rates The National Financial Supervisory Commission (NFSC) forecasts that core inflation in 2016 will be around 3%, with headline inflation likely lower at 2-3%, leaving room for price adjustments in public services. However, exchange rates and interest rates will face significant pressure. The trade deficit is projected to rise to approximately $4 billion as investment demand drives machinery imports.

2. BOT Toll Fees: Ministry of Finance Rejects Delay Despite the Ministry of Transport’s proposal to delay fee hikes at BOT (Build-Operate-Transfer) toll stations to reduce pressure on the public, the Ministry of Finance has decided to proceed with the increases according to the roadmap. The Finance Ministry argued that delaying fees would disrupt financial plans and bank repayment schedules for investors. The Ministry of Transport will now negotiate with investors on a case-by-case basis to balance benefits between investors and the public.

3. 30 Trillion VND Housing Package Stalled The 30 trillion VND support package for social housing is facing a bottleneck due to new regulations under Circular 26 regarding the mortgage of “assets formed in the future”. Banks have temporarily stopped lending because local land registration offices have not yet received guidance on registering these specific mortgages, causing difficulties for homebuyers and developers even though the package expires in June 2016.

4. New Exchange Rate Mechanism: Managed Float The State Bank of Vietnam (SBV) has officially adopted a new exchange rate mechanism where the central rate is announced daily based on domestic supply/demand and global movements. To stabilize the market, the SBV allows banks to buy foreign currency with a 3-month term at a price 1% higher than the spot rate, signaling a target fluctuation band of around 1% for the first quarter.

5. Information Security Warning (Lenovo) Concerns have been raised regarding pre-installed software (LSE) on Lenovo computers suspected of collecting user data. This serves as a warning for information security in Vietnam, where many enterprises still lack dedicated resources for cybersecurity; a survey showed 63% of SMEs spend less than 5% of their IT budget on security.

6. Restrictions on Individual Indirect Offshore Investment A new decree stipulates that individual investors are not permitted to use loan capital for indirect investment abroad. Economic organizations (excluding banks) can engage in self-trading or entrusted investment but are also restricted from using VND loans from credit institutions to purchase foreign currency for these investments.

7. Infrastructure Goal: 2,000 km of Expressways by 2020 At the Ministry of Transport’s review meeting, Prime Minister Nguyen Tan Dung directed the sector to mobilize social resources to achieve the goal of having over 2,000 km of expressways by 2020, as the state budget is insufficient.

8. Interbank Interest Rates Hit 2-Year High Liquidity tension in the banking system pushed interbank interest rates to their highest levels in two years during the final week of 2015. Overnight rates exceeded 5%, and rates for 1-2 week terms also rose, driven by seasonal year-end payment demands.

9. Hanoi Budget Revenue Increases Hanoi’s budget revenue for 2015 reached nearly 156,000 billion VND, exceeding estimates by nearly 10%. The city has successfully modernized tax collection, with 98.5% of active enterprises filing taxes online.

10. Real Estate Boom in Business Registrations In 2015, the real estate sector led the country in new business formations, with an increase of 86.2% compared to the previous year.

11. Billion-Dollar FDI Projects in 2015 2015 was a record year for FDI, highlighted by four major “billion-dollar” projects: Samsung Display (Bac Ninh, $3 billion increase), Duyen Hai 2 Thermal Power Plant (Tra Vinh, $2.4 billion), Empire City (HCMC, $1.2 billion), and Cheng Loong Paper (Binh Duong, $1 billion).

12. Public Service Price Hikes Looming Authorities missed the opportunity to adjust public service prices (health, education) during the low-inflation period of 2015. Consequently, these adjustments are expected in 2016, alongside electricity prices, which poses a challenge for controlling inflation and managing people’s cost of living.

B. INDUSTRY AND TRADE NEWS

I. OIL & GAS

Stabilization Fund: Petrolimex announced that its Petroleum Stabilization Fund had a surplus of 2,380 billion VND as of January 4, 2016.
Production Records: PetroVietnam (PVN) exceeded its oil production plan by 2.12 million tons, reaching 16.86 million tons domestically, despite the sharp drop in crude oil prices. Total revenue was 560 trillion VND.

II. ELECTRICITY

Thermal Power Concerns: The Ministry of Industry and Trade is revising Power Development Plan VII. Experts are concerned about the heavy reliance on coal thermal power (planned for 62% of output by 2030) due to environmental risks and are urging a shift toward renewable energy, though cost competitiveness remains a debate.

III. IMPORT & EXPORT

Dependence on China: Vietnam’s trade deficit with China reached over $32.3 billion in 2015. Experts warn of deep dependence on Chinese machinery and raw materials, suggesting that importing outdated technology could hinder Vietnam’s industrial modernization.
Customs Issues: In Hai Phong, 90% of customs declarations are handled by unauthorized “underground” service providers rather than licensed customs agents, causing legal risks for import-export firms.
Export Strategy: The 2015 export growth of 8.1% missed the 10% target. For 2016, the strategy relies heavily on leveraging new Free Trade Agreements (FTAs), but internal weaknesses such as lack of branding and low value-added processing remain significant hurdles.
Shrimp Ban Lifted: China has lifted its ban on live shrimp imports from Vietnam after 11 months, originally imposed due to disease concerns.

IV. DOMESTIC MARKET

Anti-Smuggling: Deputy Prime Minister Nguyen Xuan Phuc directed An Giang province to crack down on smuggling, noting that nearly 400 people locally live off smuggling and warning against “protective umbrellas” for these activities.
Multi-Level Marketing Fines: New regulations effective January 5 impose fines of up to 100 million VND for operating unlicensed multi-level marketing (MLM) businesses. MLM firms paying bonuses exceeding 40% of revenue will also be fined.
Steel Prices Drop: Domestic steel prices fell by another 200,000 VND/ton due to low demand and cheap imports.

V. TRADE PROMOTION

Walmart Sourcing: The Vietnam Trade Facilitation Alliance (VTFA) announced that Walmart will meet with nearly 200 Vietnamese enterprises on January 15 to find suppliers for its global chain, serving as a practice run for TPP standards.

VI. INTERNATIONAL INTEGRATION

Vietnam-EFTA FTA: Switzerland has expressed strong support for the early conclusion of the Free Trade Agreement between Vietnam and the EFTA bloc (Switzerland, Norway, Iceland, Liechtenstein).
Integration Propaganda: The Ministry of Industry and Trade admits that communication regarding integration has been ineffective. In 2016, propaganda efforts will shift to “substantive and in-depth” guidance to help businesses understand specific commitments and implementation.