Vietnam Industry and Trade News Bulletin for January 6, 2016

A. GENERAL ECONOMIC HIGHLIGHTS

1. Vietnam Among Top 10 Fastest Growing Economies in 2016 According to The Economist Intelligence Unit (EIU), Vietnam is projected to be one of the top 10 fastest-growing economies in the world in 2016, with GDP growth forecast at approximately 7% . While global GDP is expected to grow by only 2.7%, Vietnam stands out in the region alongside Laos and Cambodia, driven by rising private consumption and a recovering tourism sector .

2. ANZ: Vietnamese Consumers Most Optimistic in Asia An ANZ survey conducted in December 2015 reveals that Vietnamese consumer confidence rose by 2.5 points to 144.8, the highest level since January 2014 . Nearly 60% of respondents expect their family finances to improve next year, and 66% believe the general economic situation will get better . ANZ experts believe Vietnam will be an outperforming economy in Asia for the 2016-2017 period, bolstered by the AEC and TPP .

3. Best Performing Stock Market in Southeast Asia According to the Wall Street Journal, Vietnam’s benchmark stock index (VN-Index) rose 6.12% in 2015, making it the best-performing market in Southeast Asia, while neighbors like Singapore (-14%) and the Philippines (-3.8%) saw declines . Region-wide, Vietnam ranked fourth in Asia, behind New Zealand, China, and Japan .

4. BOT Toll Stations Increase Fees Despite Ministry Request Despite a written request from the Ministry of Transport to delay fee increases until June 2016 to support businesses, many BOT (Build-Operate-Transfer) toll stations proceeded to raise fees starting January 1, 2016 . The Ministry of Finance explained that only 23 out of 53 stations were proposed for a delay, and enforcing a delay for only some would create inequality among investors; thus, a comprehensive assessment is required .

5. Taxes and Fees Erode Nearly 50% of Profits Economist Pham Chi Lan warned that the private sector is struggling to grow, with Vietnamese businesses contributing over 40% of their profits to various taxes and fees, compared to an average of 17% corporate income tax in other ASEAN nations . This heavy burden leaves little surplus for reinvestment or expansion, resulting in a private sector dominated by micro-enterprises with low participation in global value chains .

6. PM Directives: Agriculture Reform and Anti-Fraud Prime Minister Nguyen Tan Dung directed local authorities to facilitate corporate investment in agriculture, noting that the sector’s growth slowed to 2.41% in 2015—the lowest in five years . He ordered strict handling of fraudulent practices in the production and trading of agricultural materials and food products to protect hygiene and safety .

7. Official Allowances for Social Insurance Calculation The Ministry of Labor, Invalids and Social Affairs (MOLISA) issued a circular detailing the allowances included in compulsory social insurance payments effective January 1, 2016. These include position allowances, responsibility allowances, hazardous duty allowances, seniority allowances, and area allowances . Welfare payments such as bonuses, lunch money, fuel support, and phone allowances are excluded .

8. No Retroactive Tax Collection for Dairy Firms The Ministry of Finance has proposed to the Prime Minister not to retroactively collect trillions of VND in taxes from Vinamilk and seven other dairy importers regarding “Anhydrous Milk Fat” imports from 2010 . While the General Department of Customs had reclassified the item to a higher tax rate (15%), the Ministry agreed to accept the previous declarations (5%) to avoid retroactive penalties, while clarifying future classifications .

9. Impact of Chinese Stock Market Crash Following the sharp decline in Chinese stocks on January 4, Vietnam’s market also dipped. Experts suggest the direct impact is limited but warns that a weakening Chinese economy could lead to a devaluation of the Yuan, pressuring the VND . Economists view this as an opportunity for Vietnam to restructure and reduce its heavy economic dependence on China .

10. FDI Firms in Dong Nai Pay Large Tet Bonuses Many FDI enterprises in Dong Nai are paying substantial Tet bonuses, often higher than the previous year . For example, Pouchen Vietnam is spending over 170 billion VND to reward 22,000 workers, with long-term employees receiving nearly 20 million VND each .

11. Vietnam Ranks Low in Labor Productivity Despite 20 years of National Quality Awards, Vietnamese enterprises still struggle with low productivity compared to the region . The Ministry of Science and Technology notes that while awards encourage quality, professional culture among workers (e.g., taking leave for festivals) remains a hurdle for industrialization .

12. Credit Growth in 2016 Experts predict that the economy’s capital absorption will improve in 2016 as businesses recover. Banks are expected to stabilize lending rates, with potential reductions in medium and long-term rates to stimulate demand .

B. INDUSTRY AND TRADE NEWS

I. EXPORT – IMPORT

• Border Gate Policies: At a Ministry of Industry and Trade (MoIT) seminar, officials admitted that cross-border trade policies remain inadequate, with infrastructure lacking warehousing and causing complex management issues .
• Sand Export Ban: Deputy Prime Minister Hoang Trung Hai announced a halt to licensing new riverbed sand mining projects and a ban on exporting saline sand to prevent coastal erosion .
• Export Strategy to US: Experts warn that Vietnamese exports like dried fish and shrimp paste to the US primarily serve the Vietnamese diaspora and fail to penetrate the mainstream American market due to taste differences . Businesses are urged to understand the target market rather than just selling what they have .
• Philippines Rice Import: The Philippines plans to import at least 50,000 tons of rice from Vietnam and Thailand to ensure reserves amidst potential natural disasters .
• Agriculture Target: The agriculture sector targets $31 billion in exports for 2016 and aims for $40 billion by 2020 .

II. DOMESTIC MARKET

• Festival Fraud: Market management forces in Lam Dong seized thousands of items of unclear origin and unauthorized Chinese goods being sold at the Da Lat Flower Festival trade fair .
• Rotten Meat Crisis: Authorities in HCMC and other regions have intercepted tons of rotting meat, suckling pigs, and internal organs being transported for consumption in restaurants .
• “Temporary Import” Loophole: The Department of Animal Health warns that some rotting food products might be goods “temporarily imported for re-export” to China that were illegally diverted back into the Vietnamese market .
• Petrol Tax Evasion: The General Department of Taxation exposed tactics used by petrol companies to evade taxes, such as using fake contracts between internal branches to legalize smuggled petrol bought at sea .

III. MARKET MANAGEMENT

• Beer Competition: Sabeco leaders admit facing fierce competition from foreign brands and the impact of FTAs. The MoIT has urged Sabeco to improve marketing and ensure quality to maintain its market lead .

IV. TRADE PROMOTION

• India Exports: Indian companies are pushing exports of chemicals, dyes, and cosmetics to Vietnam, with a trade exchange event scheduled in HCMC. Exports of these products to Vietnam reached $114 million in the last two years .

V. OTHER ISSUES

• Corruption Report Skepticism: A 10-year review of anti-corruption efforts by the MoIT reported detecting only one violation and recovering 25 million VND in gifts . Delegates and the Government Inspectorate expressed disbelief, calling the figures “hard to believe” and “formalistic,” given the reality of “grease payments” and petty corruption .