Vietnam Industry and Trade News Bulletin for January 11, 2016

A. GENERAL ECONOMIC HIGHLIGHTS

1. World Bank: Vietnam’s Economy Could Grow by 10% by 2030 According to the World Bank Group’s “Global Economic Prospects” report, Vietnam’s economy is projected to receive the strongest boost among the 12 TPP member countries, with potential growth of nearly 10% by 2030 . This is largely due to preferential access for Vietnamese textiles and apparel to the US and other key markets. Malaysia is expected to grow by 8%, gaining an advantage over non-TPP regional competitors like Thailand and Indonesia .

2. Vietnam Less Affected by China’s Economic Slowdown Bloomberg, citing an ANZ report, indicates that Singapore will be the Southeast Asian nation most affected by China’s economic deceleration (losing 1.4 percentage points in growth for every 1% drop in China’s growth) . Conversely, Vietnam, Indonesia, and the Philippines are among the least affected. ANZ estimates that a 1 percentage point drop in China’s growth would only reduce Vietnam’s growth by 0.2 percentage points .

3. Strict Control on Public Debt in 2016 The Government has issued a Resolution on socio-economic development for 2016, mandating strict control over public debt, government debt, and foreign debt within limits set by the National Assembly . The directive emphasizes managing government guarantees for loans, shifting towards commercial bank guarantees, and restructuring loans towards medium and long-term tenors with appropriate interest rates .

4. Real Estate Classified as “Potential Risk” Sector In its 2016 directives, the Government continues to classify real estate as a sector with “potential risks.” The resolution requires credit growth to be linked to quality control, specifically tightening credit for real estate and projects with long capital recovery times . Currently, outstanding loans for real estate business are approximately 360,000 billion VND, an 80% increase compared to 2012 .

5. Chinese Investors Seek Opportunities in Vietnam Nearly 50 Chinese entrepreneurs attended a seminar organized by IVS Securities to seek investment opportunities in Vietnam’s stock market . Investors view Vietnam as an attractive alternative destination following the recent sharp decline and predicted difficulties in the Chinese stock market .

6. Workers Anxious About Tet Bonuses While reputable firms ensure full payment, many workers remain anxious. Some businesses, like “Sự Lựa Chọn Hoàn Hảo” Co. Ltd. (HCMC), owe months of wages, leaving workers with little hope for Tet bonuses . In the textile and footwear sectors, bonuses generally range from 1 to 1.5 months’ salary .

7. Tax Incentives for Environmental Protection The Ministry of Finance issued a circular granting a preferential corporate income tax rate of 10% for 15 years to new investment projects in environmental protection . For projects meeting socializarion criteria, the 10% rate applies throughout the project’s operational life .

8. 212,000 Billion VND Credit Package for HCMC Businesses Nearly 20 banks have committed to providing preferential loans totaling nearly 212,000 billion VND to businesses in Ho Chi Minh City in 2016 . Interest rates for short-term loans will not exceed 7%/year, and medium-to-long-term loans will be 8-10%/year .

9. Aviation Sector Aims for Top 4 in ASEAN At the 60th anniversary of Vietnam’s civil aviation sector, Deputy Prime Minister Hoang Trung Hai noted that while the sector is growing fast globally, it currently ranks 6th in ASEAN . He set a target for Vietnam’s aviation market to break into the top 4 in ASEAN and urged for infrastructure upgrades and safety assurance .

B. INDUSTRY AND TRADE NEWS

I. ENERGY (OIL, GAS & ELECTRICITY)

• PVN Difficulties: Many subsidiaries of PetroVietnam (PVN) are struggling due to falling oil prices. Vietsovpetro faces a $200 million financial imbalance, and PVEP has almost no profit . High production costs due to scattered investments (e.g., Dinh Vu Fiber Plant) compared to focused regional competitors are a major challenge .
• Gazprom Neft Halts Dung Quat Deal: Gazprom Neft (Russia) has officially sent a letter stopping negotiations to purchase a 49% stake in the Dung Quat Oil Refinery . The decision came after the Ministry of Industry and Trade confirmed that import tax incentives for Dung Quat could not be extended beyond 2018 .
• Fuel Prices: Finance Minister Dinh Tien Dung explained that retail fuel prices have dropped less than crude oil (12-30% vs. 40%) because crude oil accounts for only 40-50% of the retail price structure . He asserted that Vietnam’s retail fuel prices remain significantly lower than those in Laos, Cambodia, and China .
• Electricity Price Pressure: EVN forecasts the average electricity price in 2016 to increase by 21.4 VND/kWh (to 1,651.2 VND/kWh) due to changes in load structure and increased consumption in high-price sectors (services, residential) . Experts warn that rising input costs (coal, gas, exchange rates) may pressure EVN to hike prices in 2016 to ensure market-based pricing .
• Cu Lao Cham Electrification: A project to supply national grid electricity to Cu Lao Cham island (Quang Nam) via submarine cable broke ground on January 9, with a total investment of over 484 billion VND .

II. INDUSTRY

• New Steel Plant: Hoa Sen Group broke ground on the Hoa Sen Nhon Hoi Steel Plant in Binh Dinh on January 8. The project has a total investment of 2,000 billion VND and is expected to operate by June 2017 .

III. EXPORT – IMPORT

• Chinese Truck Imports Surge: Lang Son Customs collected 6,350 billion VND in 2015 (156% of the target), largely driven by the import of 40,000 trucks from China .
• Trade Deficit Concerns: Experts worry about a trade deficit returning in early 2016, potentially reaching $2 billion in Q1, driven by machinery imports for FDI projects anticipating FTAs .
• Rice Competition: Vietnamese rice is losing market share in China (from 65% in 2012 to 47% in early 2015). China recently imported its first batch of rice from Laos, signaling rising competition from Laos and Cambodia, which offer higher quality despite lower tech .
• Thai Nguyen Exports: Thai Nguyen has risen to become the 4th largest exporter in Vietnam (after HCMC, Bac Ninh, Binh Duong), driven almost entirely by Samsung’s phone exports .

IV. DOMESTIC MARKET

• Retail Expansion: The Ministry of Industry and Trade forecasts modern retail will reach 45% market share by 2020. International experts (Cushman & Wakefield) believe shopping mall supply is not yet saturated given the growing middle class .
• Steel Imports: In 2015, Vietnam imported 1.78 million tons of steel billets (up 198%), raising concerns that Vietnam is becoming a consumption market for imported steel .

V. CONSUMER PROTECTION

• Toxic Chopsticks Alert: Taiwan’s FDA detected toxic substances (biphenyl, hydrogen peroxide) in disposable chopsticks imported from Vietnam . Vietnamese businesses suspect these might be cheap Chinese goods re-labeled as Vietnamese origin to meet low price demands from Taiwanese importers .

VI. INTERNATIONAL INTEGRATION

• Textile Challenges in TPP: While TPP offers huge opportunities, the “yarn forward” rule is a major hurdle as Vietnam relies heavily on imported materials from China . Productivity is also a concern; Vietnamese garment workers average 12 shirts/day compared to 25/day in China . Companies like Phong Phu are investing in localization to meet origin rules .