Vietnam’s top 10 economic events in 2019 (P.2)

Following Part One, Hanoitimes continues with Part Two of Vietnam's top 10 economic events in 2019.

6. Illegal transshipment due to US – China trade war puts Vietnam at stake

As Vietnam has signed free trade agreements with all major economies in the world, the country becomes an ideal trade and investment partner, but is also subject to the risk of illegal transshipment.

Due to the US – China trade war, US-bound Chinese goods such as plastics, optical items, electronics that are subject to US anti-dumping duties have decreased in volume, but transshipment of similar goods to the US via third countries, including Vietnam, is surging.

A report from the Vietnam Steel Association suggested Vietnam’s steel industry has been at the center of trade probes from other countries following the escalation of the trade war.

In late October, the General Department of Vietnam Customs (GDVC) has timely prevented a US$4.3-billion Chinese aluminum batch forging Vietnamese origin from being exported to the US.

“If not properly addressed, illegal transshipment would increase the risk of Vietnamese compliant traders facing slower export procedures in the US, as well as higher customs duties,” stated an USAID expert.

7. “Made in Vietnam” criteria released

Amid rampant trade fraud, the Ministry of Industry and Trade (MoIT) has released the draft circular providing criteria for products eligible to be classified as “made in Vietnam”.

The draft circular regulates that made-in-Vietnam products should be originated or wholly produced in Vietnam, including agricultural products or natural resources. Otherwise, products should undergo final processing or manufacturing in Vietnam to fundamentally change their essential qualities to be labeled as such. 

The MoIT expects the criteria set in new circular to be vital in tackling growing trend of foreign goods forging Vietnamese origin, while there would be no additional administrative procedure and costs for enterprises in the new regulation. 

Many enterprises have taken advantage of this loophole to self-proclaim its products as “Made in Vietnam” such as Khaisilk, a premier Vietnamese silk brand, found mislabeling its scarves imported from China as “Made in Vietnam” or the questionable case of Asanzo, which assembles in Vietnam its TV sets from components imported from China and declared them Vietnamese products.

The latest case has been local fashion brand Seven.am in Hanoi, which has allegedly changed Chinese labels on certain products into made-in-Vietnam ones.

8. Booming internet economy

With the gross merchandise value of Internet economy set to account for over 5% of the country’s GDP in 2019, Vietnam is emerging as the most digital of all economies in ASEAN, according to a research report by Google, Temasek and Bain. 

Source: e-Conomy SEA report 2019.

According to the report, Vietnam’s Internet economy is booming, as it reaches US$12 billion in 2019 on a 38% annualized growth rate since 2015, and it is projected to increase to US$43 billion by 2025. 

“e-Commerce is a key driver behind Vietnam’s impressive numbers, where homegrown marketplaces like Sendo and Tiki compete with regional players like Lazada and Shopee,” stated the report. 

These dynamics are unlocking opportunities for entrepreneurial Vietnamese small and medium-sized businesses, which have jumped onboard the Internet economy to do business. Investor confidence in Vietnam, the third most-funded economy in the region after Indonesia and Singapore, is on the rise. Over the last four years, Vietnam’s Internet economy has attracted almost US$1 billion in funding, with 2019 in line to be a record year.

9. Banks rush to implement Basel II

Many Vietnamese banks are in the race to meet the requirements on capital adequacy ratio (CAR) following Basel II standards right in 2019, before the deadline of January 1, 2020 kicks in.

Fitch Ratings previously said the Vietnamese banking system could face a capital shortfall of almost US$20 billion (9% of GDP) to meet Basel II implementation and to increase allowance coverage to a level that reflects underlying asset-quality problems

Basel II is an international business standard, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision, requiring financial institutions to maintain enough cash reserves to cover risks incurred by operations. 

To date, only 16 out of 38 local banks are able to meet the Basel II standards, leaving the central bank with no choice but offering some banks forbearance on Basel II implementation, highlighting weak capitalization in the sector, stated Fitch Ratings in a note.

10. Rise of new private airlines

Bamboo Airlines with the backing of conglomerate FLC Group made the first commercial flight on January 16, 2019, marking the inroad of the first airline to Vietnam’s aviation market after eight years.

As of present, Vietnam has five operational airlines which are Vietnam Airlines, budget operator Jetstar Pacific Airlines (partly owned by Vietnam Airlines), budget carrier Vietjet Air, Vietnam Air Services (VASCO) and Bamboo Airways.

The local aviation market is expected to get busier in the coming months as new brands rush to enter the sector. Procedures and preparations to establish Vietravel Airlines, Vinpearl Air, Vietstar Airlines and Thien Minh are underway.

Dinh Viet Thang, director of  the Civil Aviation Authority of Vietnam (CAAV), previously said that with a population of more than 90 million, Vietnam’s aviation market should have the participation of more domestic carriers to offer more options for passengers and meet the increasing air traveling demand.

The International Air Transport Association (IATA) forecast Vietnam is well placed among five fastest-growing markets in terms of additional passengers per year, reaching 150 million passengers by 2035.