China yuan policy change may boost Vietnam exports, PXP says

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The "enhanced flexibility" of China's exchange-rate policy may make Vietnamese exports more competitive and boost foreign investment, PXP Vietnam Asset Management said in a note to clients.

The Chinese government said on June 19 that it was lifting a two-year policy of pegging its currency, the yuan, to the US dollar. The yuan will probably strengthen as a result of the move, Citigroup Inc. said on June 21.

PXP Vietnam Asset Management Chief Executive Kevin Snowball, said in a telephone interview Wednesday that, "The dong is at some stage likely to resume gradually depreciating and as the two currencies move away from each other over say, the next two to three years, we may well see major international players shift production from China to Vietnam."

Meanwhile, Truong Dinh Tuyen, a member of the National Monetary Policy Advisory Council, said a stronger yuan will boost overseas investment from China, and Vietnam will benefit from increasing capital flows.

It will also create more opportunities for Vietnam to ship more goods to China, he said in a report published by Saigon Tiep Thi newspaper Wednesday.

Vietnam's trade deficit with China has expanded at a fast pace over the past decade, from only US$210 million in 2001 to $12.2 billion last year. In the first five months this year, the country imported $7.3 billion worth of goods from China while its exports to China were recorded at $2.3 billion, according to official statistics.

Tran Dinh Thien, head of the Vietnam Institute of Economics, said if the yuan gets stronger, Vietnam can boost exports to China.

But that doesn't mean the trade deficit will narrow much because local producers still import a lot of materials from China, Thien said.

Dong advantage

The dong was devalued in February. The devaluation caused "concern among neighboring countries" over the competitive advantage that Vietnam might glean from a weaker dong, the United Nations Economic and Social Commission for Asia and the Pacific said in May.

"Wages are also rising in China," said Snowball, who's based in Ho Chi Minh City. "Vietnam should benefit from that as well," he said, citing garments, furniture and electronics as the main industries that are likely to take the export market share away from China.

Vietnamese Deputy Prime Minister Nguyen Sinh Hung told the National Assembly last month that the government would try to boost exports as Vietnam tries to accelerate economic growth.

Overseas shipments climbed 13 percent through May, according to preliminary General Statistics Office figures.

Shipments of garments, Vietnam's top export, rose 17 percent through May to $3.81 billion. Furniture exports climbed 31 percent through May to $1.24 billion, while electronics shipments jumped 30 percent to $1.21 billion.

"Vietnam's exports are now recovering," the World Bank said in a report this month. "The recovery is strong in the case of key labor-intensive exports such as garments, footwear, electronics, seafood and furniture."

Dien Quang Hiep, director of Mifaco Furniture in Binh Duong Province, said customers in the US and Europe have placed more orders from Vietnam as Chinese products become less competitive.

Chinese products used to be cheaper than Vietnamese products due to China's currency policy and production advantage. But foreign importers have predicted that it will no longer be the case when the yuan rises, Hiep said.

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