Asia Times: Vietnam braces for a Chinese storm


	September 29, 2001	atimes.com

Southeast Asia

Vietnam braces for a Chinese storm
By Tran Dinh Thanh Lam

HO CHI MINH CITY - China's entry into the World Trade Organization (WTO) will certainly hurt Vietnamese exports and affect the country's ability to lure foreign investment, but stiffer competition may be just what Hanoi needs in order to accelerate economic reforms.

Dr Tran Van Tho, a Vietnamese professor at Japan's Waseda University, predicts that it would not only be Vietnam that would be affected adversely by China's entry into the WTO, but the other developing countries of the Association of Southeast Asian Nations (ASEAN) as well.

"ASEAN member countries that have the same level of development as China will face many challenges because China will have better access to the world market and FDI [foreign direct investment] flows," says Tho.

He adds that the Chinese business environment has proved more attractive than ASEAN countries in recent years, and its WTO entry, announced on September 18, will prompt more investors to shift their investment projects from ASEAN countries. In the early 1980s, FDI flowing into China and ASEAN was in the ratio of 30-70. Those figures have since been reversed.

China's admission to the WTO must still be ratified at the November 9-13 conference of WTO trade ministers in Doha, Qatar, and by China's National People's Congress.

With China's admission, Vietnam can expect foreign investment to shrink some more, say some economists, including Pham Chi Lan, vice chair of the Vietnam Chamber of Commerce and Industry (VCCI). "This will put us in a more difficult position to lure foreign direct investment, while our exporters will have to compete with Chinese products in a more unfavorable posture. Vietnam should strive harder to improve the investment climate if it is to maintain FDI flows," she says.

Hanoi has already pledged to do exactly that. To lure investors, Prime Minister Phan Van Khai has vowed to carry out infrastructure renovations, better implement government regulations, reduce red tape, and lower income tax. But the changes have been slow in coming, and big investors have taken a "wait-and-see" approach. And while foreign investment has risen this year, the increase is very small compared to those before 1997, when the region was hit by an economic crisis.

Still, officials insist that Vietnam had long been preparing for China's WTO membership. This is why, they say, the country is now part of the Asia-Pacific Economic Cooperation forum - so as to learn to do business in such a situation. Vietnam has also gradually lifted tariff barriers so that domestic businesses can "practice" some more with the free market system and thus be prepared for the country's own accession to the WTO, which Hanoi hopes will happen within three years.

Tran Du Lich, head of the Ho Chi Minh City Economic Institute, says that honing the competitive skills of Vietnamese businesses is essential for the country's exports. He affirms that China's WTO entry will surely threaten the exports of many developing countries - including WTO members - as China has already succeeded in satisfying the world market with low-priced products.

But Lich argues that Vietnam has a decided edge, since its garment, textile, footwear and electronic goods have long been in competition with China from a disadvantaged position, as China had enjoyed a "most favoured nation" status with the United States for the past 10 years. Vietnam is one of only six countries that do not have normal trade relations with the United States. This means Vietnamese products face US tariffs in the range of 40 percent, or more than 10 times those on Chinese goods.

But Vietnamese exports have not suffered as much as expected. Phan Dinh Do, chair of the Vietnam Footwear and Leather Association, points out that while Vietnamese manufacturers could not compete with cheap garments and footwear from China, they were successful in finding niche markets. "So," says Do, "I could say China's entry would not much affect Vietnam's exports. Local businesses could compete in their own way by targetting other market segments because world market demand is diverse and always changing."

Lich says it is more important for Vietnamese businesses to learn how to compete with Chinese products on the domestic market. As it is, fakes and smuggled goods from China have dealt local industries a hard blow. "This does not relate to China's WTO entry," he says. "But when Vietnamese businesses have gained a firm foothold on the domestic market, they will be able to provide a solid anchor for their overseas operations."

In the meantime, Hanoi is hoping that the Vietnam-US trade agreement is ratified soon, to help Vietnamese goods gain easier access to the US market. Trade Minister Vu Khoan has said the trade pact would create "favorable conditions" for Vietnam's admission to the WTO.

Some companies are confident that the Vietnam-US trade agreement will go through, so much so that they have begun preparing for it. US footwear giant Nike, for example, says it will increase its product flow from Vietnam to the United States by 20 to 25 percent. The Taiwanese-owned Pouyen Company, a subcontractor of Adidas, Reebok and other branded sport shoemakers, says it has already spent US$100 million to develop production facilities.

Then there is Wec Saigon, a local company specializing in the manufacture of woolen carpets, which has set up a whole program to target the US market. It will invest 15 billion dong ($1 million) to upgrade its production line for products destined for the new market.

Some observers, though, say that Vietnam should take China's WTO entry as a signal for it to make some changes in its economic reform policies. Tran Dinh Lam of the Scientific Research of International Cooperation under the University of Social Sciences and Humanities here says that in addition to efforts to turn out better and more competitive products, Vietnam should learn from China's WTO preparations and improve its owns reform measures.

"Government policies should be strictly implemented at agencies of all levels," he says, "and bank, customs and tax officials must realize their responsibilities to help beef up exports rather than trying to bother business for their own benefits."

(Inter Press Service)